PLI sops unlikely for outsourced smartphone manufacturing

The government may exclude outsourced smartphone manufacturing contracts from production-linked incentive (PLI) benefits, officials said, citing that such arrangements do not contribute to incremental production or job creation—the scheme’s primary objectives. Incentives under PLI are tied to growth beyond existing capacity, not to internal reshuffling of manufacturing orders between companies.

Final clarity would come after inter-departmental discussion. Industry executives acknowledged that the PLI scheme lacks explicit guidelines on outsourced production, which has led to ambiguity.

If the restriction is enforced, domestic manufacturers such as Bhagwati Products (Micromax), and Karbonn Mobiles, who have recently won large outsourcing orders from Chinese brands like Xiaomi, Oppo, and Vivo—could be affected. While these Chinese players manufacture in India, they themselves are not PLI beneficiaries. The shift to Indian contract manufacturers created a grey area in eligibility for incentives.

Among the beneficiaries so far, Dixon Technologies is expected to remain unaffected since it meets PLI targets independently through new production lines for Motorola and Google smartphones. Bhagwati Products and Karbonn Mobiles, however, have rapidly expanded their capacity over the past year, mainly through Chinese ODM partnerships, and could lose benefits if outsourcing-linked production is excluded.

Launched in FY21 and valid till FY26, the smartphone PLI scheme provides a 4–6% incentive on incremental production. It has been a key driver in helping India become the world’s second-largest handset manufacturer.

In a related global development, LG Electronics reorganised its ailing mobile division in December 2020 to boost outsourcing of budget and mid-tier smartphones via original design manufacturers (ODMs) to cut costs and compete with Chinese rivals. The move involved reducing in-house roles and focusing internal R&D on premium models while outsourcing lower-end lines.

CT Bureau