Transfin.

Cabinet Approves Plan to Boost Electronics Manufacturing Industry in India

The Cabinet has approved a ?48,000cr ($6.4bn) plan to boost the electronics manufacturing industry in India, which has become the world's second-biggest mobile phone manufacturer. The Government will reportedly provide companies a production-linked incentive of 4-6% on incremental sales of goods made locally for five years.

 

How Big is the Indian Electronics Industry?

 

Since the beginning of the 21st century, this industry has grown by leaps and bounds in India, propelled by government incentives, international investment and strong domestic demand, especially in the semiconductor segment. Semiconductors were required by a large number of industries, including telecommunications, information technology, industrial machinery and automation, medical electronics, automobile, engineering, power and solar photovoltaic, defence and aerospace, consumer electronics, and appliances.

 

Since 2012, India’s electronics market has grown at a compound annual growth rate of nearly 25%. The electronics market in India is expected to reach $400bn by 2025.  

 

According to the Electronic Industries Association of India (ELCINA), the electronic components market in India has increased from ?68,342cr ($9.1bn) in 2015-16 to ?1,31,832cr ($17.6bn) in 2018-19. Domestic production of electronic components is valued at approximately ?63,380cr ($8.4bn), of which around ?48,803cr ($6.5bn) is domestically consumed.

 

In terms of foreign direct investment (FDI), 100% FDI is allowed under the automatic route. In case of electronics items for defence, FDI up to 49% is allowed under automatic route and beyond 49% through Government approval.

 

What Schemes were Approved by the Government?

 

The schemes that have been approved by the Cabinet are the Production Incentive Scheme (PLI) for Large Scale Electronics Manufacturing, financial assistance to the Modified Electronics Manufacturing Clusters (EMC2.0), and financial incentive of 25% of capital expenditure for the manufacturing of goods.  The Government also aims to create manufacturing clusters - with a minimum area of 200 acres - that have common facility centres, ready-built factory sheds and plug-and-play facilities.

 

This is expected to benefit global and domestic players in the field of mobile manufacturing and Specified Electronics Components and bring in large-scale electronics manufacturing in India. The move is likely to boost exports from India, where global companies such as Samsung Electronics, Apple - through contract manufacturers Hon Hai Precision Industry (Foxconn) and Wistron – Xiaomi, and Oppo assemble smartphones.

 

These measures come amidst the coronavirus pandemic, which has hurt entire economies and strained global supply chains. Companies were already looking to diversify their production units by shifting them from China in the past two years, given the bitter relations between Beijing and Washington and the trade war. With the coronavirus outbreak, companies have even more reason to diversify their market presence further.

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