India's Electronics Sector: Pathway to Global Value Chain Integration

Electronics manufacturing plays an essential role in the global supply chain, fuelling everything from electric cars on the road to smartphones in our pockets. According to a NITI Aayog report, the value of the global electronics market in 2022 is estimated at US$ 4.3 trillion with India’s contribution valued at US$ 155 billion in that year. India intends to be an important contributor to the global electronics industry. The country’s electronics industry has grown significantly in recent years with production value increasing more than 2x between FY17 and FY23. Mobile phone customers, which presently make up 43% of the entire nation's electronics production, have been an important factor contributing to this development. The ‘Make in India’ campaign and production-linked incentives (PLIs), which stimulate domestic manufacturing, are the key measures that the Indian government currently has in place to foster that expansion.

In the last five years, India has attempted to enhance its domestic production so that it can service its expanding market effectively. While the exports are still small, research suggests that there is scope for policies that would enable the country to reach 4-5% of the global electronics exports by 2030.

The sector is wide and includes the areas of semiconductor, mobile phones, electronics – consumers, industry and communications equipment. It is important for the economy, making a significant contribution to jobs, exports and manufacturing output.

Global Value Chains (GVCs) and their importance

GVC refers to the full range of activities that firms engage in to bring a product from conception to market, including design, production, marketing, and distribution across international borders. Its importance lies in enhancing efficiency, reducing costs, and enabling firms to leverage global resources and capabilities, ultimately driving competitiveness in the global market.

Economic liberalisation has played a crucial role in India’s integration into GVCs. The 1991 Economic Reformsprovided the groundwork for India’s participation in GVCs by encouraging market openness, reducing trade barriers, and fostering competition. The introduction of GST(Goods and Services Tax) in 2017 helped simplify the tax structure, reducing costs and enhancing supply chain efficiencies for manufacturers.

Furthermore, Free Trade Agreements (FTAs) with regional neighbours, such as the ASEAN-India FTA, have provided Indian manufacturers with preferential access to critical markets, encouraging more foreign companies to establish production facilities in India. This has also helped India align itself with the global trade system.

Increase in electronic sector production

India's domestic electronics production has nearly doubled from US$ 48 billion in FY17 to US$ 101 billion in FY23, driven largely by mobile phones, which account for 43% of production. This growth has been facilitated by government initiatives such as ‘Make in India’ and PLIs. However, production primarily focuses on final assembly, while component manufacturing and design ecosystems are still in the developing phase. As of 2023, the mobile phone market contributed to over 43% of the nation's total electronics production with an annual cost of about US$ 17 billion.

India's presence across the electronics value chain

Indian firms have expanded their presence across newer segments of the mobile phone value chain in the past five years, as per the analysis done by PwC. It includes Research and Development (R&D), design, manufacturing, assembly, marketing and sales and distribution.

India has witnessed the establishment of several new electronics units, showcasing the country's progression towards becoming a key player in the global electronics value chain.

• Taiwan's Foxconn technology group and India's HCL Group to establish a semiconductor Outsourced Assembly and Testing (OSAT) unit. This initiative underscores India's increasing participation in high-tech manufacturing processes within the electronics industry.
• Havells India Ltd, a manufacturer of consumer electrical goods, announced to invest (US$ 57.68 million) Rs. 480 crore in establishing a refrigerator manufacturing facility in Ghiloth, Rajasthan. The new plant is projected to have an annual production capacity of 1.4 million units. This investment is expected to be operational by the second quarter of FY27.
• Consumer electronics company Ekka Electronics announced its plan to invest (US$ 120.16 million) Rs. 1,000 crore to establish a manufacturing facility in Noida, Uttar Pradesh, marking its entry into the production of electronic products. Out of the total investment, (US$ 48.07 million) Rs. 400 crore will be allocated specifically for the Noida plant.

These developments highlight India's efforts to enhance its capabilities in electronic manufacturing and technology integration, contributing to the country's growing influence in the sector.

Government initiatives

India's government has been proactive in developing policies to promote electronics manufacturing and GVC integration. Key initiatives include:

• Make in India initiative: The effort draws in international investment and promotes native production. Its goal is to promote home production in several industries, including electronics.
• PLI schemes: These initiatives provide incentives to Indian electronic manufacturing enterprises. The PLI programmes seek to increase domestic manufacturing and exports, especially in industries such as automotive gadgets, IT hardware and mobile phones. For various components of the electronics ecosystem, there are distinct PLI schemes, including:
  • Scheme for Promotion of Manufacturing of Electronic Components & Semiconductors (SPECS)
  • Large Scale Electronics Manufacturing
  • Automobile and Automotive Components
  • IT Hardware and Telecom
• Phased manufacturing programme: The objective of this programme is to encourage semiconductor and electronic component production.
• India semiconductor mission: The entire electronics manufacturing ecosystem in India is to be expanded as part of this goal. Attracting multinational semiconductor industry players to invest in the country is the primary objective.
• Electronics manufacturing clusters Scheme: This programme promotes the building of common areas, tool rooms and testing facilities as well as additional infrastructure for the electronics manufacturing sector. The EMC plan aims to set up local hubs of electronics manufacturing.
• Electronics development fund: The goal of this initiative is to contribute to the development and infrastructure of the electronic system design and manufacturing sector.

Initiatives taken by government towards electronics production ambition

India's electronics production ambition for 2030 is to reach US$ 500 billion, a significant increase from the US$ 101 billion in FY23. This ambition is supported by a targeted approach that includes specific policy initiatives, financial benefits, and strategic interventions.

Mobile phones, IT hardware, automotive electronics and telecom are important growth industries that are bolstered by trade and export promotion policies, R&D investments, and fiscal and non-fiscal initiatives. With a US$ 10 billion government programme for capital-intensive components, the strategy calls for increasing production of high-value components including semiconductors (Category A), technology-intensive components (Category B) and current manufacturing capabilities (Category C). It is anticipated that this approach, when supported by strong policy support and strategic steps, will generate employment between 5.5 to 6 million jobs by 2030.

Source: Niti Aayog

Fiscal and non-fiscal incentives: To assist the electronics industry, the government is implementing fiscal and non-fiscal policies, such as infrastructure development, R&D assistance, and tax advantages. Among the budgetary interventions are:

• Operating expenses support for scaling the manufacturing of low-complexity components.
• Capital expenditure (capex) support for high-complexity components
• Hybrid support for high-complexity components
• Incentives for R&D and innovation centres
• Schemes to promote scale for products that are 'designed in India.’ Investment in infrastructure, including large-scale clusters with essential common facilities

India's government offers investment programmes for the electronics industry that are intended to attract both global and domestic capital to increase the sector's overall growth, manufacturing, and R&D. These systems fall under two main types, to put it broadly: both non-fiscal and fiscal interventions.

• Non-fiscal interventions:
  Taxes and tariffs are being streamlined to enhance the export competitiveness of finished goods. Additionally, top talent is being attracted through incentives and expedited visa processing.
  
  Policy Goals
  • Self-reliance: Government initiatives are aimed at fostering self-reliance in critical technologies and reducing dependence on imports.
  • Boosting exports: The government's goal is to boost electronics exports. India is aiming to reach a 4-5% share in global electronics exports by 2030.
  • Increasing domestic production: These policies seek to increase the value of India's electronics production to reach US$ 500 billion by 2030.

• Fiscal interventions:
  The goal of fiscal interventions in India's electronics manufacturing sector is to reduce costs and attract investments, with an emphasis on infrastructure and component manufacturing. For low-complexity components such as glass and casings, incentives include operating expense support; for complex components such as lithium-ion cells and capex support; and for high-complexity materials such as SMT-grade PCBs and hybrid support. Product Innovation and scale-up schemes encourage R&D and the introduction of Indian-designed products to motivate innovation. To create desirable manufacturing centres, industrial infrastructure support focuses on building large-scale clusters (four greenfield and six brownfield), offering shared facilities, localised regulations, worker housing and enhanced connectivity.
  Technology transfer, skill gaps and business issues are all addressed via non-fiscal solutions. While skilling attempts to encourage industry-academia partnership, vocational preparedness, and training hubs to address skills shortages, tariff simplification lowers the cost of imports and rationalises taxes. To make business simpler, technology transfer is made simpler with speedier approvals, streamlined permissions and minimised compliance payments. The collective goal of each of these efforts is to improve India's global standing and fortify its electronics industry.

Infrastructure development

India has focused on improving its manufacturing infrastructure to speed up GVC integration. An environment that is conducive to the manufacture of electronics is being created by the growth of clusters of industries and Electronics Manufacturing Zones (EMZs). Alongside this infrastructure development, logistical networks—such as ports, roads and freight corridors are being developed. These pathways are vital for both local production and exports abroad. Electronics including solar panels, batteries and telecommunications equipment are in high demand due to the government's emphasis on smart cities and the electrification of rural areas.

• Technological advancements and skill development
  India has made notable strides in technology, with significant R&D investments in semiconductors, 5G and Artificial Intelligence (AI), reaching US$ 10 billion in 2022. The country produces over 1.5 million STEM graduates annually and boasts more than 1,000 engineering colleges, including the renowned Indian Institutes of Technology (IITs). Initiatives such as the Electronics Sector Skills Council of India (ESSCI) are focused on bridging the skills gap in the electronics industry. These efforts, combined with a growing technical workforce, position India as a rising hub for innovation, manufacturing, and export growth in the global electronics market.

Opportunities for India in GVCs

• Access to global markets
  With less than 1% of the global electronics trade flow, India has a very low level of involvement in this market. India's exports are still quite small, despite a significant increase in domestic electronics production. India exports over US$ 25 billion value of electronics each fiscal year. The equivalent of US$ 4.3 trillion is being spent on electronics globally. China tops the world in electronics exports, which are valued at an estimated US$ 3.0 trillion.

Outlook

India's electronics sector is on the cusp of significant growth, fuelled by government initiatives, a young and expanding middle class and rising per capita income. The country is a leader in the final assembly, producing 99% of the smartphones sold domestically. India is focusing on key industries such as telecom, consumer electronics, IT hardware, mobile phones, and automobiles to unlock its full potential. Additionally, there is a push to promote ‘Designed in India’ products. Policies such as the SPECS and PLI schemes aim to boost both exports and domestic manufacturing. India seeks to strengthen its position in GVCs and establish itself as a prominent manufacturing hub, generating millions of jobs and driving economic growth.