Manufacturing hub ambitions aren't served by statist policies

The circuit board assembly, camera module, touch-screen display and glass cover account for three-fourths of the bill-of-materials cost of a smartphone.

- ANDY MUKHERJEE

Vietnam, the world's second-biggest exporter of handsets after China, gets these and most other components at zero tariffs from free-trade partners. But India, which has few such accords of its own but is still keen to be a manufacturing hub, has customs duties as high as 22%. The result? Making mobile phones in India now comes embedded with a cost disadvantage of 4%, says a study of tariffs by India Cellular & Electronics Association (ICEA).

This extra burden is something India has imposed on assemblers even as it began offering production-linked incentives (PLIS) that promise to pay firms 4-6% of their incremental sales. One way to see it as that India is damaging its competitiveness and then paying firms to set up factories in the country. Another perspective is that handouts are being "supported through indirect revenue from increased indirect taxes from the same sector," as the ICEA report says. The PLI scheme, which kicked in for mobile phones in October 2020, is being touted as a success. Annual production has surged more than 60% to $42 billion. Of this, $11 billion is exported, compared with virtually nothing when Prime Minister Narendra Modi came to power in 2014. From being a net importer, India has become a net exporter of handsets.