Global and Indian original equipment manufacturers (OEMs) and component firms are urging the Ministry of Electronics and Information Technology (MeitY) to provide a combination of upfront capital expenditure (capex) support and production-linked incentives (PLI) under a proposed scheme to boost electronic component manufacturing in the country.
Capex Support and PLI: The Proposal
The proposed scheme seeks capex support on a pari-passu basis, ranging from 25 per cent to 40 per cent of the project cost, along with a PLI of 3 per cent-6 per cent on the production value. The Indian Cellular and Electronics Association (ICEA) is leading discussions with the government over a proposal similar to the semiconductor incentive scheme, which offers 50 per cent capex support for setting up silicon fabrication, ATMP (assembly, testing, marking, and packaging), and OSAT (outsourced semiconductor assembly and testing) units.
The ICEA’s proposal includes 40 per cent capex support for high-end printed circuit boards (PCBs) with eight layers and above, lithium-ion cells, and flexible PCB assembly. It also covers passive components like resistors, capacitors, and inductors used in mobile devices and personal computers. However, companies must commit to a minimum investment of Rs 1,000 crore, and only three players will be considered for support in each domain.
For sub-assemblies of camera modules, display assembly, mechanics, and vibrator motors, the ICEA has suggested a lower 25 per cent capex support. This also includes some passive components and PCBs with fewer than eight layers. Additionally, the ICEA has proposed a PLI support of 3-6 per cent across all other key electronics components, including those that will also receive capex support.
Addressing India’s Competitive Disadvantage
These discussions come in response to MeitY’s suggestion to stakeholders a few weeks ago to create a list of benchmarks for electronic component manufacturing PLI on four criteria. These include identifying India’s disability against competing countries, finding out foreign and homegrown players planning to invest in this space, and OEM suppliers ready to buy from them.
The ICEA has submitted its assessment of the electronics component market, stating that India aims to manufacture $300 billion worth of electronic products by 2026 and $1.2 trillion by 2032. This will lead to a demand for electronic components of $75-80 billion by 2026 and around $300 billion by 2032. To build a competitive ecosystem, India needs to develop a middle layer of electronic components like PCBs and resistors. The requirement for these is estimated to be around $30 billion by 2026 and $120 billion by 2032.
The Need for Scale and Investment
Companies argue that for core components, India will require factories with scale to become cost-competitive and have the potential for exports. They highlight that in assembly operations like for mobile devices, the total cumulative investment for each eligible player under the PLI scheme is only Rs 1,000 crore over five years. However, component manufacturing requires a substantially higher upfront capital investment to set up a plant with reasonable scale.
For instance, setting up a camera module unit could cost anything from Rs 3,000-4,000 crore, while a lithium-ion cell plant could cost as high as Rs 6,000-7,000 crore. Many global companies have been wary of making large investments in components, primarily citing government taxation policies and rapid changes.
Policy-Level Challenges and Solutions
There are also policy-level challenges to be resolved. A significant portion of electronic component manufacturing worldwide is controlled by Chinese companies. However, the current foreign direct investment (FDI) policy, with restrictions put in place after border clashes between India and China, makes it difficult for them to set up manufacturing facilities in India independently, through a joint venture, or even expand capacity for those already in the country. However, there have been hints that this policy might be reconsidered after the elections.
To address these challenges, the government needs to create a more conducive environment for investment. This includes simplifying the regulatory framework, providing consistent policy support, and ensuring a stable taxation regime. Additionally, developing robust infrastructure, such as component warehouses in strategic locations, can significantly reduce the cost and time of inward logistics.
Also read: India’s Path to Becoming a Hub for Electronics and Semiconductor Manufacturing
The Road Ahead
The Indian electronics industry stands at a critical juncture. With the right support and incentives, it has the potential to become a global manufacturing hub. The proposed capex support and PLI scheme can play a pivotal role in achieving this goal. By addressing the challenges faced by the industry and creating a conducive environment for investment, India can attract global players and foster the growth of its domestic manufacturers.
The proposed scheme, if implemented effectively, can drive significant growth in the electronics sector. It can lead to the creation of jobs, boost exports, and contribute to the overall economic growth of the country. The government, industry bodies, and private players need to work together to realize this vision and transform India into a global electronics manufacturing powerhouse.
In conclusion, the proposed capex support and PLI scheme for electronic component manufacturing is a step in the right direction. It has the potential to address the challenges faced by the industry and drive significant growth. However, its success will depend on effective implementation, consistent policy support, and collaboration between the government and industry stakeholders. With the right approach, India can achieve its goal of becoming a global leader in electronics manufacturing.
