How far will the government’s ₹40,000-crore incentive take Indian manufacturing?

Would the government’s new ₹40,000-crore incentive scheme for the electronics sector move the needle in Indian manufacturing?

The government’s decision to enable large-scale electronics manufacturing has come at a time when manufacturing has come to a standstill following the Covid-19 outbreak.

The action to come up with a ₹40,995-crore production-linked incentive manufacturing scheme with an eye on boosting domestic production, in addition to attracting investment in specified electronic components, including assembly, testing, marking and packaging (ATMP) units and mobile phone manufacturing, has been welcomed.

“A scheme of this kind has not been attempted before and we needed this kind of ‘big bang’ thinking”, said Vinod Sharma, Chairman CII-National ICTE (Electronics) Committee, former President ELCINA, and MD, Deki Electronics.

“We have been working with the government, making India the leader in both design and manufacture of electronics and semiconductors,” according to Sandeep Aurora, Vice President – Business Development & Government Affairs, India Electronics and Semiconductor Association (IESA).

For the first time, the government has stated the following: “The scheme shall extend an incentive of 4 to 6 per cent on incremental sales (over the base year) of goods manufactured in India and covered under target segments, to eligible companies, for a period of five years subsequent to the base year as defined.”

Measures announced such as a production-linked incentive scheme (PLI) for promoting manufacturing of electronic components and semiconductors and Electronics Manufacturing Clusters (EMC) 2.0 are aimed at providing a much-needed fillip to the sector, say industry watchers.

“We hope that the government’s assurance of providing a financial incentive of 25 per cent on capital expenditure for the identified list of electronic goods, including electronic components and semiconductors, will help enable India to become the semiconductor manufacturing hub of the world,” said Kishan Jain, Director, Goldmedal Electricals.

There is widespread belief that companies such as Flex, Wistron, Foxconn, Dixon and others could give a push to manufacturing in India.

Further, the hope is laced with an intent to turn around Indian electronics manufacturing at a time when the world is looking to de-risk from China. “There is an opportunity for India to get the business instead of it going to Vietnam or Indonesia,” said Sharma.

Also, for India, electronic imports form the second-biggest line item after oil, with 8.5 per cent of its GDP spent on electronics. “The current global geopolitical framework puts India in a situation where we can and should take advantage by increasing investments (in domestic electronics manufacturing),” said Sandeep Aurora, Vice President – Business Development & Government Affairs, India Electronics and Semiconductor Association (IESA). PC makers like Dell, Lenovo and HP did not respond to comments.

In effect, the government has followed a similar model of funding part of the capital expenditure incurred in manufacturing. The point now is whether Indian mobile phone makers have the muscle to start investing, said a semiconductor start-up in Bengaluru.

According to IESA, the move is expected to increase production of mobile phones and components to around ₹10-lakh crore by 2025 and can attract new investments in electronics manufacturing of ₹50,000 crore. Apart from direct and indirect tax revenues which the government gains, around five lakh direct jobs and 15 lakh indirect jobs can be created.

All these tie up with what the Economic Survey this year had pointed to in terms of future manufacturing in India. Domestic value addition for mobile phones is expected to rise to 35- 40 per cent by 2025 from the current 20-25 per cent, due to the impetus provided by the government. Others like Nitin Kunkolienker, President, MAIT, pointed out that now India should put together a framework that is product-agnostic and where higher levels of value addition can be achieved. The industry hopes this exercise will also get extended to other electronic products such as medical and industrial.

However, concerns remain pertaining to the ₹3,000-crore outlay for components manufacturing. “Increasing the outlay would help this sector,” said Sharma.

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