Nothing to Spin Off CMF as Majority-Indian Company as ₹62,500 Crore Mobile Scheme Rewards Indian Brands

The news

New Delhi. Carl Pei, co-founder and CEO of London-based smartphone maker Nothing, said in an open letter and a post on X that the company will spin off its CMF sub-brand into a standalone company incorporated and headquartered in India, majority owned by Indian shareholders, with its own team and research and development (R&D) in the country, The Indian Express and The Economic Times reported on Monday, September 21. A spin-off is when a company separates a unit into an independent company. Nothing will keep a stake and remain a shareholder and partner, supplying engineering expertise, its operating system, supplier relationships and global brand infrastructure. “CMF stops being a product line inside a London-based company and becomes an independent entity, incorporated in India, controlled in India and majority owned by Indian shareholders,” Mr. Pei said, according to ET. CMF began as Nothing’s budget sub-brand and drove the company’s growth in India in 2025, after the sub-brand moved to India and set up a $100 million joint venture with the contract manufacturer Optiemus Electronics. The new company aims to make and sell 100 million phones a year. The announcement follows the government’s notification of a new ₹62,500 crore Mobile Phone Manufacturing Scheme, which, The Indian Express reports, has two segments — one for mobile phone manufacturing and one for Indian brands. In the Indian-brand segment, eligible firms can get an incentive of 5% on eligible sales, an additional 3% linked to Indian design and R&D, and up to 1.5% more for domestic sourcing of key components and sub-assemblies. To qualify as an Indian brand, a company must be incorporated in India, hold its intellectual property (IP) and trademark in India, have management control with Indian citizens, have over 51% of its shares held by Indian citizens, and have in-house R&D and design capability in India. India manufactures almost all mobile phones sold domestically and is the world’s second-largest maker by volume, IE notes, but has few successful domestic brands. Mr. Pei said 99% of phones sold in India are made in India, but “most of the underlying IP still sits offshore”. He listed industrial design, camera systems, operating systems, antennas and co-engineering of displays, chipsets and camera modules as “real R&D”. The syllabus link is GS3 on industrial policy and the effects of liberalisation on industry.

Static syllabus linkage

1. Production Linked Incentives pay for output, not for setting up. A Production Linked Incentive (PLI) scheme pays a firm a percentage of its incremental sales of goods made in India above a base year, instead of subsidising investment upfront. The first PLI scheme, for large-scale electronics manufacturing including mobile phones, was notified in April 2020 and was later extended to 14 sectors. Because the incentive follows sales, the government pays only when production happens. Its known limitation is that it rewards assembly volume rather than domestic value addition unless the conditions say otherwise.
2. Value addition, not assembly, is the measure of industrial depth. Domestic value addition is the share of a product’s value created within the country — through design, components, software and branding — as opposed to imported parts assembled locally. The ‘smile curve’ in industrial economics shows that the highest value lies at the two ends of production, R&D and design at one end and brand and marketing at the other, while assembly in the middle earns the least. A country can make every phone it sells and still capture a small share of the value if the IP and the brand belong to others.
3. Intellectual property ownership is what the ‘Indian brand’ test targets. Intellectual property includes patents, trademarks, industrial designs and copyright. In India these are governed by the Patents Act, 1970, the Trade Marks Act, 1999, the Designs Act, 2000 and the Copyright Act, 1957, and administered by the Office of the Controller General of Patents, Designs and Trade Marks. Where IP is registered and owned determines where licensing income and much of the profit is booked, which is why a scheme that requires IP and trademarks to be held in India goes to the heart of value capture.
4. Foreign ownership rules shape who counts as Indian. Foreign direct investment in India is regulated under the Foreign Exchange Management Act, 1999 and the government’s consolidated FDI policy. Press Note 3 of 2020 requires prior government approval for any investment from an entity of a country that shares a land border with India. A requirement that over 51% of shares be held by Indian citizens, with management control in Indian hands, therefore defines an Indian brand by ownership and control, not by the location of the factory.

Why UPSC loves this

1. GS3 asks about industrial policy and Make in India. Mains questions have asked about the effectiveness of PLI schemes and whether India can move from assembly to manufacturing depth. A scheme that rewards Indian IP and design is a clear new development for such answers.
2. Entrepreneurship as a factor of production is under-examined. Most answers treat industrial policy as a question of capital and labour. This story is about entrepreneurship and IP ownership — who takes risk, who owns the brand — and allows a more sophisticated answer on value capture.
3. Prelims tests scheme design and IP law. UPSC has asked about PLI sectors, the laws governing IP and the concept of value addition. The criteria for an Indian brand under this scheme are suitable for statement-based questions.

Analysis

1. The scheme shifts the question from where phones are made to who owns them. The earlier PLI succeeded in its own terms: India assembles almost every phone it sells and is the second-largest maker by volume. But the profit on design, software and brand still went abroad, so the incentive paid largely for assembly. The new Indian-brand segment, with an extra 3% for Indian design and R&D, pays for exactly what the smile curve says is valuable. It is industrial policy moving from the labour factor to the entrepreneurship factor.
2. Nothing’s move shows the scheme is working, and the risk of it being gamed. Within days of notification, a foreign brand has restructured its budget line into a majority-Indian company. That is the intended response. But the partnership model — Nothing supplying engineering, the operating system and supply chains — means much of the core IP could still sit with the parent. If the Indian entity licenses technology from abroad, it could qualify on paper while value continues to flow out as royalties. Verification of where IP is actually created will decide whether this is transformation or relabelling.
3. Indian ownership rules may pull Chinese brands into the same restructuring. The largest phone brands in India are foreign, many of them Chinese, and Press Note 3 already limits Chinese investment. A 51% Indian shareholding requirement offers a path for such brands to form Indian-controlled entities with Indian partners. This could strengthen domestic firms, but it could also create nominal Indian fronts. Strict tests of management control and IP location are essential, and the counter-view is that too strict a test will simply exclude the firms with the technology India needs.
4. Scale is the argument for incentives, but also the trap. Mr. Pei’s case for India is scale: selling 100 million phones a year would give CMF the power to shape supply chains and pull component makers into India. That is how Chinese brands built their ecosystems. But global smartphone markets are mature and dominated by a few large brands, so a new brand may struggle to reach such volumes. Incentives calibrated to sales reward the winners but cannot create the winning product; that depends on the quality of engineering talent, which is where India’s labour factor becomes decisive.
5. The fiscal cost needs an exit plan. An incentive of 5% plus 3% plus up to 1.5% on sales is generous, and ₹62,500 crore is a large commitment. The public case rests on the argument that it builds lasting capability, so the scheme must be time-bound and linked to measurable targets: patents filed, R&D staff employed, domestic content achieved. If the incentive becomes permanent, it turns from a catalyst into a subsidy that the sector depends on.

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