India’s Electronic Sector

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Context

• Minister of State for Electronics & Information Technology and Skill Development & Entrepreneurship, launched a report titled as ‘Globalise to Localise: Exporting at Scale and Deepening the Ecosystem are Vital to Higher Domestic Value Addition’.
• The report prepared by India Council for Research on International Economic Relations (ICRIER), in collaboration with India Cellular and Electronics Association (ICEA) explores how India can achieve electronics production target of US$300 billion and exports of US$120 by 2025-26.

India’s Electronic Industry

• With per capita disposable income and private consumption having doubled between FY12 and FY21, India has emerged as one of the largest markets for electronic products in the world.
• The electronic devices industry valued at $118 bn in 2019-20 is segmented as Mobile Phones (24%), Consumer Electronics (22%), Strategic Electronics (12%), Computer Hardware (7%), LEDs (2%) and Industrial Electronics (34%) comprising of Auto, Medical and other industrial electronic products.

• Over 2.3X growth in domestic electronics production in 6 years; From $ 29 Bn (FY15) to $ 67 Bn (FY21)
• Over 5x growth in production of mobile phones in 5 years; from 60 mn units (FY15) to ~300 mn units (FY21)
• Digital Transactions per capita per annum have increased ~10x in 5 years.
• India is a global R&D destination, with 1140+ R&D Centers of MNCs in India employing 900,000+ professionals
• The Average Index of Industrial Production of computer, electronic and optical products in the FY 2021-22 is 104.0 and has grown by 12.7percent.
• Exports of Electronic Goods values at $ 1395.09 mn in May 2022 and records positive growth vis-à-vis May 2021 of 47.37%.

Steps being taken

PLI Scheme

• In order to position India as a global hub for , Electronics System Design and Manufacturing (ESDM, the Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing, Production Linked Incentive Scheme (PLI) for IT Hardware, Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) and Modified Electronics Manufacturing Clusters Scheme (EMC 2.0) have been notified.
• Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing provides an incentive of 4% to 6% to eligible companies on net incremental sales (over base year) involved in mobile phone manufacturing and manufacturing of specified electronic components, including Assembly, Testing, Marking and Packaging (ATMP) units, for a period of five (5) years.
• Production Linked Incentive Scheme (PLI) for IT Hardware provides an incentive of 4% to 2% / 1% on net incremental sales (over base year) of goods manufactured in India and covered under the target segment, to eligible companies, for a period of four (4) years. The Target Segments under PLI Scheme include (i) Laptops (ii) Tablets (iii) All-in-One PCs and

Semicon India Program

• The Semicon India Program with an incentive outlay of ~$ 10 Bn was launched with the vision to develop a sustainable semiconductor and display ecosystem in the country.
• This program will establish India as global hub for semiconductor and display manufacturing, promote self-reliance, strengthen resilience in global supply chains, and pave the way for India’s technological leadership in the industry.

Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS)

• Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) provides financial incentive of 25% on capital expenditure for the identified list of electronic goods that comprise downstream value chain of electronic products, i.e., electronic components, semiconductor / display fabrication units, ATMP units, specialized sub-assemblies and capital goods for manufacture of aforesaid goods.

Electronics Manufacturing Clusters (EMC) Scheme

• Electronics Manufacturing Clusters Scheme was notified in 2012 to provide support for creation of world-class infrastructure along with common facilities and amenities for attracting investment.
• Under the Scheme, 19 Greenfield EMCs and 3 Common Facility Centres (CFCs) measuring an area of 3,464 acres with total project cost of INR 3,732 crore including Government Grant-in-Aid of INR 1,529 crore have been approved.

Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme

• It provides support for creation of world class infrastructure along with common facilities and amenities, including Ready Built Factory (RBF) sheds / Plug and Play facilities for attracting major global electronics manufacturers along with their supply chain to set up units in the country.
• The Scheme provides financial assistance for setting up of both EMC projects and Common Facility Centres (CFCs) across the country.

Semiconductor and Display Manufacturing Schemes:

• The Union Cabinet approved the comprehensive program with an outlay of INR 76,000 crore (> USD 10 billion) on 15.12.2021 for the development of robust and sustainable Semiconductor and Display ecosystem in the country.

100% FDI

• As per extant Foreign Direct Investment (FDI) policy, FDI up-to 100% under the automatic route is permitted for electronics manufacturing (except from countries sharing land border with India), subject to applicable laws / regulations; security and other conditions.

Electronics Development Fund (EDF):

• Electronics Development Fund (EDF) has been set up as a “Fund of Funds” to participate in professionally managed “Daughter Funds” which in turn will provide risk capital to startups and companies developing new technologies in the area of electronics and Information Technology (IT). This fund is expected to foster R&D and innovation in these technology sectors.

Phased Manufacturing Programme (PMP)

• PMP has been notified to promote domestic value addition in mobile phones and their sub-assemblies / parts manufacturing.
• As a result, India has rapidly started attracting investments into this sector and significant manufacturing capacities have been set up in the country.
• The manufacturing of mobile phones has been steadily moving from Semi Knocked Down (SKD) to Completely Knocked Down (CKD) level, thereby progressively increasing the domestic value addition.

Tariff Structure

• Tariff Structure has been rationalized to promote domestic manufacturing of electronic goods, including, inter-alia, Cellular mobile phones, Televisions, Electronic components, Set Top Boxes for TV, LED products and Medical electronics equipment.

Exemption from Basic Customs Duty on capital goods:

• Notified capital goods for manufacture of specified electronic goods are permitted for import at “NIL” Basic Customs Duty.

Simplified import of used plant and machinery:

• The import of used plant and machinery having a residual life of at least 5 years for use by the electronics manufacturing industry has been simplified through the amendment of Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016 in 2018.

Relaxing the ageing restriction

• The Department of Revenue has brought amendments relaxing the ageing restriction from 3 years to 7 years for specified electronic goods manufactured in India and re-imported into India for repairs or reconditioning.

Public Procurement (Preference to Make in India) Order 2017:

• To encourage „Make in India‟ and to promote manufacturing and production of goods and services in India with a view to enhancing income and employment, the Government has issued Public Procurement (Preference to Make in India) Order 2017.
• In this context, MeitY has notified mechanism for calculating local content for 13 Electronic Products viz., (i) Desktop PCs, (ii) Thin Clients, (iii) Computer Monitors, (iv) Laptop PCs, (v) Tablet PCs, (vi) Dot Matrix Printers, (vii) Contact and Contactless Smart Cards, (viii) LED Products, (ix) Biometric Access Control / Authentication Devices, (x) Biometric Finger Print Sensors, (xi) Biometric Iris Sensors, (xii) Servers, and (xiii) Cellular Mobile Phones, for procurement to be made from local suppliers.

Compulsory Registration Order (CRO)

• MeitY has notified “Electronics and Information Technology Goods (Requirement of Compulsory Registration) Order, 2012” for mandatory compliance to ensure safety of Indian citizens by curbing import of substandard and unsafe electronic goods into India. 63 Product Categories have been notified under the CRO and the order has come into effect for all the notified product categories.

Establishment of Gallium Nitride (GaN) Ecosystem Enabling Centre and Incubator

• The project for “Establishment of Gallium Nitride (GaN) Ecosystem Enabling Centre and Incubator for High Power and High Frequency Electronics” has been approved. The project is being implemented by Society for Innovation and Development (SID), Centre for Nano Science and Engineering (CeNSE), IISc Bengaluru.

National Policy on Electronics (NPE, 2019)

• The National Policy on Electronics (NPE, 2019) aims to make India a global hub of electronic system design and manufacturing (ESDM). It estimates that about 10 million jobs will be created as a result of the implementation of NPE.
• The NPE 2019 has set some ambitious targets: production of 1.0 billion mobile phones by 2025, valued at $ 190 billion including 600 million (approx. $ 110 billion) for export.

Challenges

Decline in Indian Products in Electronic Sector

• Indian products in the Electronics sectors have been declining because of entry of foreign made products. Out of approximately $180 billions of electronics goods which are consumed in the country, approximately 92% are from global brands and the share of Indian electronics products in this fast-growing sector is miniscule 8%.

Import of Hardware

• The import of electronics in 2020-21 reduced to around Rs 2.85 lakh crore from about Rs 2.9 lakh crore in 2019-20 due to an increase in local manufacturing of consumer electronics items especially LED television sets and electronic components.
• However, the import in the IT hardware segment increased to around Rs79,000 crore in 2020-21 from about ₹68,400 crore in 2019-20.

Highest Tariffs

• India has the highest tariffs on import of components for electronic products, compared to competing electronics hubs like China and Vietnam.

Subsidy Structure

• Vietnam and China have more favorable subsidy structures than India does in areas like machinery used for manufacturing, and research & development.

Lack of Ecosystem

• Another challenge is India lacking a robust ecosystem of companies locally manufacturing components required for electronic products.
• In the absence of a full-fledged component ecosystem in India, these components are required to be imported that results in increased costs and lead time for the manufacturers.

Lack of manufacturing of  labour intensive components even

• India even lacks in manufacturing of components that are labour intensive and are feasible to manufacture in India, given the availability of cheap and skilled manpower.
• An active policy support to promote local manufacturing, including through domestic players, appears to be missing at present.

Land acquisition

• In the policy initiatives and schemes of the government, the cost of land is not factored in…the cumbersome process of land acquisition overall acts as a deterrent for quick setting up of a manufacturing unit.”

Lack of enabling initiatives

• Another challenge is that China and Vietnam “readily provide” resources like buildings and dormitories to manufacturers, and even “the regulatory compliances are undertaken by the government authorities”. India does not take such initiatives.

Lack of FTAs

• A lack of Free Trade Agreements with developed countries is another challenge for the sector.

Tax Structure

• Punitive duty structures and tax levies” is another challenge to the growth of the Indian electronic manufacturing sector.
• Compared to China and Vietnam, India provides “lower income tax exemptions and reductions to electronics manufacturers”.

No tax holidays

• No income tax holidays are being provided in India unlike those provided in Vietnam. Vietnam also offers very long term predictability of 10-30 years of Income Tax holiday/concessional rates.

Chip Manufacturing

• India has languished in chip manufacturing. Every electronics product requires a chip of some sort. Although India has substantial capabilities in Chip design, we have no chip manufacturing capabilities.

Huge Import Bills

• The electronics goods imports bill is second only to the country’s oil import bill. According to the DGCIS figures import of electronic goods was US$ 39 billion in 2016, US$ 50 billion in FY 2017, $56 billion in FY 2018, US$ 54 billion in FY 2019, and US$ 33 billion in FY 2020. For comparison, India imported oil worth US$ 87.79 billion of petroleum products in FY 2020. The electronics goods imports were roughly 38% of the oil imports.

Other

• Other challenges listed include “regulatory uncertainty”, and “punitive duty structures and tax levies”.

Way Ahead

• By 2025, India aims to achieve a GDP of $5 trillion and a digital economy of $1 trillion. Since electronics underpin manufacturing, the demand for electronic products will rise to $400 billion by 2025. To meet the growing demand for electronic goods, the reliance on imports is likely to increase unless timely steps are taken to boost indigenous electronic manufacturing.
• We need to start indigenizing fast to achieve Atmanirbharta in electronics. India has a target of $400 billion electronic production by 2025, as per the National Policy on Electronics (NPE) 2019. For the growth of sustainable economics, we need to gradually move from just manufacturing electronics goods for global brands to creating Indian Designed products and Indian Brands.
• MSMEs can become the bulwark of growth of Indian Electronics Products and Indian Brands. We have nearly 6.3 crore MSMEs, and they contribute around 30% towards GDP through domestic and international trade. Electronics Products Design and Manufacturing has a ripple effect in the economy leads to job creation in several other allied sectors as well, creating demand for skills manpower, components, transportation, storage, repair and recycle.
• To compete with the established global brands, in addition to innovative technology, the look, feel and user experience of our homegrown electronics products must be of global quality. It is well proven in the technology world that the customer prefers to buy well designed and engineered products.
• One other feature which is very important in India is to make products repairable and upgradable with the possibility of being refurbished. Right from the design stage, these products must have innovative technology, an attractive and user-friendly design and the repairability/upgradability features to create unique space for themselves in a competitive global market. This way, the products will have longer life, create less e-waste and Components of old products can be harvested to use of in other products.
• Challenges related to infrastructure, tariffs, and Free Trade Agreements must be resolved to make manufacturing in India “resilient, globally competitive and able to undertake operations at a massive scale.
• New Product Introduction procedures must always be in line, with on-time product launches and accurate targets in terms of time, volume, and quality.
• To keep up with the increasing uncertainty in demand, efficient lean capabilities are required to maintain inventory as per the demand.
• The prices must always be kept as low as possible, with the least possible profit, to stay in the market and gain customers.
• Quality products and services are a must so that appropriate guarantee and warranty can be given to the customers.
• The entire lifecycle of a product needs to be considered before making any decisions.
• India has emerged as a leading manufacturer of mobile phones in recent years, albeit more as an assembler.A comprehensive ecosystem of mobile manufacturing has yet to be established. India must focus on the indigenous manufacturing of components.
• Like China, India will need to achieve self-reliance in advanced electronics sectors.
• India does not have much presence in the indigenous manufacturing of cyber security products. Cybersecurity is essential for telecom, computers and networks. The cybersecurity industry should be given high priority in the overall development of the indigenous electronics industry.
• Along with all of this, integrating components of the value chain with technological know-how can also help fight these challenges, and bring businesses towards operational excellence.
• The global electronics trade is dominated by global value chains. India will have to find a way of integrating into global value chains to increase production and exports. The challenge before India is to make a quick transition to the manufacturing of high technology electronics items.
• To meet the future needs in the electronics sector, high investment in the R&D sector is an absolute must. NPE 2019 seeks to create IPRs for the domestic as well as global markets. Indian manufacturers must be able to make original products and create demand for them.

Final thoughts

• Tremendous opportunities for increasing electronics manufacturing will come from consumer electronics, industrial sector, power electronics, renewable energy sector, automotive sector, telecom, work-from-home sector, digital infrastructure, strategic manufacturing, components and a series, medical electronics et cetera.
• The emergence of new technologies like artificial intelligence, machine learning, Internet of things will create demand for new products. Now is the right time for India to step up its electronics hardware manufacturing capabilities and pair them with software progress to emerge as one of the world’s powerhouses in the electronics area. India cannot afford to miss the bus this time.
• The electronics sector is the foundation of every other manufacturing sector. Different sectors have different incentive schemes. New electronics policy must be harmonized properly with other growth sectors.

https://www.pib.gov.in/PressReleasePage.aspx?PRID=1855316