With a host of mobile phone manufacturers setting up base in India, about 20 million phones will be produced in the country by the end of the year, which will be a third of the handsets sold in the country. By 2009, a tenth of the global production of handsets will take place in India.
Pankaj Mohindroo, national president of the Indian Cellular Association, the apex body for mobile handset manufacturers, speaks to Surajeet Das Gupta on India's potential as the emerging new manufacturing centre for mobile phones. Excerpts:
Virtually every global phone manufacturer has either set up or is setting up manufacturing facilities here. Is India becoming a major handset manufacturing hub?
When we set up a manufacturing advisory committee in 2004, we assured the government that once the illegal imports stopped (and they did, once import duties came down to 5 per cent levels), handset companies would start manufacturing. Most thought this could never happen unless the market was protected, and I'm happy to say they were wrong.
Our target was that by 2009, 3 per cent of world production of handsets would happen in India - we now think this will be 10 per cent. By 2009, 1,300 million phones would be manufactured globally and as much as 120-130 million will be produced in India. Simultaneously, the after-market accessories business and component manufacturing business will also grow.
That's ambitious. What is the situation on the ground today?
We expect about 20 million mobile phones to be manufactured here by the end of the year, which is a third of the total market. Cumulatively, in the next three to four years, we will see an investment of over $1 billion dollars in this sector and it will generate large employment.
At the moment, the total investment in this sector is around $70-100 million, and companies are essentially undertaking box-building and printed circuit board assembly in their factories. But they have already created a capacity to manufacture 3 to 3.5 million handsets a month.
This year, we expect the Indian mobile handest market to be around 55 to 60 million, a growth of over 80 per cent compared to last year.
There are different models and stages of manufacturing a handset. Where does India stand? Big brands are setting up manufacturing facilities here, but what about component companies, the original design manufacturers, amongst others?
Yes, there are various stages of manufacturing phones. You can start with companies that design the electronic circutory or the chip, and there are the component and tooling companies.
Then you have ODMs, original equipment manufacturers and outsourced electronic manufacturing services companies (such as Flextronics), which manufacture for others on a contract basis.
That is a trillion-dollar industry and China is the major centre.
In India, we already have Nokia, Samsung, LG and Elcoteq, which have set up manufacturing facilities. Motorola has also announced its intent. We are also hopeful that some ODMs and component manufacturers will come in the next one to three years.
The market for after-market accessories is over $8-9 billion and includes things such as battery chargers, batteries, hands-free kits, covers, connectivity cable, memory cards, car kits and even belt clips. China controls 70 per cent of this market and employs over four million people. There is a large scope for India in this space.
How will India get into this market?
What we have to do is to replicate what we did in mobile handset manufacturing. At the moment, the legal market for these products is only Rs 100 crore (Rs 1 billion) but the total market is Rs 2,000 crore (Rs 20 billion), which is fed by grey market imports from China.
We need a three-pronged attack. First, as in the mobile handset market, there is a need to rationalise duty structures. For instance, a battery pack costs Rs 150 in the grey market but double that in the legal market.
That's because you pay 12.5 per cent basic duty plus another 16.32 per cent as CVD, and a sales tax of 4 per cent. Second, we need to create at least two to three industrial parks and promote 700-1,000 entrepreneurs and provide them with raw material and sourcing support.
So, if Vodafone wants to buy $50 million of products, they can go to any one of these parks instead of getting it from various manufacturers in China.
Do we also need to have a chip-making facility for manufacturing handsets?
Chips are an essential part of the handset, but it is up in the value chain of manufacturing.
The Yankee report created a huge controversy by saying Indian operators were overstating their subscriber numbers. Their points was that the number of handest sold should always be much more than the number of subscribers as 25 per cent of them change their handests.
Yankee is a respected research group, but so are Indian mobile phone firms. They are large companies that are respected, and that is why we have 10 per cent penetration in telephony. Why should we suspect their numbers?
The number of phones cannot directly reflect the real subscriber numbers. If you take 2001, only half a million phones were legally brought into the country and the market was mainly grey.
It was only after 2003 that things changed. In 2005, we had 30 million handset shipments. There is a also a substantial parallel market (not grey) consisting of legal importers who are not authorised (this is 4 to 5 million a year) and there is a grey market, too, of which we don't know the size.Powered by 
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