By Rahul Choudhury
Indian mobile phone manufacturing sector has grown at 6.66% in terms of volumes and 6.54% in terms of value between 2007 and 2018. This made India the second largest market in the world with an average monthly sale of 10 million handsets. There were around 75 brands and 3,400 models of mobile handsets in the market in 2019. India produces 11% of all mobile phones produced in the world. The figure was just 3% in 2014. The total number of mobile manufacturing units in India has increased to 268 in 2019 from just two in 2014. The sector employs 0.67 million people. It is estimated that almost 96% of the hand phones to be sold in India will be domestically manufactured by 2020. The United Nations Conference on Trade and Development (UNCTAD) reports India exported mobile phones worth of $1.9 billion in 2018. This sector took only five years to achieve this success. Thus it makes sense to examine the factors that contributed to this success. Let us take stock of some of the major factors.
Recognising the importance of the electronic manufacturing sector, India created a favourable environment adopting several crucial policies. India designed National Policy on Electronics, 2012 to create a globally competitive Electronics System Design and Manufacturing (ESDM) industry serving both the domestic and international markets. Manufacturing mobiles domestically was further made attractive by incentivising this sector under the coverage of the Narendra Modi government’s flagship programme Make in India in 2014.
The sector got another major breakthrough with the introduction of the Phased Manufacturing Programme (PMP) in the Union Budget of 2015-2016. The programme was designed to encourage indigenous production of mobile handsets through offering a differential excise duty for domestic mobile manufacturers. A countervailing duty (CVT) on imports at 12.5% and excise duty at one per cent without input tax credit (or 12.5% with input tax credit) were rolled out. On September 2018, the government notified further exemption of custom duties on 35 items used as intermediary goods in mobile phone production. It was done to reduce the cost of production of mobile phones in the country.
The Union budget, 2018-19 raised the customs duty on mobile phones again from 15% to 20% to encourage domestic manufacturing of mobile phones. The government first announced a duty of 10% in July 2017. Subsequently, it was raised to 15% in December 2017. Again, in Budget 2020-21, finance minister Nirmala Sitharaman proposed to launch another scheme to encourage the manufacture of mobile phones, electronic equipment and semi-conductor packaging in India.
Another fillip to the sector came from the Digital India programme. The government launched the Digital India programme in 2015 to transform the country into a digitally empowered society and a knowledge economy. Digital India selected nine factors as pillars of growth which include expanding electronics manufacturing while achieving zero net imports by 2020. Several initiatives launched under the programme helped boost the domestic demand for the mobile phones. This, in turn, spurred the expansion of the mobile manufacturing industry.
The mobile manufacturing sector is open for 100% foreign direct investment. The industry attracted FDI worth $235 million in 2018 from various parts of the world. However, Chinese firms have been dominating the list of investors. Brands such as Oppo, Vivo, and Xiaomi were the prominent Chinese investors, while Samsung, Apple and Taiwanese contract manufacturer Foxconn were among others.
Indian service providers offer the cheapest mobile data and call rates in the world, according to the department of telecommunication data in 2018. This has reduced the cost of using mobile phones in the country. The higher demand for the mobile handsets encourages entrepreneurs to venture into the sector. India’s young demographic profile has facilitated the sharp increase in demand for mobile phones. More than half of India’s population are below the age of 25, while more than 65% are below 35 years. Around 50% of all Indians have mobile phone connections.
India’s remarkable progress in mobile manufacturing is helped by an attractive policy environment. The government has designed several policies to make the industry a success. However, the dependence on foreign parts and technology is a real challenge. There is an urgent need to address this issue and take necessary steps.
(The author is a New Delhi-based trade economist. Views are personal)