The news of increasing mobile phone exports as well as investment announcements for mobile phone assembly plants and few component manufacturing facilities may make one believe that India seems to have finally caught on to the mobile manufacturing bus. The production linked incentive (PLI) scheme announced by the government is undoubtedly one of the reasons for these desirable outcomes in the industry. Will these be sustained beyond the PLI?

One recent mobile manufacturing and exporting success story often cited has been of Vietnam; where well-known manufacturers were given huge financial and tax incentives to set up global scale facilities and their ecosystems.

For every mobile phone produced in Vietnam these global facilities save sizeable number of dollars, which when multiplied with the millions of mobiles that are produced runs into billions of dollars. There is ample evidence now that in terms of local linkages and upgrading of domestic firms these global facilities have not made much impact; share of domestic inputs has gradually declined and stagnated.

Another reason for the lack of domestic procurement is lack of investment in technological capabilities by local firms as well as lack of skilled labour.

Compared to the Vietnamese, the Chinese attempt at entering the mobile manufacturing was better. China followed multiple paths — linking of domestic market access and technology transfer for global brands; industrial policy to shield and nurture domestic firms; and investment in indigenous standards.

Domestic standards forced global brands to adapt and develop entirely new products for the domestic market, which established an ecosystem and provided an opportunity for local manufacture. By investing to build its own standard China also built-up capability to assimilate and absorb different technologies.

As a result, value addition by Chinese firms that supply components for iPhone manufacture increased over time. Development of the world’s largest cell phone industrial cluster at Shanzhai not only helped expand the domestic market but also saw the global rise of Chinese brands that focused on downstream activities such as branding and marketing to increase their value addition.

One country that built its capability before the multilateral trade context or World Trade Organization kicked in was South Korea. Government funding for over two decades in national R&D projects helped South Korea build human capabilities in electronics and telecommunication.

Domestic market was opened to local firms that used indigenous code division multiple access (CDMA) standards thus protecting them from competition with global brands. A secured home market not only helped local firms build capabilities but also focus on exports.

Numerous studies have shown that it is cheaper to produce a mobile phone in China and Vietnam than in India. This implies that a cost-competitive manufacturing ecosystem based on government incentives or subsidies alone may not be the best possible path for India.

In other words, just relying on phased manufacturing programme (PMP) plus PLI may not be enough; policy needs to create conditions that will not only enable the continuation of assembly operations of the global brands but also an increase in local value addition in post-PLI world.

Establish linkages

First, local electronic firms that have the potential to supply mobile phone parts or components should be encouraged by the government to establish linkages with mobile assembly facilities.

Second, Indian mobile manufacturers, who till very recently focused on importing components in knocked-down format and assembling, need to develop design and other capabilities. This will encourage them to increase their value addition by focusing on branding and marketing.

Chinese and South Korean experiences show us the way. Publicly-funded research in electronics has helped India acquire some capability in electronics. Sadly, India has neglected similar investments in mobile technology, and has not generated any intellectual property in the mobile phone manufacturing space.

Recent investment efforts at developing our own 6G standard is a welcome step in this direction. The South Korean example clearly shows that building capabilities is a long-term project, a path that has larger investment commitment with lesser returns in the short-run.

Finally, and most importantly, we need the government to continuously invest in indigenous standards and technologies, which down the road will help build up India’s capabilities. These capabilities will help the country strengthen its mobile manufacturing ecosystem, which hopefully, by then, PLI and the scheme for promotion of manufacturing of electronic components and semiconductors (SPECS) would have built.

Adoption of the indigenous standards and technologies in our domestic market has the potential to multiply India’s capabilities in the sector.

To conclude, if India wants mobile investments to generate livelihoods on a sustained basis and contribute to the revival of manufacturing in the country, then it is important to build capabilities, not only by investing in mobile technology research, but also by making itself indispensable in the production plans of global brands and component manufacturers.

The writer is Associate Professor, Centre for Development Studies, Thiruvananthapuram

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