How PLI scheme for mobile manufacturing will cut import: ICRA

India’s PLI scheme, which has an outlay of Rs 38,601 crore with the focus on mobile manufacturing, will create greater domestic value addition through catalysing manufacturing of electronic components such as active semiconductor components, passive components, PCB assemblies etc.
Lava smartphone manufacturing
The PLI scheme announced in April 2020 is expected to bring investments from global and domestic mobile manufacturers resulting in healthy growth in mobile phone production at a CAGR of 15-20 percent between FY2022-FY2026 with potential to boost India’s exports.

The Production Linked Incentive (PLI) scheme for large scale electronics manufacturing intends to offer incentives of 4-6 percent on incremental sales over a period of 5 years provided that the shortlisted players meet set thresholds of incremental revenues and investments subsequent to base year.

Under the mobile phone segment, the scheme targets two categories of mobile phone manufacturers – Category 1 of 5 Global OEM players with gross manufacturing revenue (GMR) > Rs. 10,000 crore and category 2 of 5 domestic companies with GMR > Rs. 100 crore.

Under electronics components segment, 10 players with GMR > Rs. 50 crore are proposed to be selected. In the first round, 16 players have been approved – 5 players each under Category-1 and Category -2 of Mobile phones and 6 players under components segment.

India introduced the second round of Production Linked Incentive (PLI) scheme in March 2021 focused only on electronic components such as active semiconductor components, passive components, PCB assemblies etc. The eligibility to apply for incentives under the second-round scheme is contingent on relaxed threshold criteria and incentives of 3-5 percent of incremental sales. The tenor of scheme would be four years, compared to five years for the players shortlisted in the first round.

The second round has expanded the window for up to 30 eligible companies. For the second round of PLI, the eligible companies can choose any 4 years between FY2021 and FY2026 for incentives on incremental sales.

The scheme is expected to push the mobile phone manufacturing at a healthy growth trajectory of 15-20 percent CAGR to reach a value of Rs. 5-5.5 lakh crore by FY2026.

PLI scheme will enable domestic sourcing or localization to improve from current 15-20 percent to 35-40 percent in case of mobile phones aided by economies of scale supporting local manufacturing of certain components starting with chargers, batteries, cameras, displays, PCB design and assembly, Sheetal Sharad, Vice-President and Sector Head, ICRA, said.

There were concerns of some key players towards ability in meeting qualification criteria of incremental sales in FY2021 due to pandemic related disruptions, travel restrictions and acute global chip shortage. Subsequently, India extended the tenor of PLI scheme till FY2026 and the shortlisted players are now allowed to choose any 5 consecutive years between FY2021 and FY2026 to achieve threshold targets for incremental sales though base year remains FY2020. Investments made in FY2021 will continue to be counted as eligible investments.

India has emerged as the second largest manufacturer of mobile handsets in the world in terms of volumes after China, growing at a CAGR of 50 percent during FY2015-21 on a low base. The amount of value addition remained low as almost 80-90 percent of the components continue to be manufactured outside due to weak component manufacturing ecosystem.

Key challenges faced by manufacturers in India include lack of R&D infrastructure, high capital and logistics costs, muted private sector interest and weak backward linkages.