Phased Manufacturing Policy that is Hardly Smart

Newspaper Rainbow Series 15th October 2020 Save

Context: Phased Manufacturing Policy (PMP) has failed to transform India into a major Mobile manufacturing hub. Also the recent Production Linked Incentive (PLI) scheme

Background

The Ministry of Electronics and Information Technology (MeitY) had approved 16 firms in the mobile manufacturing sector for the Production Linked Incentive (PLI) scheme (for large-scale electronics manufacturing, notified on April 1, 2020).
The PLI has come on the back of PMP

Phased Manufacturing Policy

Significance

PMP began in 2016-17 with an aim to improve value addition in the country and was supposed to culminate in 2019-20.
It has incentivised the manufacture of low-value accessories initially and then moved on to the manufacture of higher value components.
It has increased the basic customs duty on the imports of these accessories or components.

Issues/Flaws in PMP

It has increased the value of domestic production without improving the local value addition.
Accelerated import of mobile phones (more than 85% of the inputs were imported) under PMP making the local assembly of mobile phones unattractive

In 2019 India’s imports of mobile phone parts were 25 times the exports.
94% of mobiles produced were sold in the domestic market with remaining being exported.
Comparable UN data for In dia, China, Vietnam, Korea and, Singapore (2017-2019), show that except for India, all countries exported more mobile phone parts than imports.

World Trade Organisation (WTO) non-compliant PMP would affect operations of the mobile investments done under the PMP

Issues with Production Linked Incentive (PLI) scheme

It offers an incentive subject to thresholds of incremental investment and sales of manufactured goods; these thresholds vary for foreign and domestic mobile firms.

Thus, the focus remains on the increasing value of domestic production, and not local value addition.

Chinese firms that dominate the Indian market are not a part of the PLI policy.

Incentives under the PLI policy may not turn out to be a game-changing move.

As the cost of production of a mobile phone (with subsidies and other benefits including PLI) is higher as compared to China, Vietnam.

PLI policy does not strengthen India’s current export competitiveness in mobile phones. As the markets with higher average selling price have lower volumes.