Silicon dreams

| Updated on June 15, 2020 Published on June 14, 2020

The new electronic manufacturing policies are well thought out but depend crucially on execution

India’s looking to seize the moment and become an electronics manufacturing giant in the post-Covid-19 era. The Centre’s newly unveiled policies involve spending ₹50,000 crore and aim to attract everyone from semiconductor manufacturers to mobile phone and component giants. Crucially, India’s hoping to lure global mobile phone-makers that want to reduce dependence on China and also present itself as a more attractive alternative to Vietnam. To convince the mobile heavyweights to shift production to India, the Centre is, most importantly, offering productivity-linked incentives (PLIs) of 4 per cent to 6 per cent. The India Cellular and Electronics Association (ICEA) says India should aim for annual mobile phone exports of $100 billion by 2025. That’s an astronomical target given mobile-phone exports were worth $2 billion in the last fiscal year. India will primarily attempt to draw the top five mobile phone-makers which control 74 per cent of the global market in volume terms. It will also look to promoting local mobile-phone companies, hoping to turn them into world-beaters.

The PLI scheme’s the most crucial part of the government’s three-part policy and will last for five years. The government has dropped various conditions about plant and machinery that will make it more attractive for Apple’s contract manufacturers like Foxconn and Wistron to bring larger chunks of production to India. Aside from the PLI announcement, there’s a Scheme for Promotion of Manufacturing of Components and Semiconductors (SPECS) under which the government will offer a 25 per cent incentive on capital expenditure, most importantly to encourage component manufacturers to shift to India. The third part of the package is EMC 2.0 under which the government will offer pre-built factory sheds and other facilities for manufacturers moving into the country. The schemes are also looking at attracting semiconductor manufacturers and India is reportedly in talks with companies involved in ATMP (assembly, testing marking and packaging). India’s really late into this game and it could be a tougher sell.

The packages look more alluring than any preceding them. The key to whether they succeed will hinge largely on implementation. As ICEA remarks: “Success of the PLI Scheme is entirely premised on the guidelines being practical, competitive and ensuring that the disbursement is efficient and timely.” In addition, there’s the question of civil service caution: Will bureaucrats, who’ve seen colleagues being burnt in the past, be willing to sign off money to the private sector? But the fact is that to cater to global markets, India needs to compensate for structural and governance issues such as high power, transaction and logistics costs, and overall ease of doing business. This renders India almost 10 per cent to 20 per cent less competitive than Vietnam and China, respectively. In the short run, the Centre must provide WTO-compliant and easy-to-implement incentives. India’s been stuck on the electronics export runway for too long.

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Published on June 14, 2020
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