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View from India: Communications services redefined

India has become the second-largest mobile phone manufacturer in the world, serving both global supply chains and a growing domestic market as Covid-19 upended conventional ways of living and working and drove greater integration of digital technologies.

The pandemic has caused economic damage, yet it has also yielded vital lessons as well as opportunities to forge new paths of growth. “A significant example is that the diversification of global supply chains has generated new opportunities. The electronics systems and design manufacturing (ESDM) segment, of which electronics components and mobile handsets are a part, is one such area,” notes Arun M Kumar, chairman and CEO, KPMG in India in a new report.

From lowering corporate tax to 17 per cent for new manufacturing companies to identifying a total area of 461,589 hectares across the country to attract foreign manufacturing companies, India is taking several measures to gain a competitive advantage in the global market. “The reshaping of global supply chains has brought into sharp focus India’s role in global manufacturing. The reform measures initiated by the government offer enhanced opportunities for India to be positioned as a global manufacturing hub for electronics,” says Surendra Rosha, group general manager and CEO, HSBC India. He adds, “We aim to play a pivotal role in supporting anchor corporates and their suppliers’ ecosystem as well as government bodies like NITI Aayog and relevant ministries to facilitate the transition of global supply chains to India.”

The Government of India has thrown open various policies and measures for global supply chains to establish themselves in the country. Some recent announcements include the imposition of 20 per cent basic customs duty (BCD) on mobile handsets to encourage the replacement of imports with domestic manufacturing implementation of the Phased Manufacturing Programme (PMP) roadmap. This has led to the imposition of BCD in the range of 10-20 per cent on notified subassemblies of mobile handsets. The Production Linked Incentives (PLI) under the National Policy of Electronics to attract global manufacturers and encourage the production of handsets and components domestically is another highlight.

Along with the global market, it’s time to turn inward and cater to the local needs. There is an increased and unique demand in the domestic market this year. India has witnessed an increased demand for domestic production of handsets and components. While the lockdown brought much of the economy to a halt, it has created a new demand for communications services: work-from-home, remote education, home entertainment and isolated citizens reaching out to friends and family. India’s telecom infrastructure is being tapped to meet these new requirements.

Handsets, their sub-assemblies and the larger components manufacturing eco-system have assumed greater significance under the ‘Make in India’ and ‘Digital India’ initiatives. The annual production of mobile phones in India has increased from 60 million units valued at INR189 billion (USD2.58bn) in FY15 to an estimated 320 million units valued at INR 2,250bn (USD30.68bn) in FY20.

Given the rapid pace of mobile production, it’s understandable that mobile manufacturing units are given a push. Ravi Shankar Prasad, Union Minister for Electronics and Information Technology, has indicated that in the past five years, over 200 manufacturing units have been set up. This makes India the second-largest mobile phone manufacturer in the world. It has exported 36 million units of smartphone in FY20 as compared to 17 million units in FY19, which translates into a 111.76 per cent growth.

In terms of value, smartphones worth INR 210 billion (USD2.85bn) were exported with a growth rate of 91 per cent in FY20. “India has the second largest smartphone market globally, with the number of users expected to increase to 829 million by 2022,” Kumar highlighted.

Owing to these and other similar initiatives, India’s electronics production posted a compounded annual growth rate of around 24 per cent during FY15-20. Further, since FY17, domestic electronic production has exceeded electronics imports, which could be perceived as an indicator of the effectiveness of these supportive policies. The Ministry of Electronics and Information Technology (MeitY) implemented the National Policy on Electronics, 2019 to support the manufacturing of electronic products in India. The policy envisages a turnover of USD400bn in electronic manufacturing in India by 2025 and the production of one billion mobile handsets valued at USD190bn by 2025, of which 600 million handsets valued at USD100bn could be exported.

The country is the second fastest digital adopter among 17 major digital economies. India is one of the world’s fastest growing markets for digital consumers with more than 1.18 billion connections and 743 million internet subscribers. It is the second largest telecommunications market in the world, as of March 2020.

These insights have been documented in ‘Powering up – Electronics manufacturing in India,’ a December 2020 Report brought out by KPMG in India in association with HSBC India.

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