Daily Current Affairs : 22-August-2023
In recent times, a debate has arisen between the former RBI governor and the Minister of State for Electronics regarding the efficacy of a Central government scheme aimed at promoting electronics manufacturing in India. This scheme has been initiated to address the challenges faced by various industries in setting up operations within the country.
The Problem: Hurdles in Domestic Manufacturing
Several obstacles have deterred industries from establishing their manufacturing units in India. The nation’s infrastructure presents limitations, the prevailing labor laws are outdated, and the workforce lacks advanced skills.
Carrot and Stick Approach
To tackle these issues, the government has adopted a two-pronged approach that involves both incentives and disincentives.
The Stick: Import Duties and Disincentives
Import duties have been raised to make importing goods into India more expensive, thereby encouraging companies to explore domestic manufacturing. This approach discourages the influx of foreign goods into the Indian market.
The Carrot: Subsidies and Incentives
In contrast, the government also offers subsidies and incentives to attract businesses towards setting up manufacturing units in India. One significant incentive is the production-linked incentives (PLI) scheme. Under this scheme, companies, whether foreign or domestic, that manufacture goods in India receive financial support from the government. This support is calculated as a percentage of the generated revenue over a period of up to five years.
PLI Scheme and its Impact on Smartphone Manufacturing
The smartphone manufacturing industry has exhibited remarkable interest in the PLI scheme. Notably, the scheme has led to a surge in mobile phone exports, rising from $300 million in FY2018 to a staggering $11 billion in FY23. Additionally, the import of mobile phones has decreased significantly from $3.6 billion in FY2018 to $1.6 billion in FY23.
Critiques of the PLI Scheme
However, there exist valid criticisms against the PLI scheme and its implementation.
Rise in Component Imports
Although the import of fully assembled mobile phones has diminished, there has been a notable increase in the import of mobile phone components, such as display screens, batteries, cameras, and printed circuit boards. This rise in imports contradicts the desired goal of self-sufficiency in manufacturing.
Incomplete Shift of Supply Chain
Despite the enthusiasm for the PLI scheme, many companies have not fully transitioned their supply chain to India. Instead of manufacturing mobile phones comprehensively, these companies are importing components and assembling them within the country. This approach lacks the potential for well-paying jobs and the multiplier effect associated with comprehensive manufacturing.
Advantages of the PLI Scheme
Yet, proponents of the PLI scheme present their own set of arguments in its favor.
Diverse Import Usage
Not all imported components are exclusively used for mobile phone production. They might also be employed in the manufacturing of computer monitors, DSLR cameras, electric vehicles, and other electronic devices.
Selective Application of PLI
It is important to note that not all mobile phone production in India receives support from the PLI scheme. Only approximately 22% of the industry has benefited from these incentives so far.
Potential for Shifting the Supply Chain
While the value addition in Indian mobile production units might be limited currently, it is expected to increase as the broader supply and assembly chain becomes more established within the country.
Important Points:
Government’s Drive to Boost Electronics Manufacturing in India
- Debate between former RBI governor and Minister of State for Electronics on a government scheme.
- Aim to address challenges faced by industries in setting up operations in India.
- Challenges include infrastructure limitations, outdated labor laws, and a lack of skilled workforce.
Carrot and Stick Approach
- Government employs a dual approach involving incentives and disincentives.
- Disincentive: Raising import duties to make foreign imports more expensive.
- Incentive: Offering subsidies and incentives, including the production-linked incentives (PLI) scheme.
PLI Scheme and Smartphone Manufacturing
- Smartphone industry shows significant enthusiasm for the PLI scheme.
- Result: Surge in mobile phone exports and reduction in mobile phone imports.
- Exports grow from $300 million in FY2018 to $11 billion in FY23.
- Imports decrease from $3.6 billion in FY2018 to $1.6 billion in FY23.
Critiques of the PLI Scheme
- Rise in the import of mobile phone components, undermining self-sufficiency.
- Many companies are importing components and assembling in India instead of comprehensive manufacturing.
- Limited potential for creating well-paying jobs and multiplier effects.
Advantages of the PLI Scheme
- Imported components have diverse usage beyond mobile phones.
- Not all mobile phone production in India benefits from the PLI scheme (around 22%).
- Anticipated increase in value addition as the supply chain and assembly ecosystem grows in India.
Why In News
Over the past several months, the former RBI governor and the Minister of State for Electronics have engaged in heated debates regarding the effectiveness of a Central government scheme aimed at bolstering electronics manufacturing. These contentious exchanges have ignited discussions across the nation, highlighting the critical need for transparent evaluations of such initiatives.
MCQs about Energizing Electronics Manufacturing in India
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Which industry has shown the most enthusiasm for the Production-Linked Incentives (PLI) scheme in India?
A. Automotive manufacturing
B. Pharmaceutical production
C. Smartphone manufacturing
D. Textile industry
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What has been the trend in mobile phone imports to India following the implementation of the PLI scheme?
A. Imports have significantly increased
B. Imports have remained constant
C. Imports have decreased
D. Imports have become more diverse
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What is one of the key concerns raised against the PLI scheme?
A. The lack of incentives for foreign companies
B. The comprehensive shift of the supply chain to India
C. The rise in mobile phone component imports
D. The immediate success of the scheme
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