India needs to significantly overhaul the import tariffs, provide fiscal incentives and work out schemes to become a significant player in the global value chain for electronics and grow the size of electronics manufacturing to $ 500 billion by 2030 from a little over $ 100 billion at present, according to a report by government think tank Niti Aayog.
Apart from fiscal support, the report also deals with the issue of skilling in the sector and easier visas for overseas workers and speeding up foreign direct investment proposals for countries sharing land border with India.
It talks of bringing in overseas high-level talent for high precision manufacturing and design with attractive incentives and expedited visa approvals for professionals visiting for training and business purposes. “Additionally, there is a need to develop a mechanism to fast track approvals under Press Note 3 (2020) for specific proposals where foreign companies are critical for ecosystem development,” the report ‘Electronics: Powering India’s Participation in Global Value Chains’ said.
Press Note 3 deals with investments from countries with which India shares a land border. Under this note the investment from these countries have to go through additional scrutiny which delays approvals. Many investment proposals from China in critical sectors get stuck because of the time taken. This additional scrutiny for FDI from neighbouring countries was brought during Cvoid to prevent opportunistic takeovers of Indian companies.
According to the report the electronics component manufacturing faces a cost disability of 14-18% which makes it difficult for component manufacturers to remain competitive and profitable under the current incentive structure. The component manufacturers also face much lower capital-to-output ratio.
“This disparity underscores the need for a dedicated incentive scheme tailored specifically for the component manufacturing that provides targeted support to bridge the economic gap,” the report said.
The report suggests providing operating expenses support for manufacturing of components that are less complex and are being produced at a smaller sale locally. For specific complex components like mechanics and Lithium-ion cells capital expenditure support can be considered. For components that are highly complex and have a high capital requirement, support in the form of operating expenses and capital expenses can be considered.
For overall electronics manufacturing the Niti Aayog report said high tariffs on components are hindering India’s ability to scale electronics exports and compete globally. Current high tariffs ranging from 0% to 20% inflates costs of inputs. On an average India;s tariffs are around 7.5% which are higher than China (4%), Malaysia (3.5%) and Mexico (2.7%). These high tariffs put Indian electronics exports at 5-6% cost disadvantage.
Additionally to bring down the production costsIndia needs to rationalise its tax structure in the electronics sector – both income tax and goods and services tax.
The report has also recommended fiscal incentives for scaling industrial infrastructure.
“The proposals in the report will be taken up with the other arms of the government,” secretary in the Ministry of Electronics and Information Technology S Krishnan said.
The $ 500 billion target for electronics manufacturing by 2030 includes $ 350 billion of finished goods and $ 150 billion in components. Of the total $ 200-225 billion will be exports. This will create 50-60 lakh additional jobs also. While the size of Indian electronics manufacturing is around $ 100 billion, the global electronics market is $ 4.3 trillion. If things move on a ‘Business as Usual’ basis with no targeted support and focus then the electronics industry will just reach $ 253 billion by that time.