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Context:

The Union Government has introduced a Rs 23,000 crore incentive for electronic components manufacturing. 

About the Electronic Subsidy Scheme

The Ministry of Electronics and Information Technology (MEITy) has  launched the initiative to boost domestic manufacturing of electronic components.

India has successfully localized smartphone assembly under the Production Linked Incentive (PLI) scheme, however, the domestic value addition remains low at 15-20%. The government aims to increase this to at least 30-40% by promoting the manufacturing of components within India.

The scheme expects to generate around 91,600 direct jobs, over the six-year period.

It includes three types of incentives:

• Operational Expense Incentives are provided based on net incremental sales, which is similar to the PLI scheme.
• Capital Expenditure (Capex) Incentives for Companies to receive financial support based on their eligible capital expenditure.
• Hybrid Incentives provide a combination of operational and capital expenditure incentives to support both short-term and long-term growth.

Who is eligible to participate in this scheme?

The scheme is open to both greenfield (new) and brownfield (existing) investments.

Foreign companies can participate in two ways:

1. Collaborating with Indian firms by transferring technology.
2. They can set up joint ventures with Indian companies.

Challenges in electronic component manufacturing

India’s electronic component production is small compared to demand.

High Investment-to-Turnover Ratio: Unlike smartphones, where ₹1 investment generates ₹20 output, in components, ₹1 investment gives only ₹2-4 output.

75% of India's electronics production depends on imported components, which makes electronics the second-largest import commodity after oil.

Larger Context

The Electronic Subsidy Scheme aligns with Make in India, Digital India, and Atmanirbhar Bharat (Self-Reliant India) initiatives, and boost India's larger vision of becoming a global electronics manufacturing hub.

By increasing domestic component manufacturing, India can:

• Reduce trade deficits by lowering import dependence.
• Attract global electronics giants to set up full-fledged manufacturing operations in India.
• Create jobs and skill development opportunities in high-tech manufacturing.
• Enhance India’s export potential in electronic components.

Challenges in implementing this scheme

Companies need large investments, but returns are lower compared to finished products.

India needs advanced technology transfers from global firms.

Countries like China, Vietnam, and Taiwan have already established strong electronics ecosystems. India must offer competitive incentives to attract investments.

Reliable power supply, efficient logistics, and a strong supply chain are critical for success.

If implemented effectively, it will:

• Boost domestic manufacturing and reduce import dependence.
• Increase India’s value addition in electronics from 15-20% to 30-40%.
• Generate over 91,600 direct jobs and many more indirect jobs.
• Position India as a key player in the global electronics supply chain.

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PRODUCTION-LINKED INCENTIVE (PLI) SCHEMES

Source:

INDIAN EXPRESS

https://t.me/+hJqMV1O0se03Njk9