The Ministry of Electronics and Information Technology (MeitY) initiated the Phased Manufacturing Programme (PMP) in 2015 with the objective of strengthening the domestic manufacture of mobile handsets. The programme has met with a reasonable amount of success so far.
By Baishakhi Dutta
The focus of MeitY’s Phased Manufacturing Programme is to ensure that there are appropriate fiscal incentives to promote the indigenous manufacture of cellular mobile handsets as well as the various sub-assemblies that go into them.
The industry scenario
Industry leaders point out that, in India, no one is focusing on complete product development. Companies either develop only the hardware of the product or only the software, but rarely the entire product. However, Ajay Prakash Sawhney, secretary, MeitY, feels India has as much potential as other countries and will soon be on par with competing nations if the industry shifts its focus to innovating for the under-served market.
Explaining the benefit of the PMP, Sawhney says, “This initiative will help in building a robust indigenous mobile manufacturing ecosystem in India and will incentivise large-scale manufacturing. It will give a huge impetus to local mobile manufacturing and will help us meet a significant portion of the global handset requirements too.”
Pankaj Mohindroo, national president, Indian Cellular Association (ICA), believes that India is on the road to creating a robust enterprise ecosystem and developing a world-scale industry with an extremely rich global footprint. He says, “We will create deep competencies, both cost- and skill-wise, which will generate a globally benchmarked workforce and complementary industries intertwined with the global mobile phone and components ecosystem.”
The rollout plan
At present, India imports basic chipsets for mobile handsets. However, there has been a spurt in the production of other mobile components. Over the next 10-12 years, the PMP aims to make India a manufacturing hub for mobile components.
The PMP is being rolled out in a phased manner. In the current financial year (2017-18), the PMP covers the domestic production of mechanical components, die cut parts, microphones and receivers, key pads and USB cables. In 2018-19, it will cover printed circuit board assemblies, camera modules and connectors. In 2019-20, the PMP will provide incentives for local production of display assemblies, touch panels/cover glass assemblies and vibrator motors or ringers.
Sunil Vachani, executive chairman, Dixon Technologies says, “More than 60-70 manufacturing units have come up, which I feel is a big achievement. But we are doing the most basic level of manufacturing at present. We need to focus more on SMT lines, which is not unachievable. There is enough domain knowledge within the country for us to put up the SMT lines and make India a manufacturing hub for mobile phones.” He feels the first step towards creating a components ecosystem in the country is to source components locally.
On the other hand, Ramana Prasad Alam, MD, Amaraja Electronics Ltd, is of the opinion that, “In the electronics domain, the EMS industry makes the least profits.” He states that the ecosystem needs to be developed in an organic manner, starting with EMS and then going back to the PCBs and the components. “The EMS industry should be at the stage in which players start investing year after year in newer capabilities while increasing their manufacturing capacity. EMS companies should be looked upon as a building block in the Indian electronics industry,” says Alam.
The first phase of the PMP was initiated in 2015, when local mobile phone assemblies were made cheaper than imports by imposing a countervailing duty; this duty was extended to chargers, batteries and headsets in 2016. In the second phase, the government has identified 12 parts used in mobile phones that must be assembled locally, in phases, by 2019-20.
“We faced a lot of challenges initially. However, now 80-90 per cent of manufacturing is happening locally. After this, the next step is for us to use SMT lines, which I personally feel will be a big challenge. As soon as our industry establishes its own local supply chain, we will become more cost-efficient and have much more control over our products as we start assembly here in India,” says Sanjeev Agarwal, CMO, Lava International.
Mobile manufacturing in India is growing. According to a study conducted by IIM Bangalore (IIM-B) and Counterpoint Research in 2016, there was a sharp increase in the total number of mobile manufacturing facilities in the country, which reached almost 50, with a combined production output of 180 million units in 2016. The domestic value addition (which includes local sourcing, assembly, etc) is set to increase from 6 per cent to more than 30 per cent over the next few years.
“Investments are a challenge since the cost of SMT lines is very high. So, after discussions with various equipment manufacturers, we plan to join hands and go forward using a co-investment model. Initially, the investments will not be for profit-making but to lay the foundation for the local electronics industry. Government policies like MSIPS will help us to make these investments, but the government must act faster on these,” says Agarwal.
At present, the major challenge is supply chain management. India needs to start sourcing its own components for a sustainable future. The Indian SMT scenario needs to improve and the industry players need to work together in order to achieve the desired competencies within the next two to three years.
The IIM-B and Counterpoint joint study estimates that more than US$ 15 billion worth of components will be sourced locally over a period of five years through 2020. This will result not only in significant savings in foreign exchange and in creating over a million jobs, but will also boost the entire ESDM ecosystem.
MeitY has announced that the PMP is likely to provide an impetus to related fields like the sub-assembly and components industries. Dr Ajay Kumar, additional secretary, MeitY, believes that on account of the PMP, India is expected to produce around 520 million phones by 2019-20. This would require about 170 SMT lines. By 2025, it is expected that India will produce 1.2 billion phones. This will require about 415 SMT lines. There will be a need for many more SMT lines among the component players also, like those making chargers and battery packs locally.
Industry members indicate that the mobile manufacturing sector suffers from a host of problems, including stringent labour laws, poor infrastructure and an inefficient supply chain. These factors are hindering the growth of this sector, and leading to sub-optimal profit levels for local manufacturers. Favourable government intervention may help remove some of these hindrances. The industry also needs to focus on research and development and intellectual property (IP) creation in sync with emerging technology trends, to help manufacturers become innovators and explorers rather than imitators and assemblers.