‘Is India really manufacturing mobile phones?’: Former RBI Governor Raghuram Rajan on PLI scheme
Former Reserve Bank of India (RBI) Governor Raghuram Rajan on Monday raised concerns over India’s rising mobile phone exports. In a research note shared on his social media, Rajan cautioned that the growth is primarily propelled by assembly rather than genuine manufacturing in the country.
He said that the reason behind this could be a deficiency in the Narendra Modi government’s flagship manufacturing offering, the Production Linked Incentive (PLI) Scheme.
“One key deficiency of the scheme is that the subsidy is paid only for finishing the phone in India, not on how much value is added by manufacturing in India,” Rajan said.
The former governor noted that very little apart from assembly is done in India, though manufacturers claim they intend to do more. “So India still imports much of what goes into the mobile phone, and when we correct for that, it is very hard to maintain that net exports have gone up,” the note read.
In early 2020, the Indian government introduced the PLI scheme with an aim to boost local production of mobile phones. The scheme extends eligible companies an incentive ranging from 4 per cent to 6 per cent on the incremental sales (over base year) of goods manufactured in India. This incentive is applicable for five years.
He called for a careful assessment of the PLI scheme, encompassing an evaluation of job creation and value addition in India, emphasising the importance of data-driven decision-making.
“Is the solution then that India should make chips? Mobile phone processors (or chips) are among the more sophisticated of processors, and the processor is among the most sophisticated of mobile phone parts,” he added.
“If after 5 years of tariffs plus PLI in mobile phones, India makes few of even the simplest parts, should we not first try to understand why? Almost surely, the answer lies in the fact that WTO rules do not allow India to tie the PLI subsidy to the value added in India. If so, is the scheme a failure in the making?” Rajan questioned.
The government, which should have better data on value added, should undertake a detailed assessment on how many PLI jobs have been created, the cost to the country per job, and why the PLI scheme does not appear to have worked so far before extending to new sectors.
In FY18, mobile phone imports amounted to about $3,6 billion, while exports stood at $334 million. By FY23, inbound shipments in the category fell to $1.6 billion, while exports rose to $11 billion, resulting in net exports of $9.8 billion. as per an analysis by Rahul Chauhan, Rohit Lamba and Raghuram Rajan.
