India must significantly revamp its import tariffs, provide fiscal incentives, and develop targeted schemes to emerge as a significant player in the global electronics value chain, according to a recent report by the government think tank Niti Aayog.
The report outlines a strategic roadmap to expand the size of electronics manufacturing in India to $500 billion by 2030, a substantial leap from its current value of just over $100 billion.
The report emphasizes that alongside fiscal support, skilling in the sector and easier visa processes for overseas workers are crucial. It also calls for expediting foreign direct investment (FDI) proposals, particularly those from countries sharing a land border with India. Press Note 3, which governs investments from neighboring countries, mandates additional scrutiny for such FDI proposals.
This measure, introduced during the COVID-19 pandemic to prevent opportunistic takeovers, often delays approvals, particularly impacting investment proposals from China in critical sectors.
Niti Aayog’s report highlights a significant cost disability of 14-18% faced by electronics component manufacturers, making it challenging for them to remain competitive and profitable under the current incentive structure.
The sector also struggles with a lower capital-to-output ratio, further hindering growth.
“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 stated.
To address these challenges, the report suggests providing operating expenses support for the manufacturing of simpler components produced on a smaller scale locally. For more complex components such as mechanics and lithium-ion cells, capital expenditure support can be considered.
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