Handset manufacturers in India may miss their production-linked incentive targets for the second year in a row as the ongoing Covid-19 pandemic is likely to lop three months of output, executives said.
The companies are already looking at reducing the hiring target for 2021 by a fifth, with production shutting or scaled-down as thousands of migrant workers head to their hometowns and villages after lockdowns and restrictions were imposed in many states.
The incentive scheme was a washout in FY21, its first year, after only one of the 16 companies achieved the stipulated targets due to delays in manufacturing expansion caused by Covid-19. Each global handset company had a production target of Rs 4,000 crore in FY21, which was to be achieved in eight months.
“For FY22, this target was doubled to Rs 8,000 crore, but we will again lose at least three months due to the second wave,” said a senior executive of a handset maker that missed the first year’s targets. “The scheme is almost falling apart without any confidence measures taken by the government.”
The India Cellular Electronics Association, which represents Apple iPhone makers Foxconn and Wistron, and others including Lava, Bhagwati, UTL, and Optiemus, had asked the government to consider FY21 as a zero year for companies to expand capacity and to ease target timelines. The government is yet to take a call, with the information technology ministry said to be against any relaxations.
The incentive scheme for manufacturing handsets locally started in October for five global and five domestic companies and six component makers. The aim was to produce Rs 10.5 lakh crore worth of output and export 60% – about Rs 6.5 lakh crore – over the next five years.
In the first year ended March 2021, Samsung attained its targets while exports hadn’t even started for a majority of the others. In the second year, Foxconn, Wistron, and Lava have cut production by about half during the first two weeks of May.
Executives said that given the uncertainties over the current second wave of infections and the possibility of a third, companies are unlikely to accelerate hiring. Exports, which were the primary agenda of the incentive scheme, will fall behind by almost a year, they said.
“We are facing a two-way challenge… lockdowns and worker health issues are curtailing production capacity in factories. Meanwhile, the domestic market for phones is fast expanding,” one company executive said. “This is raising a question on the need for exports right now.”
Hiring targets have gone haywire. The industry expected to generate employment for 50,000 people by the end of 2021.
“Hiring has paused and any spurt will happen after a few quarters. Given the impact of the second wave, barely 10,000-15,000 can be hired against the targeted numbers,” said Shiv Agrawal, managing director of ABC Consultants.
As per the government’s estimates, the 16 companies were expected to generate more than 200,000 direct employment opportunities between 2020 to 2025 and create additional indirect employment of almost three times the direct employment.
Workforce mobility is proving to be one of the biggest challenges since employees, especially those on contract, don’t want to move to other states.
“Recruitments have stopped since mobility and safety is an issue,” said Rituparna Chakraborty, co-founder of staffing firm TeamLease Services.
Chakraborty added that typically, the labor force is recruited from the northern and eastern states for factories in the south, which has now stopped.