The domestic mobile manufacturing industry is largely dependent on imports due to the lack of investment in research and development (R&D), which is the key to innovation. Further, the entry of Chinese manufacturers, which have cornered a large share of the market, has made Indian manufacturers even more vulnerable.
The Broadband India Forum recently released a report highlighting the challenges faced by the mobile handset manufacturing industry in India. The report, prepared in partnership with IIM Calcutta and the Thought Arbitrage Research Institute, focuses on improving the state of domestic mobile manufacturing by addressing the issues of low innovation and R&D spending to realise the Make in India vision. The key highlights of the report are as follows….
Handset manufacturing in India
Mobile telephony growth in the country has largely been dependent on the imports of complete mobile handsets or their components. The share of mobile and telecom equipment in the country’s total imports has been rising continuously. It stood at 26.4 per cent in 2016-17, second only to oil imports. Given the huge scope for mobile penetration in the country, the import of mobile and telecom equipment may even surpass oil imports in the future. Therefore, it is crucial to promote telecom equipment manufacturing under the Make in India initiative.
During 2016-17, Chinese equipment accounted for the majority of imports at 69.4 per cent, up from 64.3 per cent in 2012-13. Further, the median import dependency of the seven companies analysed in the report was not less than 85 per cent. The median net fixed assets as a percentage of total assets of these seven companies also suggest that these companies have not invested significantly in establishing manufacturing facilities and assets as most of their requirements are met through imports.
Make in India
Through the Make in India initiative, the government intends to attract a large amount of funds for domestic equipment manufacturing. The telecom sector attracted Rs 68.87 billion of foreign direct investment between October 2014 and September 2015. Under the Make in India initiative, 38 new mobile manufacturing facilities with a capacity of over 20 million units have been set up since September 2015, generating 38,300 jobs.
In addition, the Department of Electronics and Information Technology has formed a Fast Track Task Force (FTTF), which is expected to promote large-scale manufacturing with a target of producing 500 million handsets by 2019. India has already achieved the 100 million handset mark. To this end, the FTTF has prepared a phased manufacturing plan to increase value addition in the country and reduce import dependency through appropriate fiscal and financial incentives.
According to NITI Aayog, the majority of original equipment manufacturers and original design manufacturers in India are still in their infancy, with activity limited to last mile assembly. Domestic manufacturers rely largely on innovations and standards developed by international players and organisations.
Chinese manufacturers in India
According to the International Data Corporation, Chinese vendors accounted for more than half of the smartphone market in the first quarter of 2017. Moreover, an increasing number of Chinese firms have shown interest in manufacturing phones under Make in India. Therefore, with Chinese companies manufacturing in India, Indian companies will have to step up their innovation efforts and spend more on R&D in order to remain competitive.
Research and development
Investment in R&D is an important indicator in assessing the innovation ecosystem of a country. However, R&D spending in India has not been very impressive. The share of R&D expenditure was 0.9 per cent of the GDP in the mid-1980s; in 2016, its share stood at 0.81 per cent. Meanwhile, China, which had similar R&D investment levels in the 1980s, increased its expenditure to 2.08 per cent in 2016.
Domestic mobile manufacturers have not reported any sizeable R&D expenditure in their annual reports. Due to the lack of innovation, Indian mobile organisations have adopted global mobile telecommunications standards set by international bodies such as IEEE, the International Telecommunication Union and the European Telecommunications Standards Institute. However, in May 2016, after intensive stakeholder consultation, the government adopted the National IPR Policy to outline the roadmap for intellectual property in India.
Conclusion
The various government policies and incentives will help create a business-friendly environment in the country. This will allow Indian firms to reduce cash outflows on imports. The mobile telephony sector has immense growth potential owing to a large young population and the growing demand for goods and services in India. Therefore, positive steps must be taken to make India a global mobile manufacturing hub.
