The Indian electronics market is growing at a fast pace and is expected to reach 150-175 billion dollars by 2025 from a level of 69.6 billion dollars in 2018, according to a report by the India Cellular and Electronics Association (ICEA), an apex industry body of mobile and electronics industry.
The report “Making India a Global Hub For Handset Manufacturing”, noted that mobile phones account for about 26 billion dollars of the electronics industry in the country and represent the largest market segment. It also noted that the imminent transition to 5G technology and growing popularisation of Internet of Things (IoT), an estimated 25 billion “things” would be connected worldwide through IoT devices by 2025. “This is going to further stimulate the usage of smart phones and the use of the device is going to grow in India from its current level of half a billion to 1.1 billion by 2025,the report said.
MOBILE MANUFACTURING IN INDIA
On the manufacturing story, the report said that mobile manufacturing started with Nokia, Samsung, Motorola, LG and Sony Ericsson in mid 2000s and grew steadily between 2008 and 2012, reaching over 155 million handsets per annum. The report said that the country exported nearly 70 per cent of the mobile phones valued at Rs 12,000 crore in 2012. However, due to a freeze on assets because of a tax dispute, Nokia stopped production in 2014. In 2014, India’s production dipped to just 58 million units, with marginal exports, the ICEA report said. .
The report also mentions that the government brought in several subsidy schemes and an import substitution strategy Phased Manufacturing Programme (PMP) in 2015 to rebuild the mobile phone industry. It said that the PMP created differential duty dispensation for mobile manufacturers in India (Pre-GST), which created a positive arbitrage of 8 to 9 per cent for mobile phone manufacturers.
In 2017, the government also imposed basic custom duty at the rate of ten per cent mobile phones and this created a positive arbitrage of ten per cent for mobile phones manufactured in India. The ICEA said that mobile phone manufacturing activity in the country gained pace coupled with capex subsidy under the Modified Special Incentive Package Scheme(M-SIPS), Merchandise Export Scheme of India (MEIS) and support from state governments.
PRODUCTION
The country has a total of 268 factories – manufacturing mobile phones, chargers, battery packs, wired headsets and other components and generates seven lakh jobs.
In 2017-18, India produced 225 million mobile phones (valued at Rs. 1,32,000 crore) and emerged as the second largest mobile manufacturer globally, pushing Vietnam down to the third place. In 2018-19, India manufactured 290 million mobile phones (valued at Rs.1,81,200 crore)
NATIONAL POLICY ON ELECTRONICS, 2019
The “National Policy on Electronics 2019” (NPE 2019) lays special emphasis on promoting the growth of mobile manufacturing. The ambitious target set for 2025 encompasses producing one billion mobile handsets in India worth 190 billion dollars, of which 400 million phones valued at 80 billion dollars would be sold domestically and 600 million mobile phones worth 110 billion dollars would be exported.
CHALLENGES
1`. Major delays in getting approvals
- Approved financial incentives are not disbursed on time or delayed inordinately
- Poor implementation of policies adversely affects the credibility of the announced schemes
- Erratic and polluted power supply leads to additional costs and disrupts the business cycle
- Inadequate government incentives & support compared to China and Vietnam
- Vietnam and China match/exceed the new reduced corporate income tax rates introduced by the India with effect from October 1, 2019. Therefore, no big advantage.
- Inverted GST structure (GST on components of mobile phones is @ 18% and on mobile phones 12%). As a result, the capital is blocked for a couple of months leading to cash flow issues and cost overrun.
- Rigid and archaic labour laws
- Ease of doing business is low
- Frequent policy changes
- Delay in customs clearance at ports/airports
- Inadequate infrastructure
- Inadequate trade facilitation
- Lack of trained manpower and inadequate reimbursement of training costs 15. High cost of capital
MINIMUM SUPPORT TO ATTRACT GLOBAL INVESTMENT
The report said that an incentive of 8 to 10 per cent of the turnover would be adequate to attract global scale investment that would achieve the production and export objectives of NPE 2019 , and create a vibrant ecosystem for mobile phone production in India.
MOBILE PHONE MANUFACTURING IN THE WORLD
The report points out that the global mobile phone market was about 495 billion dollars in 2018-19 and is projected to touch 648 billion dollars by 2025. It is expected that the global market would consist of 80 per cent smart phones in 2025, and feature phones would be only 20 per cent. India will mirror this trend.
The global mobile handset space is dominated by 5 companies – Samsung, Apple, Huawei, Oppo and Vivo. Together they hold 83% of the market. The manufacturing for these five companies is based out of 2 countries – China (including Hong Kong) and Vietnam.
In turn, these large companies have an ecosystem (Global Value Chain (GVC)) of suppliers who supply components and allied services. It is estimated that the GVCs supply nearly 80-85% of the components to the 5 lead firms. Thus, the GVCs are dependent on these 5 large companies for business and will follow the leading brands so that the integrity and speed of the supply chain remains intact.
