Catching up with China and South Korea in Electronics

What is the issue?

To make India a global hub for electronics manufacturing, the government must come up with more incentives beyond The National Policy on Electronics 2019

What is India’s position with respect to electronics?

• Between 2015 and 2020, domestic electronics production jumped from $29 billion to $81.5 billion, a 23 per cent Compounded Annual Growth Rate (CAGR).
• India is the second largest manufacturer of mobile phones, though most of the components are imported.
• Now electronics manufacturing makes up 2.7 per cent of India’s GDP.
• This growth is attributed to the assembly of finished products from imported electronic components
• Electronics made up as much as 3.74 per cent of total exports in 2019-20.
• However, electronics imports fell only four per cent in 2019-20.
• Domestic demand for electronics hardware is expected to increase to around $400 billion by 2025.
•  Even 10 per cent of this manufactured domestically would lead to significant revenue or employment being generated.

What are the issues in this sector?

• Inadequate infrastructure
• Domestic supply chain and logistics challenges
• High cost of finance
• Inadequate availability of quality power
• Limited design capabilities and focus on R&D by the industry
• Inadequacies in skill development

What initiatives have been taken to promote electronics manufacturing?

• Modified Special Incentive Scheme (MSIPS) - offers subsidies for electronics industry was launched in 2012.
• Phased Manufacturing Programme – was launched to promote use of locally made components in mobile phones.
• Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS)- aims to provide financial incentive of 25 per cent on capital expenditure for the identified list of electronic goods
• PLI scheme - provides a 4-6 per cent incentive on incremental sales of goods manufactured in India for a period of 5 years

What can we learn from China and South Korea?

China and South Korea control around 48 per cent of the electronics manufacturing market in the world

• The Chinese government has provided investment and grants of up to 60 per cent of project cost and even 50 per cent subsidies in R&D costs.
• South Korean government has provided financial support to specific clusters, fund for building plants, tax incentives, low-interest loans and duty-free import of select capital goods.
• India needs heavy investment in building the R&D ecosystem.
• To make India a global hub for electronics manufacturing, the government must come up with more short-term incentives.

Source: The Hindu, Business Line