Aruna Sundararajan, Secretary, Ministry of Electronics & IT, Government of India, commended IIM Bangalore and Counterpoint Researchers for working on what she described "a very important and timely" study. Pointing out that there was plenty of work ahead on fronts such as tariff regime, skill development, design knowledge, and creation of strong infrastructure to aid the formation of electronics manufacturing clusters, she said the government would have to work with local industry and several partners to achieve this. "India can potentially be world leader in mobile phone manufacturing ecosystem and this has to be done in a phased manner," she added.
The government is sending close to a 100 design engineers to Taiwan to learn important facets of aligning product design and customer needs from their Taiwanese counterparts.
Ajay Kumar, Additional Secretary, DeITY, said: "I am happy to note that a study has been conducted by IIM Bangalore on Maximizing Local Value Addition in Indian Mobile Phone Manufacturing.' Mobile phone is the single largest electronic item in the basket of electronics goods imported into the country. During the last 18 months, 40 new mobile phone assembly units and 12 new component/accessory manufacturing units have started in the country as part of the Digital India initiative. But mobile phones itself have potential to create electronic manufacturing to the tune of over USD 250-billion industry. Research efforts like the IIMB study are welcome because they contribute to the understanding and sustaining the momentum of growth in the sector."
IIM Bangalore's Professor Chirantan Chatterjee, from the Corporate Strategy and Policy Area, who is the lead author of the study, says, "The government's role in driving the right policy reforms, such as effective duties on key components along with attractive incentive structures, can drive key suppliers to India. In addition, funding engineering institutions and corporations to develop future research (e.g., 5G, automated manufacturing robotics, software, etc.) to build domestic intellectual property (IP) and a strong pool of highly skilled professionals. These will help to make India a R&D hub for this critical industry sector. Technological independence in today's mobile-first economy is critical for an emerging market like India."
"Under the proposed plan, we estimate that more than USD 15 billion worth components will be sourced locally over the period of five years through 2020, realizing not only significant savings in foreign exchange, reducing the level of imports but also assisting the creation of over a million direct and indirect jobs. While India is the second-largest country in consumption of mobile phones globally, this plan can transform India into a global manufacturing export hub, adding further to the country's GDP and balance of trade. Dependence on foreign manufacturing ecosystems will reduce; thus, security and belief in smartphone transactions could potentially increase, and in fact, local manufacturers can leapfrog into becoming innovators and explorers from being purely imitators and exploiters while generating high-end job opportunities at the same time," Prof. Chatterjee added.
Commenting on current state of manufacturing, Counterpoint Research's Senior Analyst and co-author of the study, Tarun Pathak, said, "The Make in India initiative has been successful at driving some indigenization of assembly of mobile phones; the number of mobile phone and related components manufacturing facilities are estimated to exceed 50 units by the end of CY 2016, up from just two units before the Make in India program was announced. We estimate more than 180 million mobile phones will be assembled in India out of the total 267 million phones to be sold in India in 2016."
"However, the overall true localization rate' of manufacturing and sourcing components will be just under 6 percent of the total value of USD 11 billion worth components going into those 267 million phones in CY 2016. Comparatively, other global manufacturing hubs such as China, which has raced ahead to build a robust local manufacturing ecosystem, is seeing localization rate of almost 70 percent. Other leading hubs such as South Korea and Taiwan have crossed 50 percent localization of components whereas the emerging hubs such as Vietnam and Brazil are seeing local value addition of around 30 percent and sub-20 percent level, respectively. Thus, to transform India into a global manufacturing hub, the Make in India program needs to propel to the next stage to maximize the true local value addition," he explained.
Counterpoint Research's Research Director and co-author of the study, Neil Shah, citing the practical approach as highlighted in this study, said, "It is critical for the Make in India program to transform the current manual semi-knocked-down (SKD) level assembly and minimal amount of local component sourcing into a large-scale manufacturing ecosystem over the next few years. Currently, most of the components and sub-components are imported and assembled in SKD format. There is hardly any incentive or effort to meaningfully invest in research, design, development, advanced surface-mount technology (SMT) led printed circuit-board (PCBA) manufacturing, or attempts to attract key component suppliers to form a robust local manufacturing ecosystem."
"With this study, we have identified and analyzed more than 60 components and sub-components going into a phone and the possibilities to drive localization of these components over the next five years. To begin with, this involves greater investment in industrial design, PCBA design, and SMT-level assembly although many of the major silicon components will continue to be sourced from overseas. However, we believe manufacturing of major sub-components of chargers, batteries, and cameras can be accomplished locally. Sourcing and assembling these key high-value components and sub-components from local manufacturers will drive greater value addition. This will drive the true local value addition to more than 30 percent by 2020 and potentially to as much as 50 percent thereafter," he added.
- zThe contribution of domestically manufactured mobile phones has increased from 14 percent in CY 2014 to 67 percent in CY 2016.This is further estimated to contribute 96 percent by CY 2020.
- zHowever, 67 percent of the handsets manufactured in India contribute to just 6 percent of the true local value addition' with most of the OEMs still importing SKD components.
- zOut of 50 facilities from OEMs to ODMs to EMS to component suppliers, involved in manufacturing of mobile phones in India, almost three-fourths are Indian manufacturers, followed by Taiwanese with 10 percent and Chinese 10 percent.
- zUnder the phased local value-addition plan, the components under Phase-I plan (CY 2016–2018) like battery, chargers, cables, housing, packaging and others can be localized completely, thus driving the true local value addition' from current 6 percent to 17 percent in just two years.
- zComponents under Phase-II plan (CY 2018–2020) like display, camera, and their sub components can further increase value addition from 18 to 32 percent by 2020.
- zPhase-III plan will include possibility of localizing the semi-conductor components post 2020 including setting up of semi-conductor fab and thus driving the true local value addition' beyond 33 percent
- zUnder the proposed plan, we estimate that more than USD 15 billion worth components will be sourced locally over the period of five years through 2020, creating over a million direct and indirect jobs in India.