Mobile handset manufacturing and challenges in India

telecom manufacturingBroadband India Forum (BIF) has released a report highlighting the challenges faced by the mobile handset manufacturing sector in the country.

The report prepared in partnership with IIM–Calcutta and Thought Arbitrage Research Institute (TARI) focuses on improving the state of the domestic mobile industry by addressing issues of low innovation, R&D spending and enhancing the success of Make-in-India.

India’s electronics and IT ministry said that India has achieved 27 percent increase in investment in electronics manufacturing. Investment in electronics manufacturing reached INR 1.57 lakh crore in 2017 against INR 1.43 lakh crore in 2016 and INR 11,000 crore in 2014. The growth in the production of mobile phones was almost 60 percent to 17.5 crore units against 11 crore units in 2016.

First, mobile telephony growth in India is largely dependent upon imports. The share of mobile and other telecommunications equipment in the country’s total import basket is continually increasing and currently stands at 26.4 percent. The share of Chinese products has increased from 64.3 percent in 2012-13 to 69.4 percent in 2016-17.

Second, manufacturing value added (MVA) by Indian manufacturers is relatively small mainly due to high dependence on imported components. Considering increase in mobile penetration from current levels and large dependency on imports, the role of mobile and telecommunications equipment is crucial under the Government of India’s Make in India initiative.

Third, mobile technology innovators, who are also the Standard-Essential Patent (SEP) owners, have held the view that they do not make sufficient economic gains for their investments in research and development (R&D).

Mobile phone manufacturing companies state that the royalty claims on the use of licensed technologies is too high.

The royalty yield of the 10 selected companies is in the range of 3.35 percent to 2.64 percent and shows a declining trend between years 2013 and 2016 suggesting that the royalty revenue of license holders has remained stagnant but smartphone sales in volume and value have increased over the years.

R&D expenditure of the mobile license holders is in the range of 10.3 percent and 35.8 percent of their total revenue with a median of 21.9 percent, which is among the highest when compared with other industries.

Mobile phones with a manufacturing value added (MVA) of 18.3 percent and corresponding value addition multiplier effect of 5.89 implies that the value addition to the economy due to increase in demand for mobiles will be significant.

Hence, mobile phones require greater attention under Make in India to increase the contribution of the manufacturing sector to the GDP.

“With an increasing number of foreign manufacturers, manufacturing in India, Indian companies must be willing to step up their innovation and R&D efforts to remain competitive in their own market. India’s domestic mobile handset manufacturers remain largely reliant upon the innovations and standards set up by the international players and organizations,” said TV Ramachandran, president, Broadband India Forum.

Kaushik Dutta, founding co-director of TARI said India needs a business-ready ecosystem that also recognizes the IPs of international patent holders prior to establishing an innovations framework and in contributing to the global standardisation process.