Minister accuses former RBI governor’s questioning PLI scheme’s outcome as misleading

Terming former RBI governor Raghuram Rajan as a repeat offender, Union Minister Rajeev Chandrasekhar on Thursday issued a word-by-word rebuttal of his criticism of the production-linked incentive scheme for mobile phone manufacturing.

Rajan in a social media post questioned the outcome of the PLI scheme for mobile phones as companies continue to import most of the components, and the subsidies are paid on finished phones and not on the value addition done by the mobile phone companies.

He also questioned if subsidies being paid to the companies under the PLI scheme and tax waivers are more than the value addition the mobile phone makers are doing in the country.

The minister of state for electronics and IT said that he had responded to Rajan eight months ago when he tried to discredit the smartphone PLI after which he went and “now he is back with some deceitful numbers and shoddy comparisons”.

The PLI scheme for mobile phones was notified on April 1, 2020. The scheme extends an incentive of 4 to 6 per cent on incremental sales (over the base year) of mobile phones that are manufactured in India to eligible companies, for a period of five years.

The minister said that Rajan has argued that the government’s smartphone PLI scheme is mostly about assembly and not deep manufacturing and that exports are less than imports – and therefore, the value addition is low.

“This conclusion by itself is not rocket science, but that he uses false figures, questionable analysis, and the advice of unidentified “industry experts” to reach this conclusion, shows complete bankruptcy of morals on one hand, and lack of understanding of supply chains, electronics manufacturing, and sadly – even economics – on the other,” Chandrasekhar said.

The minister said that the government is building domestic capacity, reducing dependence on China and increasing value addition.

Rajan in the article said that the mobile phone exports took off from the last quarter of 2021, when there was a commensurate rise in net imports of inputs. The imports of those mobile phone components reached USD 32.4 billion in the financial year 2023.

He said that by combining the number of exports, imports and net exports of final mobile phones, semiconductors, motherboards and other mobile parts, the net imports increased to USD 23.1 billion from USD 12.7 billion, which reflects that the country has become more dependent on imports during the PLI scheme.

Chandrasekhar countered the data used by Rajan. “The article is built on the false premise that all key electronics imports are only for the purposes of mobile production. This is the first lie. Mobile production utilises only part of the total key imports of USD 32.4 billion. Every other conclusion that follows is consequently flawed,” the minister said.

He said imports linked to mobile phone manufacturing are merely USD 22 billion out of the total USD 32.4 billion – only 65 per cent is used for total mobile manufacturing. “The net foreign exchange outflow, therefore, on account of mobile phone manufacturing for FY2023 is USD 10.9 billion, and not USD 23.1 billion, as the article falsely states,” Chandrasekhar said.

The minister noted that Rajan deliberately chose 2018 as a starting point, and not 2014, which is “unbecoming both a gentleman and most certainly, an economist”.

“If he had, he would have to admit that since then, mobile production is up nearly 1,400 per cent and mobile exports are up nearly 4,200 per cent. That certainly would not fit the narrative Rajan wants to build here,” Chandrasekhar said.

The minister said that Rajan picked up only two of the 5 years of the PLI scheme and not all five years as he made another attempt to mislead readers.

“Usually, the older the smartphone model, the higher the value addition – but nowhere near what Rajan hopes to falsely parade. Furthermore, I can assure that we are doing far better than what China was able to do in its first 4-6 years of mobile manufacturing,” Chandrasekhar said.

He countered Rajan’s argument that even the smallest parts of mobile phones are not manufactured in India. “This comment exhibits complete intellectual bankruptcy and lack of understanding of electronics manufacturing in general, and smartphones in particular,” Chandrasekhar said.

The minister said that the PLI scheme has created around 1,20,000 new direct jobs and nearly 2,50,000 new indirect jobs in 24 months.

He also said that the scheme led to an increase in tax collection to about Rs 1,01,397 crore of incremental GST, of which around Rs 42,897 crore have already been collected as of March 31, 2023. “Large companies such as Tatas have now begun not just component manufacturing but will soon be manufacturing iPhones in India. Opportunity for Indian SMEs to join the global supply chain,” the minister said.

He said that the trade deficit will continue to slide down over the next 4-5 years if the current trend follows, wherein India is targeting electronics exports of USD 120 billion. PTI