Electronics Manufacturing in India

Image Source - EFY Group

A paper titled "Globalize to Localize: Exporting at Scale and Deepening the Ecosystem are Vital to Higher Domestic Value Addition" was recently released by the government.

Highlights

ICRIER (India Council for Research on International Economic Relations) and India Cellular and Electronics Association collaborated on the report's creation (ICEA)

Significance:

• This study outlines India's strategy for the upcoming few years.
• It examines how India might reach its goals of $300 billion in electronics output and US$120 billion in exports by 2025 or 2026.
• The report's release will assist the government in determining the obstacles to be overcome and the approaches to take in order to meet this goal.
• Exports and the percentage of domestic value addition are correlated
• The empirical relationship between exports and the percentage of domestic value addition in prosperous exporting countries is examined in the paper.
• It reveals that the two variables have a short-term negative connection but a medium-term positive correlation.

Electronics Sector in India

• India's reliance on imported electronics increased in 2014.
• Current Situation: With 16 billion dollars in exports in FY 2021–2022 and a target of 21–25 billion dollars in exports the following year, India is currently a 76 billion dollar manufacturing economy.
• This year, the industry of electronics has increased to rank as India's sixth-largest export.
• The single largest portion of India's electronics exports is mobile phones.
• By the following year, they are anticipated to account for close to 50% of all electronics exports.
• Targets: India has set a clear target of 300 billion dollars in manufacturing and 120 billion dollars in exports by 2026.
• The goal is to become a trustworthy and dependable partner in global value chains.
• In order to make India more robust to supply chain disruptions, the government has consistently emphasised the need to enhance the country's domestic manufacturing environment.
• The expansion and strengthening of the electronics ecosystem are discussed in that approach.

Challenges in Electronics Sector

• Highest tariffs: When compared to other electronics centres like China and Vietnam, India has the highest levies on the import of components for electronic devices.
• India doesn't have a strong ecosystem of businesses producing the components needed for electrical devices locally.
• High import costs: Importing these components at a high cost is cited as a problem.
• Less advantageous subsidy: In areas like manufacturing machinery and R&D, Vietnam and China have more favourable subsidy regimes than India does.
• Taxation: India offers fewer income tax deductions and reductions to electronics makers than China and Vietnam do.
• Another issue facing the sector is the absence of free trade agreements with wealthy nations.

Suggestions in Report

Domestic marketplace for competition:

• India must act quickly to develop a competitive local ecosystem of auxiliary suppliers through industrial development programmes, sourcing fairs, and technological upgradation initiatives.

Emphasis on exports

• In addition to local production, suppliers, and consumption, exports are a crucial means of gaining access to the scales of the other economies with which we compete.
• Exports will have a domino effect on the supply chain, generating investments and supply chain interests that will boost value addition in the Indian electronics market.
• Electronics value chains are undergoing profound, irreversible upheaval in the wake of COVID.

Opportunities for India

• India is given the opportunity and current momentum.
• India has to export more products to catch up in the electronics manufacturing industry.

Adopt global measures.

• China and Vietnam follow the adage "first globalize, then localise," which indicates that in the early years, they were focused on reaching a global scale in exports, before changing their focus to place more of an emphasis on local content.
• The paper suggests a methodical strategy that might align India's export growth with that of China and Vietnam.
• The first step should be to export in large quantities to international markets (globalize), and the next step should be to enhance the proportion of local content (localize).

The significance of policies

• The paper makes various recommendations for measures and regulations necessary to develop India's larger electronics ecosystem.
• In addition, programs like Gati Shakti will help boost India's competitiveness.

Government Initiatives

• India used the Phased Manufacturing Program (PMP) as a starting point to create a mobile sector worth USD 36 billion.
• By methodically constructing a structure and strategy, India has been successful in outlining its objectives, which include having a $300 billion electronics manufacturing ecosystem with US$120 billion in exports by 2026.
• India is currently seeking $300 billion in total production and worldwide exports via Production Linked Incentives (PLI).
• The administration is developing measures that will boost domestic value addition over the next few years with exports as its main goal.

Way forward

• The development of a strong local component ecosystem and a strong local supply chain should be prioritised.
• In order to make Indian manufacturing resilient and competitive on a global scale, the issues relating to infrastructure, tariffs, and Free Trade Agreements must be handled.
• It is essential that the Indian electronics manufacturing sector makes optimum use of its resources and develops long-lasting indigenous capabilities.

About Indian Council for Research on International Economic Relations (ICRIER)

• Founded in August of 1981
• ICRIER is a non-profit, economic policy-focused think organization.

Main goal:

• To improve the link between India's policymakers and the global economy while also increasing the knowledge content of policymaking through the conduct of analytical research.
• Stakeholders: Prominent academics, decision-makers, and business executives make up the Board of Governors of ICRIER.

Five areas of focus:

• Trade, Investment, and External Relations (TIER),
• Growth, Employment, and Macroeconomics (GEM),
• Agriculture Policy, Sustainability, and Innovation (APSI)
• Startups, the digital economy, and innovation (DESI)
• Sustainability, urbanisation, and climate change (CCUS)

Also, Read - The cyber threat to Digital/Mobile banking