India’s Push for Self-Reliance in Electronics Manufacturing: Government Support and Industry Growth

In recent years, India has taken significant strides toward becoming a global hub for electronics manufacturing, driven by the government’s production-linked incentive (PLI) schemes. These initiatives, aimed at promoting domestic manufacturing of various products, have particularly targeted sectors such as mobile phones and information technology hardware. While these efforts have successfully scaled up India’s capability in final assembly, experts suggest that the next step in India’s electronics manufacturing journey is to deepen its presence in the supply chain.

The challenge ahead lies in increasing the domestic value addition, which is currently at a modest 18-20%. The government’s ambition is to boost this figure to 40% within the next five years. However, to achieve this, it is crucial to develop a domestic electronic component supply base from scratch, an area where India remains significantly underdeveloped. To address this issue, the Indian government is planning to roll out a financial support package aimed at nurturing the nascent electronic component ecosystem and ensuring that India becomes a key player in the global electronics supply chain.

The Need for a Robust Component Ecosystem
Currently, India is heavily reliant on imports to meet its electronic component needs. According to the Electronics Industries Association of India (ELCINA), the country imports about 70% of its electronic components, which poses a significant challenge to achieving self-reliance in electronics manufacturing. Rajoo Goel, the Secretary General of ELCINA, highlighted the need for a special scheme that offers both production and capital incentives to bridge this gap and help the country compete with nations like China and Vietnam, which have established and scalable electronics component manufacturing bases.

The government’s planned financial support package aims to change this by providing incentives that will attract both domestic companies and global component makers to set up production in India. This package will focus on creating infrastructure, offering subsidies, and providing incentives for manufacturing components such as printed circuit boards (PCBs), display assemblies, camera modules, connectors, and lithium-ion cells. These components account for a substantial portion of the Bill of Materials (BoM) in electronic goods, yet India currently only produces about 10% of the total value of these components. This creates a substantial demand-supply gap, which is predominantly filled through imports, primarily from China and Hong Kong.

India’s Increasing Appeal for Global Electronics Players
Despite the challenges, India’s progress in mobile phones, laptops, tablets, and other electronic components has attracted the attention of global players. Several domestic and international companies are increasingly looking to India for its favorable resources, including access to talent, land, water, electricity, and a stable governance structure. This shift in focus is underscored by the increasing number of companies entering India’s component manufacturing space.

For instance, domestic electronics manufacturer Dion Technologies recently signed a deal with Chinese display maker HKC to manufacture display modules for smartphones, tablets, and laptops. The company plans to invest Rs 250 crore in setting up a new facility. Similarly, TDK, a leading Japanese supplier of lithium-ion cells, is investing Rs 7,000 crore to set up a manufacturing base in Manesar. This facility is expected to cater to the growing demand for batteries in electronics manufacturing, particularly for smartphones.

Other companies, including Motherson Group, BIEL Crystal Manufactory, and Corning, are also making significant investments in India to tap into the country’s growing electronics manufacturing potential. These investments reflect a broader shift in India’s approach towards becoming self-reliant in electronics manufacturing, moving beyond assembly to component production, which is a key part of the value chain.

Government Initiatives and the Path Forward
The government’s PLI scheme has already set the foundation for scaling up mobile phone and IT hardware manufacturing in India. However, experts argue that more needs to be done to address the underlying issues in the component ecosystem. The proposed financial support package is expected to allocate approximately Rs 40,000 crore in subsidies and incentives to encourage the production of non-semiconductor components.

The package is crucial because India’s current electronics component production stands at a mere $10.75 billion, which is only around 10% of the total electronics production. This disparity highlights the significant room for growth. For instance, India imported $76 billion worth of components in FY24, despite producing finished electronic goods worth $115 billion. This growing dependency on imports poses a challenge to the sustainability of India’s electronics manufacturing ambitions, especially with the projected growth in demand.

According to the Directorate General of Foreign Trade (DGFT), 60-70% of electronics imports comprise components and sub-assemblies. As India’s electronics production is expected to double to $500 billion by 2030, the demand for components is projected to grow at an annual rate of 53%, creating a demand-supply gap of over $100 billion.

Overcoming Challenges in Component Manufacturing
One of the key hurdles that India’s component manufacturing sector faces is the lack of scale. The industry is currently dominated by mid to small-sized homegrown companies that often struggle to meet the high quality and precision standards required by global players. A report by the Confederation of Indian Industry (CII) suggests that to scale up the industry and compete globally, the government should provide support of 9% over the next ten years to offset disabilities and achieve economies of scale.

Component manufacturers in India also face a significant cost disadvantage. A NITI Aayog report identified that the high cost of inputs, including tariffs on materials, logistics costs, and financing costs, results in a 14-18% disability compared to countries like China. These cost disadvantages, coupled with the absence of original design manufacturers and limited access to global demand, have slowed the growth of the domestic component ecosystem.

The government’s planned financial support package aims to address these challenges by providing operational and capital expenditure (capex) support. Components like lithium-ion cells, PCBs, and camera modules will receive targeted incentives based on their existing presence in the market and their potential for growth. For example, lithium-ion cells will receive capex support, while display and camera modules, which already have a foothold in India, will primarily receive operational support.

Strategic Collaborations and Vendor Development
One of the driving forces behind India’s push to strengthen its electronics manufacturing capabilities is the growing collaboration between global companies and domestic manufacturers. Companies like Apple have been actively working with Indian suppliers to integrate them into their global supply chains. Apple, for example, has a vendor development team dedicated to shortlisting potential suppliers from India. The company aims to integrate 40-70 Indian suppliers into its global supply chain, up from the current 15 suppliers.

Other companies, such as Dixon Technologies and Bhagwati Products, have also forged partnerships with original design manufacturers (ODMs) like Huaqin and Longcheer to improve their manufacturing capabilities and meet the quality standards required for global markets. These collaborations are vital for upgrading India’s component manufacturing ecosystem and aligning it with international standards.

Conclusion
India’s electronics manufacturing sector is at a critical juncture. While the country has made remarkable progress in assembling electronic products, the next phase of growth lies in developing a robust domestic component ecosystem. The government’s planned financial support package, along with strategic collaborations between global players and Indian manufacturers, will play a key role in achieving self-reliance in electronics manufacturing. With the right support and investments, India has the potential to become a global leader in electronics manufacturing, significantly reducing its reliance on imports and strengthening its position in the global supply chain.

The image added is for representation purposes only