Mobile phone makers only assembling in India under PLI scheme: Raghuram Rajan

Raghuram Rajan, the former governor of the Reserve Bank of India (RBI), has said that exports of mobile phones from India are only driven by assembling and not by the manufacturing of key components.

In a research paper, titled 'Has India really become a mobile manufacturing giant?’ Rajan also raised concerns about the government's PLI (production-linked incentive) scheme. "One key deficiency of the scheme is that the subsidy under the PLI scheme is paid only for India and not on how much value is added by manufacturing in India. It turns out that very little apart from the assembly is done in India, though manufacturers claim they intend to do more in the future," the research paper said. The research paper is authored by Rajan, Rahul Chauhan and Rohit Lamba. Chauhan is a research professional at the Fama-Miller Center, Chicago Booth School of Business, whereas Lamba is an assistant professor at Pennsylvania State University.

The government introduced the PLI scheme in 2021, with an outlay of ₹1.97 lakh crore for domestic manufacturing of products across 13 key sectors. Of this, the manufacturing of electronics/technology products has an outlay of ₹38,645 crore for 16 companies. The tenure of the PLI scheme has been extended till 2025-26. According to the Ministry of Electronics & IT (Information Technology), electronics manufacturing is expected to rise to $300 billion by 2025-26.

India Cellular and Electronics Association (ICEA) last month said that mobile phone exports in India surpassed ₹90,000 crore in FY23 from ₹45,000 crore in FY22, mainly driven by the PLI scheme. However, the data shared in the research paper showed that the export of semiconductors, PCBAs (printed circuit board assemblies), displays, cameras and batteries, which are the key components of mobile manufacturing, is negligible. However, there is a sudden spurt in imports after the imposition of tariffs on mobile phones in April 2018, according to the research paper.

As per the data, the combined imports of semiconductors, PCBAs, displays, cameras and batteries amounted to $32.4 billion in FY2023. These are the inputs for the mobile phones, which are produced for the local markets and exports. The combined net exports (which includes exports, imports and net exports of final mobile phones, and mobile parts such as semiconductors and PCBAs), fell from under $12.7 billion in FY17 to $21.3 billion in FY23. "It is entirely possible that we have become more dependent on imports during the PLI scheme," the research paper said.

According to the researchers, 100% of imports of semiconductors, PCBA, displays, li-ion batteries, battery chargers and cameras go into mobile manufacturing. "It's possible that lithium-ion batteries, cameras, and battery chargers have other alternative uses and the rise in their imports might reflect increasing demand for other products such as Li-ion batteries for electric vehicles, DSLR cameras and chargers for other electronic equipment," the researchers said.

However, they argue that after removing these subparts there is no substantial difference in the net exports pattern. "It is hugely negative and has not increased substantially since 2018," the researchers said.

"As India goes further into sub-assemblies, the value added in India will increase. But so long as India does not make the component parts themselves (such as the memory, the processor, the lens, the display and the battery), the manufacturing value added in India will be small. Indeed, a key question is whether the 6% subsidy India pays on the finished mobile phone, coupled with state subsidies, actually outweighs the value added in India. This is something the government should look into before extending the scheme widely," the researchers added.