India poised to grow electronics manufacturing to $300 bn in 3-4 years: Rajeev Chandrasekhar

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November 02, 2021 9:05 PM

The world is seeking more trusted sources for electronics manufacturing post the outbreak of COVID-19 and India has all the essential elements in place to seize the opportunity, he said.

India has an “unprecedented opportunity” to grow electronics manufacturing to USD 300 billion in the next 3-4 years, building on scale, competitiveness, large market and enabling policies, Minister of State for Electronics and IT Rajeev Chandrasekhar said on Tuesday.

The world is seeking more trusted sources for electronics manufacturing post the outbreak of COVID-19 and India has all the essential elements in place to seize the opportunity, he said.

Chandrasekhar released a vision document on ‘increasing India’s electronics exports and share in Global Value Chain’ that outlines the sheer scale of opportunity along with challenges, and suggests a policy prescription for India to grow from current about USD 75 billion in 2020-21 to USD 300 billion by 2025. Of the USD 300 billion target, nearly 40 per cent would be exports.

The opportunity is “real”, the minister said noting that India has the ability to leverage its strengths in electronics design, systems design and software design alongwith manufacturing, to gain global marketshare.

The IT Ministry is committed to providing full support to the industry by way of PLI (Production Linked Incentive) schemes, logistics efficiencies and enabling policy to help the industry in achieving the targets, he promised. “…to be faced with once in a lifetime opportunity where global value chains for electronics are diversifying and looking for alternate trusted suppliers and sources of products…for India this is an unprecedented opportunity,” he said.

According to the vision document unveiled on Tuesday, the electronics sector has the potential to become one of the top exports of India in the next 3–5 years, together with a number of products for which important export hubs could be created in the country.

“The geographical concentration of the electronics Global Value Chain (GVCs) shows that most participants are in Asia. China and Vietnam are the most prominent among these,” it said.

In 2020, China’s and Vietnam’s electronics exports were respectively 70 and 11 times that of India. Attracting GVCs requires open trade and investment policies. Tariff and non-tariff barriers can deter the movement of component and sub-assembly manufacturers, it cautioned.

Any constraint on investments will also be a barrier to attracting GVCs. Stability of policies, reducing delays in processes, and incentives, are key to attracting FDI and ensuring efficient operations, it mooted. “India’s policies should be WTO-consistent as the inconsistent ones can be challenged by competitors and create an uncertain investment environment,” the report added.

Time is of essence, the report asserted calling for focus on establishing scale, GVCs and export momentum within the next 3-5 years. “The window of opportunity is short and this time should be used to establish as large a part of the GVC as possible,” it said.

Tiers 1, 2 and 3 manufacturers need to be incentivised to relocate manufacturing capacities for finished products, sub-assemblies and components from any nation, including China, Vietnam, Japan, South Korea, for a period of 1–4 years. The path taken for this could be 100 per cent FDI, or joint ventures.

To develop deeper Indian ecosystem, JVs with international manufacturers need to be encouraged, while incentivising Indian companies to manufacture global sub-assemblies and components to supply to GVCs for global consumption.

The report bats for ‘co-location’ for rapid increase in scale and skill development, seeks lowering of inputs tariffs and reduction of policy-related operational burden and delays.

“…stability and credibility of a policy regime requires that the announced policy be effectively implemented. This requires a monitoring mechanism that does not itself become burdensome, together with emphasis on addressing the shortcomings in policy implementation,” it said.

The report acknowledged the role of domestic firms in sustaining and expanding the ecosystem, even as global firms offer foundation and momentum for India’s exports and GVCs in electronics.

“During their growth process, the key challenges faced by domestic firms are the disruptive influence of predatory pricing by firms with deep pockets, the relatively high cost of money for capital investment and working capital, and difficulty in getting access to funds especially when they face acute (and even unfair) competition,” it highlighted.
Given that small and medium firms are cash strapped in comparison to the larger firms, access to funds should be made available through banks and an interest subvention scheme could be considered for domestic champions (or those selected for the PLI support programme), it recommended.

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