INDIA’S ELECTRONICS MANUFACTURING AND EXPORT MARKET - ECONOMY
NEWS: The IT Ministry has launched a Rs 23,000 crore incentive policy over six years to enhance domestic electronic components manufacturing.
WHAT’S IN THE NEWS?
Policy Objectives and Goals
• India aims to increase domestic value addition in smartphone manufacturing from the current 15-20% to 30-40%, reducing dependence on imports.
• The focus is on localizing the production of key electronic components to enhance the country's manufacturing capabilities and global competitiveness.
2. Key Features of the Policy
• Incentive Structure:
• The policy offers incentives in three forms:
1. Operational expenses-based incentives (linked to net incremental sales).
2. Capital expenses-based incentives (based on eligible investments).
3. A combination of both operational and capital expenses-based incentives.
• Targeted Components:
• Encourages the production of critical components such as:
Display modules and camera modules for smartphones.
Printed Circuit Board Assemblies (PCBAs) used in electronic devices.
Lithium cell enclosures for batteries.
Essential passive components like resistors, capacitors, and ferrites.
• Financial Support:
• The government offers annual incentives ranging from ₹2,300 crore to ₹4,200 crore to support domestic manufacturing.
• Investment Scope:
• The scheme is open to both Greenfield (new projects) and Brownfield (expansion of existing projects) investments.
Global Electronics Sector: A Competitive Landscape
1. Market Overview
• The global electronics market is valued at US$ 4.3 trillion, making it one of the largest and most complex industrial sectors worldwide.
• The Global Value Chain (GVC) of electronics is highly intricate, dominated by a few key nations that excel in manufacturing, assembly, and component production.
2. Leading Global Players
• China is the largest electronics producer, accounting for nearly 60% of global electronics manufacturing.
• Other key countries involved in electronics production and exports include:
• Taiwan, the USA, South Korea, Vietnam, Japan, Mexico, and Malaysia.
• These countries have well-established supply chains, highly advanced semiconductor industries, and strong R&D ecosystems, making competition challenging for new entrants like India.
India’s Electronics Sector: Growth and Production Trends
1. Growth of the Electronics Industry in India
• India’s electronics manufacturing sector reached USD 155 billion in FY23, nearly doubling from USD 48 billion in FY17 to USD 101 billion in FY23.
• The mobile phone industry has been the primary driver of this growth, contributing 43% of total electronics production.
2. Breakdown of Electronics Production in FY23
• Finished Goods Production: USD 86 billion (includes smartphones, consumer electronics, and IT hardware).
• Component Manufacturing: USD 15 billion (includes PCBs, semiconductors, display units, and other essential parts).
• The government is actively pushing for a higher share of component manufacturing to reduce import dependency.
3. Export Growth and Future Targets
• India’s electronics exports are expected to reach USD 120 billion by FY26.
• In May 2024, electronic goods exports stood at USD 2.97 billion, marking a 22.97% growth compared to USD 2.41 billion in May 2023.
Significance of the Electronics Sector:
• Economic Contribution: The electronics sector significantly boosts India's Gross Domestic Product (GDP), contributing between 13-17.7%.
• Post-Covid Opportunities: Supply chain shifts and geopolitical factors favor India as a manufacturing hub.
• Rising Export Potential: Growth in mobile phone exports strengthens India's global positioning.
• Demographic Advantage: A young, aspirational population increases demand for advanced electronics.
• Innovation Driver: The sector leads in cutting-edge technology influencing multiple industries.
• Global Integration: Strengthening ties in global value chains offers further growth potential.
• Global Value Chains (GVCs) in Electronics Setor:
• Global Electronics Market: Valued at USD 4.3 trillion, it spans diverse segments, from smartphones to electric vehicles.
• Major Players: Countries like China, Taiwan, the USA, South Korea, Vietnam, Japan, Mexico, and Malaysia dominate, controlling over 90% of global electronics production.
China leads with 60% of global production.
Emerging centers include Vietnam, Malaysia, and India.
• Trade Dynamics: Global electronics trade is worth USD 3 trillion.
China accounts for 30% of exports, followed by Taiwan (9%) and the USA (7%).
India’s share remains under 1%, with USD 25 billion in annual exports.
• Finished Goods: Valued at USD 2.4 trillion, it is expected to grow to USD 3.5 trillion by 2030, driven by mobiles, auto electronics, and telecom electronics.
• Components Market: Valued at USD 1.8 trillion, dominated by electronic components and modules.
Government Initiatives to Boost Electronics Manufacturing
1. ‘Make in India,’ ‘Digital India,’ and ‘Startup India’
• These flagship initiatives aim to promote domestic manufacturing, encourage technological innovation, and attract foreign direct investment (FDI).
2. Production Linked Incentive (PLI) Scheme
• Aims to attract large-scale investments in mobile phone and electronic component manufacturing.
• Supports the development of Assembly, Testing, Marking, and Packaging (ATMP) units, essential for semiconductor and component production.
3. National Policy on Electronics (NPE) 2019
• Provides a comprehensive roadmap to develop India as a global hub for electronics design and manufacturing.
4. Modified Electronics Manufacturing Clusters (EMC 2.0)
• Supports infrastructure development by setting up industrial clusters with common facilities for electronics production.
5. Foreign Direct Investment (FDI) Policy
• 100% FDI is allowed in electronics manufacturing under the automatic route (i.e., without prior government approval).
• In the case of defense electronics, FDI up to 49% is allowed through the automatic route, while beyond 49% requires government approval.
6. Semiconductor Fabrication (FAB) Scheme
• Provides financial support for the establishment of semiconductor fabrication plants in India.
• Aims to attract major investments in semiconductor wafer fabrication facilities, reducing India’s dependence on chip imports.
Challenges Facing India’s Electronics Industry
1. Intense Global Market Competition
• India currently exports only USD 25 billion worth of electronics annually, which is less than 1% of the global electronics market share.
• The sector is dominated by established players like China, Taiwan, the USA, South Korea, Vietnam, and Malaysia, which have well-developed ecosystems.
2. High Investment-to-Turnover Ratio
• Component manufacturing requires high investments but generates relatively low revenue compared to finished product assembly.
• For instance:
• Smartphone assembly: ₹1 investment generates ₹20 in revenue.
• Component manufacturing: ₹1 investment generates only ₹2-4 in revenue.
3. Shortage of Skilled Workforce
• India faces a shortage of highly trained technical personnel for advanced semiconductor and electronics manufacturing.
• Lack of expertise in precision manufacturing, chip design, and automation technologies hinders the sector’s growth.
4. Capital-Intensive Nature of Electronics Manufacturing
• Setting up high-tech electronics and semiconductor manufacturing units requires:
• Huge capital investments.
• Long gestation periods before seeing returns.
• High risks associated with rapid technological changes.
• This discourages private sector investment without strong government support.
Way Forward: Strengthening India’s Electronics Industry
1. Achieving the $500 Billion Electronics Manufacturing Target by 2030
• The Indian government has set an ambitious goal to increase electronics manufacturing to USD 500 billion by 2030.
2. Localizing High-Tech Component Production
• To enhance self-reliance, India needs to focus on manufacturing advanced components such as chipsets, display units, and camera modules.
• Investing in semiconductor fabs, battery technologies, and PCBA production is crucial.
3. Enhancing Design and R&D Capabilities
• Increased investments in Research & Development (R&D) will help Indian firms develop cutting-edge technologies and patents rather than relying on foreign designs.
• Collaboration with global technology leaders can accelerate innovation.
4. Strengthening Strategic Partnerships
• India must forge strategic alliances with global semiconductor and electronics giants from Taiwan, South Korea, the USA, and Japan.
• Joint ventures, technology transfers, and government-backed investment incentives can attract foreign firms to set up manufacturing plants in India.
5. Developing a Robust Supply Chain Ecosystem
• A strong domestic supply chain for electronic components is necessary to reduce dependence on imports.
• Building world-class industrial parks and special economic zones (SEZs) dedicated to electronics manufacturing will attract investment.
6. Promoting Sustainable and Green Manufacturing
• Encouraging eco-friendly production methods, reducing electronic waste (e-waste), and focusing on energy-efficient technologies will help India establish itself as a sustainable electronics hub.
Conclusion
• India’s push for self-reliance in electronics manufacturing is a crucial step toward reducing import dependency, boosting exports, and positioning itself as a global electronics powerhouse.
• Strategic government policies, skilled workforce development, and large-scale investments in semiconductor and component manufacturing will be key to achieving India’s ambitious targets by 2030.
Source: https://indianexpress.com/article/business/economy/in-it-policy-pipeline-rs-23k-crore-electronic-subsidy-scheme-for-value-add-and-jobs-9889778/