The Production Linked Incentive (PLI) scheme will drive the manufacturing of mobile phones at a compound annual growth rate (CAGR) of 15-20% to Rs 5-5.5 lakh crore (by value) by FY2026, according to rating agency ICRA.
“As per estimates, PLI scheme will enable domestic sourcing or localization to improve from current 15-20% to 35-40% in case of mobile phones aided by economies of scale supporting local manufacturing of certain components starting with chargers, batteries, cameras, displays, PCB design, and assembly,” said Sheetal Sharad, Vice-President and Sector Head, ICRA, in a statement Tuesday.
The investments in the manufacturing infrastructure are also expected to generate considerable employment opportunities, Sharad said.
The government had launched the PLI scheme for large-scale electronics manufacturing in April 2020 primarily targeting mobile phones and specified electronic components as product categories with a cumulative outlay of Rs. 38,601 crore. The scheme intends to offer incentives of 4-6% on incremental sales over a period of 5 years provided that the shortlisted players meet set thresholds of incremental revenues and investments subsequent to the base year.
Following this, the government launched the second round of the PLI scheme in March 2021 focusing only on electronic components such as active semiconductor components, passive components, PCB assemblies, etc. The eligibility to apply for incentives under the second-round scheme is contingent on relaxed threshold criteria and incentives of 3-5% of incremental sales.
For the second round of the scheme, the eligible companies can choose any 4 years between FY2021 and FY2026 for incentives on incremental sales.
ICRA estimates that healthy participation in the second round of the scheme would help improve “India’s electronics component ecosystem reducing import dependence and improving value addition”.
“The new Covid-19 waves in China and Russia-Ukraine conflict is expected to exacerbate the component shortage in the near term. Apart from supply chain challenges, higher customs duty on imported components could impact the cost competitiveness of mobile phone manufacturers from an exports perspective,” Sharad cautioned.
She said that from a demand perspective, the 5G rollout in 2022 and easy financing would create replacement demand for mobile phones while the government, through its skill development programs and support policies, would support capacity building in the medium-term.