Circuit breaker

The National Policy on Electronics could pave the way to make India the next major global hub for manufacturing of mobile phones, refrigerators, televisions and air-conditioners, if implemented seriously. The policy spells out clear goals, including achieving $400 billion turnover by 2025 and providing employment to over one crore people. The focus on developing India as a manufacturing hub for exports, in addition to the growing domestic opportunity, augurs well for the global electronics ecosystem which has been looking beyond China due to the rising labour costs in that country.

The fact, however, is that since 2012 the Centre has been trying to make India a global hub for electronics equipment but has achieved limited success. Imports of electronics hardware account for more than half of India’s domestic production, and this has been increasing rapidly, from $37 billion in 2014-15 to $53 billion in 2017-18. India’s electronics hardware output accounts for just 1.5 per cent of world output. However, the current push through interest subvention and a credit guarantee fund may not be adequate or even effective. Robust R&D is a pre-requisite to move up the value chain. The factors holding back R&D investment by industry, despite attractive tax breaks, need to be overcome. India’s scientific human resource pool needs to be engaged in this respect. The State could consider promoting R&D institutions through the PPP route, so that market orientation as well as long-term priorities go hand in hand.

Actual investments into the electronics sector have not been impressive. For example, an incentive package for setting up a semiconductor fabrication unit has had no takers. The semiconductor is the heart of any electronic product and getting a global player to start manufacturing it in India will be the key to the Make in India vision. The Modified Special Incentive Package Scheme (M-SIPS), launched in 2012, provided for a capital subsidy of 25 per cent for the electronics industry located in non-SEZ areas and 20 per cent for those in SEZ areas. As on September 30, 2018, 265 applications with proposed investment of ₹61,925 crore have been received under M-SIPS, out of which 188 applications with proposed investment of ₹40,922 crore have been approved. However, only ₹8,335 crore of actual investments has been made by 139 applicants so far. There has been some success in the manufacturing of mobile phones in the country. But even here local value addition is only around 7-8 per cent as most of the critical components are imported. With the demand for electronics hardware expected to rise rapidly to about $400 billion by 2023-24, India cannot afford to bear a huge foreign exchange outgo on the import of electronics alone. As the May 2016 NITI Aayog report on this sector observes, the production deficit is best remedied by adopting an export-orientation as against an import-substitution bias.

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