India's electronics ambition faces hurdles, but there is a plan of action

The government wants to achieve $500 billion in electronics production in value by 2030.

 

To put this in perspective, this is more than the size of Vietnam’s gross domestic product (GDP) in 2023. Looking at it from another perspective, NITI Aayog, the government’s think tank, says India now has less than 1 per cent share of the global electronics trade flow (exports) of $3 trillion which takes place through global value chains (GVCs).

 

GVCs control 90 per cent of the global electronics production.  

 

It is here that China shines with a 30 per cent share of global electronics exports through GVCs. Even emerging countries such as Vietnam and Malaysia are well ahead of India. Vietnam’s electronics exports in value are six times India’s and Malaysia’s are nearly four times higher.

 

Secondly, India’s share of global electronics production, at 2 per cent, is half of Vietnam’s, while China dominates the $4.3 trillion market with a share of 59 per cent.

 

Clearly, the government must move in mission mode. But this is going to be a mission not so easy.

 

The odds

 

For starters, India has to ramp up electronics production by more than four times by 2030 from the FY24 figure of $115 billion. That is not so easy, considering that in the six years between FY17 and FY23, India managed to only double the value of its electronics production.

 

Indian Cellular and Electronics Association (ICEA), which has mobile device and electronics companies as its members, has said in its discussions with the government that, to achieve the target of $500 billion, at least $200 billion will have to come from exports and the rest will be from increase in the domestic production.

 

That means a 6.6 times increase in exports from FY24 and a 3.5 times increase in domestic production by 2030.

 

Of course, this is not the first time that the government has announced ambitious targets. In 2022, the Ministry of Electronics and Information Technology (MeitY) aimed at electronics production of $300 billion by 2026.

 

With two years to go, that target is looking more and more daunting.

 

Will the story repeat itself in 2030? 

 

MeitY’s plan of action

 

To be fair, this time the government is pushing the pedal and putting together a plan of action. One key element of that plan by MeitY is to launch a production-linked incentive (PLI) scheme for electronics components with an expected outlay of Rs 42,000 crore.

 

MeitY’s main objective is to incentivise global as well as home grown companies to build a vibrant component supply chain focused on assembly and subassemblies for assemblers in India as well as for exports.

 

It is a big opportunity. The global electronics component market is valued at $1.8 trillion and India’s electronics production is merely $11 billion – less than 1 per cent of this huge and growing opportunity.

 

It will also help substantially in reducing the concern in the government of the low level of localisation in electronics, which is pushing up the import bill. For instance, in mobile devices localisation is around 10 to 15 per cent, whereas the target under the PLI scheme is 35 to 40 per cent in two years. 

 

Still, the mobile phone is a success story the government can draw on. India already accounts for 12 per cent of the $490 billion global mobile production market. ICEA in its discussions with the government has said India could double mobile production from $57 billion to $120 billion by 2030.

 

That takes inspiration from Apple Inc increasing its global share of iPhone assembly from India, which has already passed the 10 per cent it had committed to achieve by the end of the PLI scheme in FY27. Most analysts expect nearly a third of the production of iPhones in value to have shifted from China to India by 2028.

 

That would entail tripling the market value of iPhones in India, which would mean crossing $60 billion by the end of 2030. With new players such as Google and most of the Chinese players now assembling their phones in India and Samsung playing an important role, the association estimates the target for 2030 could well be achievable.  

 

But that is not enough. Even if smartphones deliver on their promise, they would account for only a fourth of the $500 billion target. Where will the rest come from?

 

IT hardware lessons

 

The global production value of IT hardware (laptops, desktops, tablets, and small servers) is a substantial $400 billion – pretty close to that of smartphones, according to ICEA’s estimates. Yet, India’s share is a miniscule $5 billion, or just above 1 per cent. More than 90 per cent of the laptops sold in India are imported, a majority of them from China. India is just starting out.

 

The PLI scheme for IT hardware aims to generate a production value of $18 billion by the end of eight years. But a majority of the companies under the scheme look unlikely to meet their targets this year and a substantial number have not even started investing as they have not been able to generate orders.

 

There are other areas where India is not really in the game. In wearables and hearables, though the global production value is $80 billion, India, despite its large volumes, has less than $2 billion of this. In televisions, India’s share of global production is 4 per cent.

 

It is too early to fathom how much of the production value will be churned out by the upcoming semiconductor and fab projects, which are still a long way off from commercial production.  

 

Time to reassess?

 

What India needs is to replicate the Apple Inc model and get global giants to build scale in the country by focusing on not only the domestic market but  also exports.

 

MeitY has reached out to global and local players through stakeholders, especially about the electronics components PLI. But there are stumbling blocks that are not in the hands of the administrative ministry, the key ones being taxation and regulation.

 

Electronics companies say it is critical to reassess India’s disability vis-a-vis rival countries despite the PLI scheme offering benefits of 6-8 per cent. Indian import tariffs on components is still far higher than what rival countries charge. The cost of capital in the country is high (in Vietnam, interest on buying machines is nominal), ease of doing business (labour laws, for instance) is still an issue, and some companies complain of taxation and policy uncertainty (duties can sometimes be imposed suddenly).

 

“A reassessment has to be done of our cost disability over China, Vietnam, and now Mexico and Thailand. There is evidence that Vietnam and Mexico have gained far more from than India by supply chain shifts owing to US tariffs and politics of technology. We are already losing out,” says the top executive of a global company eligible for the electronics PLI.

 

The government has its task cut out.