India’s Electronics Manufacturing and Export Market

Syllabus: GS3/ Economy

Context

• The IT Ministry has launched a Rs 23,000 crore incentive policy over six years to enhance domestic electronic components manufacturing.

About 

• India aims to boost domestic value addition in smartphone manufacturing from 15-20% to 30-40% by promoting local production of key electronic components.
• Key Features of the policy to boost production is as;
  • Offers incentives in three forms: based on operational expenses (net incremental sales), capital expenses (eligible investments), or a combination of both.
  • Targets the manufacturing of critical components like display modules, camera modules, PCBAs, lithium cell enclosures, resistors, capacitors, and ferrites.
  • Annual incentives ranging between Rs 2,300 crore and Rs 4,200 crore.
  • Open to both greenfield (new) and brownfield (existing) investments.

Global Scenario of Electronics sector 

• The global electronics market is estimated at US$ 4.3 trillion. 
• The electronics GVC is intricate, with a select group of nations like China, Taiwan, the USA, South Korea, Vietnam, Japan, Mexico, and Malaysia.
  • China is the world’s largest electronics producer, accounting for nearly 60% of worldwide electronics production. 

India’s electronics sector

• India’s electronics sector reached USD 155 billion in FY23. 
• The electronics production nearly doubled from USD 48 billion in FY17 to USD 101 billion in FY23, driven primarily by mobile phones which constitute 43% of total electronics production.
  • This comprises USD 86 billion in finished goods production and USD 15 billion in components manufacturing.
• The country’s electronics export is expected to reach $120 Bn by FY26.
• During May 2024, electronic goods exports were recorded at $2.97 Bn as compared to $2.41 Bn during May 2023, registering a growth of 22.97%.

Government initiatives

• Make in India, Digital India, and Startup India for promoting domestic manufacturing and technological innovation.
• Production Linked Incentive Scheme (PLI): The scheme aims to attract large investments in the mobile phone manufacturing and specified electronic components, including Assembly, Testing, Marking and Packaging (ATMP) units.
• National Policy on Electronics 2019 (NPE 2019) It is a comprehensive framework to develop India as a global hub for electronics manufacturing.
• Modified Electronics Manufacturing Clusters (EMC 2.0) develops infrastructure with common amenities and industrial clusters for electronics production.
• In India 100% FDI is allowed under the automatic route. In the case of defense electronics, FDI up to 49% is allowed through automatic route and beyond 49% requires government approval.
• Scheme for setting up of Semiconductor Fabs in India provides fiscal support to eligible applicants for setting up of Semiconductor Fabs which is aimed at attracting large investments for setting up semiconductor wafer fabrication facilities in the country.

Challenges in electronics sector 

• Market Competition: The global electronics market is dominated by countries like China, Taiwan, USA, South Korea, Vietnam and Malaysia. 
  • India currently exports approximately USD 25 billion annually, representing less than 1% of the global share.
• High Investment-to-Turnover Ratio: Unlike finished products like smartphones (where ₹1 investment generates ₹20 revenue), component manufacturing yields only ₹2-4 per rupee invested.
• Technical Skills: There is a lack of adequately trained technical personnel for advanced manufacturing processes.
• Capital Intensive industry: Electronic manufacturing is a complex and technology-intensive sector with huge capital investments, high risk, long gestation and payback periods, requiring significant and sustained investments.

Way Ahead

• India has set a target to achieve 500 billion USD in electronics manufacturing in value terms by 2030.
• To enhance competitiveness, India needs to localize high-tech components, strengthen design capabilities through R&D investments, and forge strategic partnerships with global technology leaders.

Source: IE