Govt’s tough on Chinese handset makers, but might consider them for a Rs 41,000 cr production scheme

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Updated: Jul 20, 2020 8:54 AM

The border stand-off with China and the government's hard stance towards Chinese companies operating in the domestic space, has put Chinese handset makers like Xiaomi, Oppo, Vivo, Realme in a quandary.

Due to this, the domestic value addition for mobile phones is expected to rise to 35-40% by 2025 from the current level of 2-25%.Due to this, the domestic value addition for mobile phones is expected to rise to 35-40% by 2025 from the current level of 2-25%.

The border stand-off with China and the government’s hard stance towards Chinese companies operating in the domestic space, has put Chinese handset makers like Xiaomi, Oppo, Vivo, Realme, etc, in a quandary with regard to applying for the Rs 41,000-crore production-linked incentive scheme. Government officials, however, told FE that since the scheme is for export market, hurdles would not be put in the path of Chinese players and if they apply their case would be considered on merits.

The scheme, under which the government will offer incentives to selected firms, is basically aimed to attract global electronics firms to set up manufacturing bases in the country for export purposes. So far, Foxconn and Wistron, the global contract manufacturers for Apple, have registered for the scheme, while among the local players, Lava, Dixon Technologies, and Karbonn have done the same. However, none of the Chinese mobile makers present in the country have so far registered for the scheme and are still reported to be weighing their options.

The government started inviting applications under the scheme beginning this month and the last date for applying is month-end. By early August, the names of selected companies will be announced. Initially, five global and five local companies will be selected to avail of the scheme. South Korean major Samsung and Flextronics are also expected to submit their applications shortly.

The reason the government is likely to consider the applications of Chinese firms favourably in case they apply is because the potential of job creation as a result of the PLI scheme is 15 lakh over a five-year period. Around 90% of the jobs would be at the worker level where an average salary level would be around Rs 22,000. The remaining 10% jobs would be of supervisor levels.

For global players, incentives would be for phones above $200 as they have a market outside India. In India, phones above $200 have a market share of only 2%.

Companies will require to meet incremental investments and produce incremental phones over and above FY20 (which has been defined as the base year). Investment and production targets increase over a three-year period and five-year period, respectively.

The PLI scheme will extend an incentive of 4% to 6% on incremental sales over base year of goods manufactured in India and covered under target segments, to eligible companies, for a period of five years subsequent to the base year as defined. Due to this, the domestic value addition for mobile phones is expected to rise to 35-40% by 2025 from the current level of 2-25%.

According to industry estimates, mobile manufacturing companies have the potential to get an incentive of around Rs 7,500 crore if they scale up production to worth about Rs 1.5 lakh crore over the next five years under the PLI scheme.

The production of mobile mobile handsets in 2018-19 reached 29 crore units worth Rs 1.70 lakh crore from 6 crore units worth Rs 19,000 crore in 2014. While the exports of electronics has increased from Rs 38,263 crore in 2014-15 to `61,908 crore in 2018-19, India’s share in global electronics production has reached 3% in 2018 from 1.3% in 2012.

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