India Readies Rs 25,000 cr boost for its electronics components industry

To stimulate domestic local manufacturing of electronic components in India, the Finance Ministry approved about Rs. 25,000 crore fund which is nearly $3 billion. Before implementation of the scheme in the month of April, it will probably gets its approval from Cabinet in this month. The scheme aims to produce around $50 to $60 billion worth of electronics components in the next five to six years of the tenure. It focused on an increase in demand for electronics components from $240 billion by 2030 which was $45.5 billion in the year 2023. As per the report of Confederation of Indian Industry, one of the key drivers is increased domestic production of mobile phones.

Decision about Scheme’s Amount
As per the discussions between the finance ministry of India and ministry of electronics and IT (MeitY), the expenditure plan for the scheme was originally around Rs. 30,000 to 40,000 crore. However, the finance ministry of India decided to lower the fund amount after evaluation of investments, demand and production from the industry. Another reason was the finance ministry does not want funds to remain underutilized like funds approved for production-linked schemes (PLI) for smartphones and IT hardware. Also the funds allocated for boosting the local electronics components industry in India can be revised in case of complete utilisation of the funds. Despite the approval of a lower amount, this shows that the progress of the component scheme will not be hampered due to fund constraints.

Distinct features of the Component scheme
Apart from the fund revision scheme on the basis of its utililisation, the incentives given to the companies will depend on the products offered by the company. In the PLI scheme regarding smartphones, four to six percent incentives were given to companies who accomplished the production threshold. The production threshold is the minimum requirement or the product benchmark to be achieved to be eligible for smartphone PLI scheme. On the other hand, incentives on the component scheme depend on the product and its manufacturing constraints and localisation achieved.

In the component scheme, more incentives are given to the products with a higher disability or manufacturing constraints as compared to the manufacturing of similar products in China and Vietnam. These challenges in production could occur due to higher production costs, challenges in sourcing material and other manufacturing related constraints. Also the amount of incentives is approved on the basis of how much the company has achieved localisation for the production process of the product. It refers to how much manufacturing of the product is done within the country rather than being dependent on imports. Higher localisation implemented in the production process leads to an increase in the amount of incentives given to the particular product.

The scheme takes into account an important point that big investments are required to be made for development of a component manufacturing ecosystem. It understands that manufacturing requires big investment due to components and subassemblies being capital intensive, unlike small investment in smartphones. For this reason, the scheme offers different incentive structures based on components and subassemblies. The scheme also focuses on reducing custom duties on some selected smartphone parts. The ministry believes that duties and incentives on components cannot be implemented at the same time as it leads to the existence of disability in manufacturing issues. For this purpose, the electric component industry of India has asked the finance ministry of India to evaluate and select duties on components in the next Budget Plan.

The government of India’s target is to promote value addition in manufacturing of electronics components by 35 to 40 percent in the scheme’s period and to gradually cover around 50% of the entire non-semiconductor production which is currently 15 to 18 percent. The production of components like camera module, printed circuit boards, lithium-ion cells, speakers, display-sub assembly, vibrator motor and mechanics, etc are expected to be included in the scheme. These electronic components together are required to make a mobile phone or a laptop and it constitutes to around 50 %. Also as per the report of CII, electronic components like components and sub-assemblies of batteries, camera modules, displays, mechanicals and printed circuit boards are a high priority requirement in India. As all these components account for 43 percent demand for components in 2022. Also their value is expected to increase by $51.6 billion by the year 2030. Also as per the June 2024 report of CII, these components have nominal production in India and are highly import dependent. India can barely afford this ongoing situation. The scheme focuses on reducing this pressure and making electronic component production self-sustainable in India.

The image added is for representation purposes only