Central Idea

A recent dispute between former RBI governor Raghuram Rajan and Minister of State for Electronics Rajeev Chandrasekhar has brought to light differing opinions on the effectiveness of a Central government initiative aimed at bolstering electronics manufacturing in India.
The disagreement centers around whether the scheme truly promotes self-sufficiency and robust manufacturing or merely generates low-level assembly jobs dependent on imports.

Critical Overview of the PLI Scheme

Government Intentions: Around five years ago, India embarked on a mission to invigorate domestic manufacturing as a cornerstone of economic growth.
Dual Strategy: The government employed a dual strategy of raising import duties (the ‘stick’) and providing incentives (the ‘carrot’) to stimulate manufacturing. The Production-Linked Incentive (PLI) scheme emerged as a key component, offering financial support to companies engaged in production within India.

Focus on Smartphone Manufacturing: Among various sectors, smartphone manufacturing stood out as the frontrunner in embracing the PLI scheme.
Impact of PLI on Smartphone Exports and Imports: The program yielded impressive results, witnessed by a surge in mobile phone exports from $300 million in FY2018 to a remarkable $11 billion in FY23. Furthermore, imports of mobile phones saw a decrease from $3.6 billion in FY2018 to $1.6 billion in FY23.

Rising Component Imports: A central point of contention involves the surge in imports of mobile phone components like display screens, batteries, cameras, and printed circuit boards between FY21 and FY23.
Redefining Manufacturing: The critique challenges the conventional notion of localized manufacturing, asserting that manufacturers primarily assemble imported components.

Diverse Component Uses: The response counters the claim by asserting that imported components, such as screens and batteries, could serve multiple industries beyond mobile phones.
Partial PLI Implementation: The response clarifies that only approximately 22% of mobile production in India is supported by the PLI scheme.
Import Dependency Clarification: It is emphasized that not all imports are utilized for mobile phone production.

Critical Viewpoint: One perspective underscores that even if a percentage of imports are used for production, India’s net exports remain in the red.
Crux of Disagreement: The heart of the disagreement centres on whether the PLI program can generate sustainable job growth and elevate India’s manufacturing prowess to encompass value-added production.

The spirited exchange encapsulates the intricacies of India’s electronics manufacturing scheme.
While both sides present compelling viewpoints, a fundamental question persists: Can the PLI program truly foster enduring job opportunities and propel India towards becoming a hub of value-enriched manufacturing?
As India charts its economic course, striking the right balance between incentivizing domestic production and investing in comprehensive socio-economic advancement remains a formidable challenge.