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Business News/ Industry / Manufacturing/  India’s mobile phone exports driven by assembly, not manufacturing: Raghuram Rajan
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India’s mobile phone exports driven by assembly, not manufacturing: Raghuram Rajan

Rajan in a social media post said that the reason behind this could be a deficiency in the flagship production linked incentive scheme

Former RBI governor Raghuram Rajan.Premium
Former RBI governor Raghuram Rajan.

Former Reserve Bank of India (RBI) Governor Raghuram Rajan on Monday raised concerns about India’s booming mobile phone exports, cautioning that the growth is primarily propelled by assembly rather than genuine manufacturing within the country.

Rajan in a social media post said that the reason behind this could be a deficiency in the flagship Production Linked Incentive Scheme (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 added that very little apart from assembly is done in India, though manufacturers claim they intend to do more in the future. 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 PLI scheme, introduced by the Indian government in early 2020, entices manufacturers - both domestic and foreign-owned - with a subsidy of 6% of a phone’s invoice price for each additional unit produced in India, gradually decreasing to 4% over five years, Rajan argued. 

Rajan called for a meticulous assessment of the PLI scheme, encompassing an evaluation of job creation and value addition in India, emphasizing 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.

India Cellular and Electronics Association (ICEA) said that mobile phones exports from India have doubled to surpass 90,000 crore, about $ 11.12 billion, in the financial year (FY) 2022-23 from 45,000 crore in FY22.

It is critical for the Indian government to address the barriers hindering the manufacturing of more sophisticated components, such as mobile phone processors, which may be limited by WTO rules, Rajan suggested.

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Updated: 29 May 2023, 07:58 PM IST
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