Data and mobile handsets production

Nantoo Banerjee

Official data are like audited corporate financial accounts that hide more than they reveal. Just as some of the latest top level governments statements that claims 80 percent of the mobile handsets are now manufactured in India and the country “was able to save around Rs. three trillion in cell phone import bills during the last four years”. They reveal, at best, only one side of the story. The real story is that the so-called high domestic production led to much higher telecom imports, mostly components, during this period. Records show that India’s net electronic imports increased 12 percent last year. The annualised electronic goods deficit touched some $50 billion for April-December, 2017. That was as much as 30 percent higher on a year-on-year basis. For perspective, the deficit on account of electronic goods import is getting closer to annualised oil deficit. Gold and electronics imports are weighing heavily on India’s trade deficit. Relentlessly rising imports of electronic items, especially mobile phones, at a time when crude oil prices are skyrocketing, pose a high risk to the country’s growing current account deficit (CAD), leading to Rupee depreciation and pressure on economy.
It would appear that foreign consumer electronics manufacturers are simply bluffing about their ‘Make-in-India’ initiatives. Most of their units here are merely assembly plants. Key inputs are all imported. There is very little value addition. The more they make the final products in India, the more they import their components and attachments from home countries. The authorities at the highest level, including the prime minister’s office (PMO), seem to have been misled about the true picture of the domestic mobile phone and other consumer electronics production.  The level of local value addition— a measure of on-ground reduction of a country’s imports — remains well below par when compared to the government’s own Phased Manufacturing Programme (PMP) targets. Going by industry estimates, the extent of value addition in the handset space remains at a mere 10-15 percent. Effectively, this means value-wise 85-90 percent of all components used in handset-making are still imported. Take, for instance, the selfie camera in smartphones. The front cameras are totally imported from countries such as China, Vietnam and Taiwan. Put together, the front and rear camera of a handset reportedly constitute close to eight percent of a handset’s cost.
The India Cellular Association put the size of mobile handsets market at Rs 1.56 trillion in 2017. But, the industry is far from meeting the PMP goals — 26 percent local value addition for smartphones and 37 percent for feature phones by March 2020. Currently, the extent of value addition in feature phones barely stands at 15 per cent. Manufacturers are shifting production of only low-value components like batteries and chargers to India. If the industry followed the PMP announced last year, domestic mobile handset makers would have begun sub-assembling a bunch of sophisticated components like camera modules, printed circuit boards (PCB) and connectors. However, none has expressed interest in making camera modules here. “There is no denying that the number of brands manufacturing in India has grown. But the challenge remains in value addition,” senior industry analyst Faisal Kawoosa, who now leads research and consulting firm TechArc, is quoted as saying. Reports say that only two smartphone majors — Samsung and Xiaomi — assemble PCBs in India. Samsung began in a small way in 2007. More recently, Xiaomi started PCB assembly at its units with Foxconn. Most companies are reported to have no immediate local manufacturing plans for other complex parts like camera modules and display panels which form 17 percent of total value. PCBs, costing over 50 per cent of a handset, are only being assembled here.
With Rupee losing its exchange value almost every week mostly under the CAD pressure, foreign handset-makers in India, contributing substantially to the deficit, are in a ‘catch-22’ situation. The falling rupee is eroding the benefits for some 120-odd cellphone assembly units in India set up by various vendors using imported components. They want the government to work on improving the rupee value to make their India initiative successful. Ironically, the ball is on their court and not on the government’s. They should import less and manufacture more in India to help reduce the CAD and steady the value of Rupee. Following continuously rising import bill, the country’s trade deficit almost doubled in the last financial year. The gap between exports and imports took the annual deficit to a record level at $87.2 billion.  The deficit was at $47.7 billion in the year-ended March 2017.
According to the national president of India Cellular & Electronics Association (ICEA), Pankaj Mohindroo, “most global handset brands and manufacturers are eyeing India, which is the world’s fastest growing smartphone market, having overtaken US last year to become the world’s second largest after China.” In a report, ICEA said: “In 2017-18, over 225 million handsets were assembled/manufactured in India, which was roughly 80 percent of the total market requirement.” However, what it didn't say was how this high level of handsets assembly led to higher levels of imports.
India’s helpless dependency on import of a host of consumer electronics, including LED TVs, lighting system, refrigerators, air conditioners, music systems, laptop computers and, of course, cellphone instruments is unexplainable. It has become a huge drain on the country’s foreign exchange. Unfortunately, neither the government, nor  the local industry is making any serious attempt to see that these items are substantially manufactured in India. The question is: if China, Korea, Taiwan, Malaysia and Thailand can manufacture them, why can’t India? Can India, running huge trade deficits year after year, sustain such luxuries for long? The exchange value of Rupee vis-s-vis US$ is continuously depreciating. This is not benefiting either the importers or domestic consumers. The country is the net loser. (IPA)

Tuesday, 13 November, 2018