Making Make in India

Context:  India has rightly accorded a high priority to electronics hardware manufacturing as an important pillar for ‘Make in India’ and ‘Digital India’. 

Issues in Electronic Manufacturing Sector

• Concentrated to low-value addition assembly units: rather than comprehensive manufacturing and exporting units.

• E.g. Mobile phone manufacturing is dominated by assembling, testing, and packaging rather than designing or hardware and software development.
• This provides the least value and sustainability to the ecosystem.

• Import substitution of ready-to-sell units: of mobile phones with their components.

• It’s difficult to build a manufacturing nucleus around R&D: of semiconductors and compete with MNCs overnight, as opposed to assembly and packaging.

Government Initiatives/Schemes

• Phased Manufacturing Programme (PMP): gradually raised import tariffs and resulted in increased manufacturing of telecom hardware in India.
• Production-Linked Incentive (PLI) scheme: for large-scale electronics manufacturing, with eligibility contingent to incremental investment and incremental sales of manufactured goods.
• PLI provides incentives for mobile phones and specified electronic components.

Theoretical Fallacies with current policy

• Counterproductive Incentives:

• Benefiting mobile manufacturers: could simply continue importing components and remain restricted to assembly and packaging activity.
• Benefiting component assemblers: could continue with low-end assembly of chargers and components for surface mounting.

• PLI benefits accessibility to few units might adversely affect the competitiveness of the remaining units.

• Grant amount under schemes is often less than their assembly fee.
• Consolidation itself could lead to the ‘targeted incremental sales’ by shifting production. 

• Given the supply constraints during Covid-19 the baseline for incremental sales itself may be grossly subdued.

• Unnecessary Criteria for PLI grant: The cost of royalty on patents, design fee, packaging costs, and logistics costs may meet the criteria thereby necessitating no additional capital requirement.

Conclusion: 

• Incentivize global developers of key components and manufacturers to build a high-value-add nucleus for India’s device manufacturing ecosystem.
• Low-value-added activities will automatically be fuelled and sustained in such an environment.
• PLI rewards must include measurements like import substitution, export enhancement, employment creation, and security risk mitigation instead.