Electronics manufacturing gets new policy support

The policy measures, covering production incentives to financial support, aim to establish the nation as one of the world’s leading electronics manufacturing destinations

March 24, 2020

India’s electronics production has increased from US$29 billion in 2014-15 to US$70 billion in 2018-19, at a CAGR of about 25 per cent

The Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme will help build essential infrastructure for the electronics sector

The Production Incentive Scheme (PLI) proposes incentives to boost domestic manufacturing of mobile phone and specified components

The Government has agreed to offer a financial incentive of 25 per cent of capital expenditure for the manufacturing of electronic components

India’s Union Cabinet, led by Prime Minister Shri Narendra Modi, has recently approved a series of measures to empower the electronics manufacturing industry in the country. The measures, covering production incentives to financial support, aim to establish the nation as one of the world’s leading electronics manufacturing destinations. The IT and electronics industry is one of the fastest-growing industries in India, both in terms of production and exports. The Government’s efforts come at a time when the Indian electronics products demand is growing at a compound annual growth rate (CAGR) of 41 per cent over 2017-20 to touch US$400 billion by 2020.

Modified Electronics Manufacturing Clusters Scheme

To boost this electronics sector, the Government of India has approved financial assistance of more than US$490 million to the Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme for a period of eight years. The scheme will support the development of infrastructure along with common facilities and amenities through electronics manufacturing clusters (EMCs). It is expected that these EMCs would aid the growth of the electronics system design and manufacturing (ESDM) sector, help the development of the entrepreneurial ecosystem, drive innovation and catalyze economic growth by attracting investments in the sector, increasing employment opportunities and tax revenues.

India’s electronics production has increased from US$29 billion in 2014-15 to US$70 billion in 2018-19,
at a CAGR of about 25 per cent

The EMC 2.0 Scheme would support the setting up of both EMCs and common facility centers (CFCs). The scheme will create a robust infrastructure base for the electronic industry to attract the flow of investment in the ESDM sector and lead to greater employment opportunities. It will help build ready infrastructure and Plug & Play facilities that will be key to attracting investment in the electronics sector. Besides new investments, the scheme will create new jobs. Under the EMC scheme, 20 Greenfield EMCs and 3 CFCs measuring an area of 3,565 acres with a project cost of US$510 million including Government Grant-in-aid of over US$206 million have been approved in 15 Indian states.

Production Incentive Scheme for Electronics manufacturing

The Union Cabinet has also approved the Production Incentive Scheme (PLI) for large scale electronics manufacturing. The scheme proposes production-linked incentives to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components including assembly, testing, marking and packaging (ATMP) units. The scheme shall extend an incentive of 4-6 per cent on incremental sales (over the base year) of goods manufactured in India and covered under target segments, for a period of five years after the base year. The scheme is likely to benefit up to six major global players and few domestic champions. 

The scheme is anticipated to lead to large scale electronics manufacturing in the country. With a budget of US$5.4 billion, the scheme has a direct employment generation potential of more than 200,000 jobs over five years and an indirect employment generation of around 600,000. The scheme comes at a time when the production of mobile phones in the country has gone up from around US$3 billion in 2014-15 to US$24 billion in 2018-19, with the domestic demand almost completely being met out of domestic production. The scheme will help integrate “Assemble in India for the world” into “Make in India”, significantly increasing the manufacturing output in India.

Scheme for Electronic Components and Semiconductors

Additionally, the Government of India has agreed to offer a financial incentive of 25 per cent of capital expenditure for the manufacturing of goods that constitute the supply chain of an electronic product under the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS). The scheme will help offset the disability for domestic manufacturing of electronic components and semiconductors to strengthen the electronic manufacturing ecosystem in the country. The scheme, covering expenses on the plant, machinery, equipment, associated technology including R&D, has been allocated a budget of around US$430 million.

When implemented, the scheme will help the development of the electronic components manufacturing ecosystem in the country along with the deepening of the electronics value chain. It is anticipated to pull new investments in electronics to the tune of at least US$2.6 billion, apart from direct employment creation of 150,000 in the manufacturing operations. The scheme is likely to create indirect employment of about 450,000. This will help reduce the import dependence of large domestic manufacturers, which will enhance the digital security of the nation. This will impact technologies catering to consumer, industrial, auto, medical, power, telecom, and other sectors. 

A rapidly-growing electronics ecosystem

India’s electronics production has increased from US$29 billion in 2014-15 to US$70 billion in 2018-19, at a CAGR of about 25 per cent. India’s share in global electronics manufacturing grew from 1.3 per cent in 2012 to 3.0 per cent in 2018. Currently, the sector accounts for 2.3 per cent of India’s GDP. Meanwhile, the electronic components market in India has increased from US$11 billion in 2015-16 to US$20.8 billion in 2018-19. Domestic production of electronic components is presently valued at around US$10 billion, of which around US$7.7 billion is domestically consumed. These metrics make the schemes vital to the future growth of the electronics ecosystem in India.

The National Policy on Electronics 2019 (NPE 2019), released in February 2019, aims to position India as a global hub for electronics system design and manufacturing (ESDM) by driving capabilities in the country for developing core components, including chipsets, and creating an enabling environment for the industry to compete globally. A vibrant electronic components manufacturing ecosystem is vital for the overall long-term and sustainable growth of electronics manufacturing in India and essential to achieving a net positive balance of payments.