Electronics Production in India

In News

• Recently, the government launched a report titled ‘Globalise to Localise: Exporting at Scale and Deepening the Ecosystem are Vital to Higher Domestic Value Addition’. 

Major Highlights

• About:
  • The report is prepared by India Council for Research on International Economic Relations (ICRIER), in collaboration with India Cellular and Electronics Association (ICEA) 
• Significance:
  • This report describes what India’s strategy will be for the next few years.
  • It explores how India can achieve an electronics production target of US$300 billion and exports of US$120 by 2025-26.
  • Launch of the report will help the Government identify the challenges that are to be met and the strategies that are to be adopted to achieve this target.
• Relation between exports and the share of domestic value addition 
  • The report examines the empirical relationship between exports and the share of domestic value addition in successful exporting nations.
  • It finds that the two variables are negatively correlated in the short-run, but exhibit positive correlation in the medium-term.

Electronics Sector in India

• Past:
  • In 2014, India was increasingly dependent on Electronics imports. 
• Present Scenario:
  • Today, India is a 76 billion dollar manufacturing economy with 16 billion dollars of exports in FY 2021-22, with a target of 21 to 25 billion dollars of exports in next year. 
  • Electronics as a sector has jumped to the 6th largest export from India this year. 
    • Mobile phones constitute the single largest component of electronics exports from India. 
    • They are expected to contribute nearly 50 percent of the total electronics exports by next year.
• Targets:
  • By 2026, India has clearly laid out a goal of 300 billion dollar manufacturing with a 120 billion dollar of exports. 
  • The aim is to emerge as a reliable and trusted partner in Global value chains.
  • For this, the government always emphasised on strengthening its domestic manufacturing ecosystem to make India more resilient to supply chain disruptions. 
  • That strategy talks about broadening and deepening the electronics ecosystem.

Challenges in Electronics Sector in India

• Highest tariffs: India has the highest tariffs on import of components for electronic products, compared to competing electronics hubs like China and Vietnam. 
• Lack of component ecosystem: India lacks a robust ecosystem of companies locally manufacturing components required for electronic products. 
• High import costs: High cost of importing these components is listed as a challenge. 
• Less favorable subsidy: Vietnam and China have more favorable subsidy structures than India does in areas like machinery used for manufacturing, and research & development.
• Taxation: Compared to China and Vietnam, India provides lower income tax exemptions and reductions to electronics manufacturers. 
• Free Trade Agreements: A lack of Free Trade Agreements with developed countries is another challenge for the sector.

Suggestions in Report

• Competitive Domestic Ecosystem: 
  • There is an urgent need for India to create a competitive domestic ecosystem of ancillary suppliers through technology upgradation programmes, holding sourcing fairs and introducing supporting industry development programmes.
• Focus on Exports:
  • In addition to domestic production, and supplies and domestic consumption, exports are an important way to get the scales of the other economies that are competing with us. 
  • Exports will create a network effect of creating supply chain interests, and supply chain investments that in turn will increase the value addition in the Indian electronics segment.

• Opportunities for India
  • Post-COVID, the value chains of electronics are undergoing deep tectonic irreversible changes. 
  • It presents to India, the current momentum and opportunity.
  • India must export aggressively to reach the scale in electronics manufacturing. 
• Adopt Global Measures: 
  • China and Vietnam have adopted the mantra of ‘first globalise, then localize’, which means in the initial years they were determined to achieve global scale in exports, and then shifted their emphasis to greater use of local contents.
  • The report recommends a sequential approach that can put India’s exports in the same trajectory as China and Vietnam. 
  • The immediate goal should be to export at scale to global markets (globalise), and the subsequent objective should be to increase the share of local content (localise). 
• Importance on Policies:
  • The report suggests several steps and policies needed for deepening the broader electronics ecosystem within India. 
  • Additionally, policies such as Gati Shakti will also help increase India’s competitiveness.

Government Efforts 

• As a first step, India used the Phased Manufacturing Program (PMP) to build a USD 36 billion mobile industry. 
• India has succeeded in systematically building a framework and a strategy that has clearly outlined the goals of a US$300 billion electronics manufacturing ecosystem with US$120 billion dollars of exports by 2026.
• India is now pushing for global exports via Production Linked Incentives (PLI) and a total production of USD 300 bn. 
• With exports as its key focus, the government is working on policies that will increase domestic value addition over the next few years. 

Way Ahead

• The focus should be on creating a robust local supply chain and building a strong local component ecosystem.  
• The challenges related to infrastructure, tariffs, and Free Trade Agreements must be resolved to make manufacturing in India resilient and globally competitive.
• It is crucial for the electronics manufacturing industry in India to utilize resources efficiently and to build sustainable domestic capabilities.

Source: PIB