NEW DELHI: Smartphone PLI (production-linked incentive), the most successful of all 14 such schemes, may be extended by a couple of years beyond 2025-26 when it officially ends.
The five-year PLI scheme, which started in 2020 ends in 2026, and each company has the flexibility to choose any five consecutive years. While Apple has chosen the period of 2021-2026, for Samsung it’s between 2020-2025.
Officials sources said that while it’s not a good practice for any industry to be perpetually supported by subsidy, ending the same abruptly could also be counter-productive.
Therefore, the thinking in the government is that a component scheme should replace the PLI in the sector. While the current smartphone PLI is for the finished products, the component-incentive scheme will be for inputs, which today are largely imported, adding to to the current account deficit.
“However, manufacturers would need time to scale up in components and in the interim would continue to need support for finished products. That’s the reason that the PLI scheme may be extended by a couple of years. Once the scaling up in components happen, the finished product subsidy would end,” officials said.
The smartphone PLI has seen domestic production of phones rising to Rs 4.1 trillion in FY24 from Rs 2.14 trillion in FY20, the year before the scheme was announced. Smartphones exports from the country rose to Rs 1.2 trillion in FY24, compared to Rs 27,225 crore in FY20.
Apple and Samsung are the biggest beneficiaries of the scheme. Apple assembles iPhones in the country via contract manufacturers – Foxconn, Pegatron, and Wistron. Besides global companies, local contract manufacturer Dixon has also been benefiting from the scheme. The company manufactures smartphones and feature phones for companies such as Xiaomi, Samsung, Motorola, Jio, itel, among others, at its four plants in Noida. Dixon is also expected to soon start manufacturing Google Pixel phones in the country.
The component scheme will be worked out once the new government assumes office next month. The finalisation of the details and announcement would take a couple of months, after which the industry would need two-three years to take-off. “The idea behind incentive schemes, be it for finished products or components is to reduce cost for the industry, which relocates from China, Taiwan, etc,” officials said.
For components, the government is targeting to increase the domestic value addition to around 35-40% initially taking it finally around 50%. Currently, domestic value addition stands at 15-18%.
“Once an industry becomes a part of a global value chain, domestic value addition can’t go beyond a point,” officials said.
Broadly the component scheme will be on the lines of plug and play model and aim at domestic production of printed circuit boards, electronic components such as resistors, diodes, camera modules, lens, metallics, etc.
Under plug and play model, the government will acquire land and build factories. Global companies manufacturing such products can then install machinery and use the facilities to roll out the identified items.
Officials said the investments made by the government in acquiring land and building factories will automatically get recouped through goods and services taxes. Further, the import bill on electronic components will come down, thereby reducing the current account deficit.
Countries like China, Thailand and Vietnam, which are competing economies for India as far as electronics trade is concerned and where most of the component manufacturers are located, have trade surplus.
The domestic electronics manufacturing was at $102 billion in FY23 and has risen to around $115 billion in FY24. The government has set a target of achieving $300 billion by 2025-26. In FY24, India’s electronics goods exports jumped 23.6% to $29.12 billion, even as the country’s total exports contracted by 3%.
Source: The Financial Express