Owing to pandemic-related challenges and supply chain disruptions amid the global shortage in semiconductors, mobile phone-makers under the production-linked incentive (PLI) scheme are finding it challenging to meet the scheme’s targets for 2022 as well after having already missed the 2021 targets.
“The situation is very stressful at the moment for mobile manufacturers,” SN Rai, owner of Lava International Ltd, told BusinessLine. When asked if Lava is confident of meeting the targets this year, he said: “It looks difficult (and) extremely unlikely primarily because of two to three reasons. One is the pandemic. We don’t have an issue on our domestic demand, but there is an issue on the export demand because of the pandemic, primarily in countries like Africa and other places. And the most critical (factor) is that because of this pandemic the supply chain is badly disrupted. We have a serious shortage of chipsets and semiconductors worldwide. So, these are the multiple reasons due to which we believe that it’s not feasible to achieve the target and take credit of the incentives.”
Lava had made an investment of ₹50 crore to qualify for the PLI scheme. Now, with meeting the targets for the PLI scheme this year looking uncertain, it would accrue losses to this extent, said Rai.
On whether it would be possible for mobile manufacturers to meet the target this year, Pankaj Mohindroo, Chairman, India Cellular & Electronics Association (ICEA), said: “With the way the Covid-19 cases are rising, it can be challenging – we can’t say how the economy will pan out. All PLI applicants have shown their intent of achieving the targets by making required investments, building up additional capacities, and inducting new manpower for ramping the production. However, due to the global pandemic, there can be unforeseen challenges, which can affect production and supply chain which is beyond any one control.”
“We are hopeful that if the present pandemic conditions do not worsen, then manufacturers will be able to achieve their targets,” Mohindroo added.
“This year, I think manufacturers will be more ready to meet the targets. Last year, the lockdowns were happening for the first time ever. Now, most companies are ready to deal with the situation and keep manufacturing running,” said Prachir Singh, Senior Research Analyst, Counterpoint Research.
The primary reasons for mobile manufacturers missing the targets, which were meant to be met by March 31, 2021, were the chip shortages through 2020; factories remaining non-operational for longer than expected amid the pandemic; and the delay in components reaching factories owing to India-China tensions during June and July last year, said Upasana Joshi, Associate Research Manager, Client Devices at IDC India.
“Last year has been very challenging because of the global pandemic and the geopolitical situation. Despite these difficult unprecedented times, most of the global and India players have made the investments as per the commitments, but due to unprecedented circumstances, most of them were not able to achieve the PLI targets,” explained Mohindroo.
The PLI scheme came into being with an aim to create a conducive environment for manufacturing by offering incentives comparable to other countries to attract large investments into the manufacturing sector. In the case of PLI for mobile phones and specific electronic equipment, the incentive structure was 4-6 per cent of the incremental sales over the base year.
With the challenges relating to the pandemic persisting and the semiconductor shortage looming large, what can the government do to help mobile manufacturers? “Easing or relaxation extended till early next FY is one of the ways to balance this out as supply shortages is a global phenomenon and expected to end not before end of 2021,” said Joshi.
According to industry insiders, Samsung is the only company that has met the PLI scheme targets for FY21.
Given this backdrop, a pertinent question would be whether the PLI scheme targets for mobile manufacturers are unrealistic. “When the PLI scheme was designed and finalised in January 2020, the targets which were set were reasonable, but no one was aware that we will be hit by this global pandemic so hard and adding to it we will be facing geo-political challenges which has affected movement of goods, manpower and disrupted supply chain. In normal times, the industry would have achieved these incremental targets,” said Mohindroo.