NEW DELHI Last month, Indian Prime Minister Narendra Modi's government announced the grand opening of the world's largest mobile phone plant just outside India's capital. Spread over 35 acres in Noida's Sector 81, Samsung's Rs 4,500-crore facility will be able to produce 120 million smartphones and will create anywhere between 10,000 to 15,000 local jobs.

The announcement has largely been seen as a feather in the government's ‘Make in India' cap, with Commerce Minister Suresh Prabhu boasting about a "big leap forward" to meet India's growing appetite for digital devices. Over a 100 new mobile phone manufacturing plants have been opened in India in the last four years. Meanwhile, in 2017, India overtook the US to become the world's second-largest smartphone market after China.

However, what Prabhu's celebration leaves out is that even today, nearly 50% of the total electronic products sold in India are imported from other countries. The proportion of components that are imported and feed India's total demand for electronics is even higher, at approximately 75%-80%.

In recent years, imports of electronic items have surpassed gold and gold products and are well on the way to beat India's costliest import of all time — oil. More importantly, these increasing imports come despite India's push for local manufacturing and the Modi government's ‘Make-in-India' program.

Even as India's appetite for smartphones and other electronics products has increased, the notable increase in import of electronics items has started to dangerously impact the country's current account deficit. India's electronic items imports have nearly doubled in the last five years. In the fiscal year which ended in March 2014, the electronics trade deficit surpassed gold and gold products for the first time and has only increased over the last four years.

Rising electronics imports and low-level local value addition in India's mobile phone assembly plants all add up to a grim future.

According to Bloomberg, data for the 13 months to May 2018 shows that electronics imports were valued at $57.8 billion, far more than the $35.8 billion worth of gold purchases.

While smartphones don't account for all electronics imports, the failure of Make-in-India to make a dent in India's costly imports is worth examining.

While the number of mobile phone plants set up in India has indeed increased sharply, most of these "manufacturing units" are largely assembly centers, where workers put together sophisticated components that are imported from China and other Southeast Asian countries.

As The Wire has reported, a 2016 study by IIM-Bangalore and Counterpoint Research found that the current contribution of locally sourced (or Made in India) components and sub-components accounted for just 6% of total value of components that go into a phone, a fact that the study calls "economically unfortunate."

Soon to be replaced small-scale businesses selling mobile phone products in Jaipur, India — Photo: Jens Kalaene/DPA/ZUMA

For instance, in 2015, the total value of mobile phones sold in India was around $11.5 billion. Out of that, the "true local value addition generated in local component sourcing and local assembly will be close to $650 million", according to the IIM-Counterpoint study.

Rising electronics imports and low-level local value addition in India's mobile phone assembly plants all add up to a grim future. Another separate report by Deloitte Touche Tohmatsu has noted that India's electronics imports could surpass the country's oil imports by 2020. What, then, could reverse this situation?

A senior Indian executive of a Chinese smartphone company, who declined to be identified, told The Wire: "The problem plaguing electronics hardware production is the same that affects any high-level type of manufacturing in India. All the usual factors apply, including labor law reform and land acquisition problems. Taxation as well. What killed Nokia's plant in Tamil Nadu, which was earlier the world's largest mobile phone plant? It was essentially a service tax controversy,"

Indeed, while foreign direct investment (FDI) inflows are largely seen as a bright spot for India, the amount of money that has come into the electronics category is less than 1% of total inflow. If the Modi government is still set on achieving its ambitious target of becoming "net zero imports" in electronics by 2020, it will need a lot more than the world's largest mobile phone plant.

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