New smartphone PLI scheme may be linked to domestic value addition

Existing scheme with incentives only for output ends on March 31

The government is considering a proposal to continue supporting smartphone production in the country through a revamped production-linked incentive (PLI) scheme after the existing one ends on March 31. This time, however, financial incentives will be linked to domestic value-addition targets as a key criterion.

 

Under the current scheme, incentives are linked to companies meeting targets for incremental investment and incremental production value committed in each of the five years. The government also monitors exports, value addition, and direct employment achieved by eligible players, but these were not mandatory for receiving the 4-6 per cent financial incentive under the scheme. 

A senior official in the Ministry of Electronics and Information Technology said, “We will continue to support mobile manufacturing in India, which has seen strong growth in exports. But this time we are looking at linking the incentive to value addition.” The official added that the government has already launched a large electronics component manufacturing scheme to incentivise and help build a local component supply chain. “We expect that in many areas of electronic components, India will not only be self-sufficient but will also become a major exporter,” he said. 

Under the existing five-year PLI scheme, announced in 2020, the government had expected domestic value addition in smartphones manufactured in India to rise from 15-20 per cent at the time of launch to 35-40 per cent by the end of 2025-26.

 

However, based on stakeholder estimates, actual value addition is now expected to reach only 18–20 per cent by FY26.

The PLI scheme was earmarked a budget of ₹34,193 crore over five years. However, based on estimates of disbursements and allocations in the latest Budget, total payouts are likely to be around ₹20,000 crore. The bulk of this is expected to go to Apple vendors Tata Electronics and Foxconn (Hon Hai Technology Group), as well as Samsung and Dixon Technologies (India). 

After the Galwan border skirmishes with China in 2020 and the subsequent imposition of Press Note 3, India effectively shut the door on foreign direct investment from China. This included Chinese component manufacturers, which dominate the global supply chain for mobile phone makers such as Apple Inc, restricting their ability to set up operations independently or through joint ventures.

 

As a result, Apple Inc — one of the chief beneficiaries of the PLI scheme — had to rework its strategy, abandoning plans to bring its existing Chinese component suppliers to India. Instead, it opted to build a supply chain based on domestic and non-Chinese firms, a slow process that clearly affected the government’s value-addition ambitions. Over the past three years, Apple has built a supply chain of around 40 such companies in India.

 

In the interim, the government also realised through discussions with stakeholders that without first achieving economies of scale, component manufacturers would find it unviable to set up operations in India. Ambitious targets such as 40 per cent value addition — achieved by China only after three decades — could not realistically be met within five years, as originally envisaged.

 

The government has since taken steps to push value addition through the electronics component manufacturing scheme (ECMS), which has attracted more than 82 players to set up manufacturing facilities for components as well as machinery required to make those components domestically. Budgetary allocation for the six-year scheme in the latest Budget has been increased by 75 per cent, from ₹22,919 crore to ₹40,000 crore, to deepen manufacturing capacity.

 

Smartphone companies eligible under the PLI scheme have been pressing for an extension of the programme for a few more years to give India time to neutralise its cost disadvantage compared with countries such as Vietnam and, more radically, China. For example, the cost disadvantage faced by Apple vendors in India compared with China is estimated at 10–12 per cent, part of which is offset by the PLI incentive. 

Beyond assembly: The next phase of PLI

• Smartphone incentives are likely to carry on after the current scheme ends
• Financial payouts may hinge on domestic value addition
• Value addition hovers near 20%, well short of the earlier 40% expectation
• ECMS aims to localise components and manufacturing equipment