Can India Become an Electronics Manufacturing Hub?

• The government of India has approved a total outlay of EMC2.0 Scheme, valued at Rs 3,762.25 crore
• Many global corporations, in order to hedge the possible risks in the supply chain of the electronics and electronic components, have moved to Vietnam
• Forging a strong alliance between electronic manufacturers and component manufacturers is required

Electronics and electronic component manufacturing in India is on the uptick, thanks mainly to two factors; firstly, China losing its competitive advantage and secondly, the evolving ecosystem being created by the government to give a critical push to the sector. The government announced an incentive package to be provided to the sector in late March this year.

This was a follow up to the various measures that the government proposed in the last budget. It is important to note that Chinese dominance may also be affected by the impact of COVID-19, which has taken a heavy toll on the country’s economic landscape. Coming close on the heels of the trade war between the US and China, experts predict that it might take a longer time for the Chinese economy to be back on the rail.

The other dominant competitor – Vietnam

While industry associations are optimistic about the proposals just announced and hail the packages announced as a game-changer for the industry, it is important to take a reality check to know where India stands vis-a-vis its other dominant competitor– Vietnam.

Many global corporations, in order to hedge the possible risks in the supply chain of the electronics and electronic components, have moved to Vietnam. The general perception among the investors is that the investment ecosystem in Vietnam is better than India.

This relates to factors such as infrastructural bottlenecks, procedural delays, labour laws and a host of other benchmarks. Vietnam has also been witnessing a steady growth at an accelerated pace than India recently. Some Latin American countries, like Brazil, are investing heavily in the electronics sector to take advantage of the huge opportunities in the North American and European markets.

Schemes announced in India

The government has approved a total outlay of the Modified Electronics Manufacturing Clusters (EMC2.0) Scheme, valued at Rs 3,762.25 crore, which includes the financial assistance of Rs 3,725 crore and administrative and management expense to the tune of Rs 37.25 crore over a period of eight years.

A period of five years, that is up to October 2022, is available for disbursement of funds for the approved projects. It is a positive indication that India’s electronics production has increased from Rs 1,90,366 crore (US$29 billion) in 2014-15 to Rs 4,58,006 (US$ 70 billion) in 2018-19, at a compound annual growth rate (CAGR) of about 25 per cent.

The Scheme for Promotion of Manufacturing of Electronics Components and Semiconductors (SPECS) will provide a financial incentive of 25 per cent on capital expenditure for the select electronic goods that comprise downstream value chain of electronic products, i.e., electronic components, semiconductor/ display fabrication units, ATMP units, etc.

The scheme will also be applicable to expansion of capacity modernization and diversification of existing units along with investments in new units. It is also expected that these schemes will lead to Rs.10 lakh crore of manufacturing by 2025 and the creation of 20 lakh jobs in coming years.

Proper policy, planning and proactive implementation needed

However, it will be too simplistic a solution to advise the Indian industry to move in the value chain in the electronics sector. There should be a proactive partnership between the government and the electronics industry to pave the way for building a strong enabling situation.

Implicit in that partnership is the recognition that India can develop a strong production hub not only for mobile phones and accessories but also in a variety of items like medical devices, high-end electronic products, a wide range of electronic components including chips, connectors, micro digital items and the list is expanding.

What is needed is a proper policy, planning and proactive implementation. A classic example is the recent focus on the manufacturing of ventilators in the country. Some of the top organizations in India like ISRO, BEL, etc are giving technical inputs for the manufacture of ventilators.

Also, some start-ups have manufactured low-cost ventilators. Some time back, a few engineering graduates developed a robot which can clean sewers. There are also innovations taking place for developing low-cost healthcare products like glucometer, devices for measuring blood pressure etc. which will enable India to market these products to countries in Africa, CIS, SAARC etc.

Another important step could be forging a strong alliance between electronic manufacturers and component manufacturers. Some of the hardware parts being developed in the country have brought end producers and component manufacturers under one roof so as to bring down the transaction cost. But such policies, to bear fruit, should have accommodation and close affinity among all players. In short, all stakeholders in the electronics sector should have a close bond and they should not function in silos but as strong links of a chain. The chain becomes weak if one link becomes ineffective.

The author is Mr Rajiv Batra, Managing Director, Rabyte Electronic Pvt Ltd, India
Data source – Internet, views are personal.