Why in news?

NITI Aayog has released a report titled “Electronics: Powering India’s Participation in Global Value Chains”. Through this report, the Aayog has recommended a slew of measures to help grow India’s electronics sector from $100 billion to $500 billion by 2030.

What’s in today’s article?

• Electronics sector in India
• Key highlights of the report

Electronics sector in India

• Background
  • Presently, India's electronics manufacturing primarily involves the final assembly of electronic goods.
  • Brands and design firms have started increasingly outsourcing assembly, testing, and packaging tasks to Electronic Manufacturing Services (EMS) companies in India.
  • However, the ecosystem for design and component manufacturing is at a nascent stage.
• Statistics
  • India’s electronics sector has experienced rapid growth, reaching USD 155 billion in FY23.
  • Production nearly doubled from USD 48 billion in FY17 to USD 101 billion in FY23, driven primarily by mobile phones, which now constitute 43% of total electronics production.
    • This comprises USD 86 billion in finished goods production and USD 15 billion in components manufacturing.
  • India has significantly reduced its reliance on smartphone imports, now manufacturing 99% domestically.
• Global scenario
  • The global electronics market, valued at USD 4.3 trillion, is dominated by countries like China, Taiwan, USA, South Korea, Vietnam and Malaysia.
  • India currently exports approximately USD 25 billion annually, representing less than 1% of the global share despite 4% share in global demand.
• Various initiatives by the govt
  • 100% FDI is allowed under the automatic route.
    • In the case of defence electronics, FDI up to 49% is allowed through automatic route and beyond 49% requires government approval.
  • In order to position India as a global hub for ESDM, various schemes have been released. These include:
    • 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);
    • Modified Electronics Manufacturing Clusters Scheme (EMC 2.0).
  • Additionally, 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.
  • Other schemes such as – Digital India, Make In India, Phased Manufacturing Program, Electronic Cluster Manufacturing Scheme, Electronics Development Fund etc. have been launched to support the growth of this sector.
• Challenges
  • Relatively high import tariffs lead to higher costs of input parts, making the assembled product uncompetitive in global market.
    • India currently has one of the most complex tariff structures with multiple tariff slabs at 0%, 5%, 10%, 15% and 20%+, along with variety of surcharges.
    • Not only it increases costs of several sub-assemblies and components, it also leads to misinterpretations and disputes, thereby increasing compliance costs.
  • Lack of robust electronics component ecosystem
    • An ecosystem for high-complexity components such as SMD grade passives, semiconductors etc. does not currently exist.
  • Lack of access to the global demand as it has failed to proactively attract top brands from different electronics segments to establish large-scale operations in India.
  • High cost of capital due to India’s relatively high cost of financing, which ranges from 9% to 13%.
    • India’s tariffs are higher than China (4 per cent), Malaysia (3.5 per cent), and Mexico (2.7 per cent).
  • Lack of R&D and design ecosystem
  • Inadequate infrastructure facilities
  • Inadequate talent and skilling

Key highlights of the report

• USD 500 billion in electronics manufacturing by 2030
  • India should aim USD 500 billion in electronics manufacturing by 2030.
    • This ambitious target comprises USD 350 billion from finished goods manufacturing and USD 150 billion from components manufacturing.
  • The report added that such growth would create employment for about 6 million people.
• Projection in a business as usual (BAU) scenario
  • In a BAU scenario, the report noted that the projections indicate India's electronics manufacturing could escalate to USD 278 billion by FY30.
  • This includes USD 253 billion from finished goods and USD 25 billion from components manufacturing.
• Strategic interventions needed to achieve the goal of USD 500 billion by 2030
  • These include:
    • promoting components and capital goods manufacturing,
    • incentivising R&D and Design,
    • tariff rationalization,
    • skilling initiatives,
    • facilitation of technology transfers, and
    • infrastructure development to foster a robust electronics manufacturing ecosystem in India.
  • The report emphasised scaling up production in established segments such as mobile phones and establishing foothold in component manufacturing.
    • Additionally, it said there should be a strong focus on diversifying into emerging areas such as wearables, IoT devices, and automotive electronics.
  • To enhance competitiveness, India needs to localize high-tech components, strengthen design capabilities through R&D investments, and forge strategic partnerships with global technology leaders, the report noted.
  • The report also identified fiscal support to design-focussed companies alongside easing the process for technology transfer as key to boosting domestic electronics manufacturers’ role in global value chains (GVCs).
  • It also provides suggestions around improving access to skilled labour, by expediting visa approvals for professional visiting for training purposes and setting up Electronics Skill Training Hubs, and easing processes around technology transfer.
  • There is a need to develop a mechanism to fast-track approvals under Press Note 3 (2020) for specific proposals where foreign companies are critical for ecosystem development.
    • Press Note 3 (PN3) of 2020 was a policy amendment issued by the Government of India in April 2020 to regulate foreign direct investment (FDI) in Indian companies.
    • The note was intended to protect Indian companies from opportunistic takeovers during the COVID-19 pandemic and to ensure national security.