Of the 267 million mobile phones that Indian consumers are slated to buy in 2016, around 180 million will be assembled in India. This has been driven by 50 manufacturing plants that have been set up across 13 states with a capital expenditure of Rs 2,000 crore over the past couple of years. That’s the good news.
However, the total local value-addition at $653 million accounts for just 5.6% of the $11.6 billion total component value in the 267 million devices. In comparison the local value-addition in China is 70%, South Korea and Taiwan (50%) and Vietnam (35%) according to a report brought out jointly by the Indian Institute of Management Bangalore and Counterpoint Researchers.
The report –Maximising local value addition in Indian mobile phone manufacturing – has drawn up a three-stage plan for the industry. To achieve the 30% target, the current state of manufacturing has to move beyond SKD assembly to CKD with greater investment in design and research. The plan is to raise the local value-addition to 32% by 2020.
A large chunk of the bill of materials in a mobile phone is accounted for by the PCB assembly (54.3%), display (16.4%), housing (6%), cameras (7%) and battery (4.7%). In the first phase (2016-’18), it plans to raise the value-addition to 17% by getting local sourcing for battery, chargers, housing, packaging and design. Over the next two years, as display and cameras become part of the domestic ecosystem, that number should be close to 30%.
The proposed plan will lead to a minimum $16 billion worth of components that would be sourced locally over five years. That should lead to increased exports from India. In 2016, only 3 million devices worth $ 400 million will be exported. That’s a steep fall from the 107 million devices exported in 2012 when the Nokia plant was operational. Now, the target is to export 100 million devices worth $ 8 billion in 2020.
While the plan is fine, India needs to push the curve on its strengths in design and software, which are the main thing in any new device. The quicker India can achieve global standards, it can pose a challenge to the Chinese manufacturing machine.