NITI plans to boost India's electronics, auto global value chain share

In talks with industry, Centre, states for 4-pronged strategy

The NITI Aayog is anchoring a strategy to expand the country’s global value chains (GVCs) and, through those, increase its manufacturing footprint worldwide.

For this, it has identified automotive and electronics as two priority sectors, which, it says, are not only “dominant” but they also hold “high penetration potential”.

A GVC is international production sharing by which a full range of activities to bring a product from conception to end use are divided among multiple firms and workers across geographies (like what Apple Inc does for iPhones).
 

According to the Organisation for Economic Cooperation and Development, 70 per cent of global trade is centred around GVCs, which offer countries and their firms the opportunity to use their comparative advantage and specialise in various areas. 

But India’s share of export through global GVCs is only 1.5 per cent, according to the Asian Development Bank.
 

In a concept note prepared for a workshop a few days ago with stakeholders, which included companies, the Confederation of Indian Industry and other industry associations, and state governments, it charted a four-pronged strategy to increase India’s GVC play in the auto sector. It said the sector in India contributed 3 per cent ($20 billion) of the global auto-component GVC of $700 billion.   

Further, India contributed 3 per cent of ICE (internal combustion engine) GVC ($650 billion), within which drive transmission and steering engine components account for a major share.

However, in electric-vehicle GVC (excluding cells) India’s contribution is less than 1 per cent and only in the export of e-motors. However, unrecognised participation by global delivery centres of Tier-I suppliers and original equipment manufacturers ($15-17 billion) comprise a significant share.

Pointing to the broad four-point strategy, the concept note said concerted efforts had to be made by stakeholders to double down on “right segments and sub-segments” with attractive opportunities and a “natural right to win”.

Next, it will need leveraging participation by industry and academia to increase cost competitiveness and capitalise on emerging opportunities. Then, there has to be a focus on building talent through skilling and hard infrastructure through plug-and-play and incubator programmes to build “base line capabilities” on a par with global standards.

Finally, the government should come up with initiatives to increase ease of doing business, incentivise green tech, and establish trade agreements.

For the electronics sector, the four-pronged strategy is for the government to increase strategic fiscal support (like production-linked incentives), and provide financial assistance and address cost disabilities. Two, it wants a big push from global firms (like Apple and Samsung) to make big bets on domestic and global markets. Thirdly, there should be a move towards localisation by increasing scale of assembly to spur demand for local sub-assemblies. And the fourth point is to deepen value addition by extending capabilities to Indian suppliers to product design and development.

Explaining the reason for this approach, the paper said the Indian electronics market was valued at $155 billion in FY23 and was expected to grow at a compound annual growth rate of 15 per cent, driven by government support and foreign direct investment.

While a five-fold increase in India’s electronics exports is expected -- from $24 billion in FY23 to $120 billion in FY26 -- despite a notable scale in electronics assembly in the last two years, there remains significant dependence on imports of components and semiconductors, which needs to be addressed.