Phased Manufacturing Policy that is Hardly Smart

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.  

• Domestic firms are not able to take advantage of the PLI policy in presence of large foreign firms.