Tougher rules on China tech deals put India's electronics sector on edge

India's electronics ambitions face delays as tighter scrutiny on Chinese tech partnerships stalls critical joint ventures ahead of a key manufacturing deadline

India’s ambitions to become a global hub for electronics manufacturing are facing a fresh challenge. Several Indian electronics firms are finding it difficult to secure government approvals for joint ventures (JVs) with Chinese companies, especially those involving technology transfers, The Economic Times reported.

 

This delay has cast a shadow over plans to meet the fast-approaching July 31 deadline for applying under the Centre’s incentive scheme for electronics components manufacturing, according to the report.

 

The heightened scrutiny comes amid escalating geopolitical tensions, with China extending diplomatic support to Pakistan during the recent conflict, and India launching Operation Sindoor in response to the Pahalgam terrorist attack.

 

JV plans on shaky ground 

Top executives in India’s electronics ecosystem are now rushing to secure clarity. On Monday, a senior executive at a leading Indian contract manufacturer flew out to meet Chinese partners for damage control. The talks were aimed at reassuring Chinese firms that existing mobile phone manufacturing joint ventures would not be derailed, sources told The Economic Times.

 

A major concern among Chinese partners is the Indian government’s unofficial stance of capping their stake in JVs at 10 per cent, especially for ventures where technology transfer is involved. This stake limitation would also exclude Chinese partners from active participation in day-to-day operations.

 

As a result, many Indian firms, which had been in advanced discussions with Chinese counterparts for setting up components units, are now back to square one. Some are exploring partnerships with suppliers in other countries. However, this is easier said than done, given that most suppliers of essential components — like displays and camera modules, especially for budget smartphones—are Chinese.

 

“Getting a Chinese partner to transfer proprietary technology may need financial incentives above and beyond equity stakes,” an industry executive was quoted as saying. “There is significant worry among companies planning to enter the components space. Assembly plans are facing delays, possibly linked to the recent conflict.” 

 

 

Apple also faces headwinds 

Apple, which has been rapidly scaling up its manufacturing base in India, could also be affected. Sources told The Economic Times the tech giant’s efforts to bring Chinese camera module supplier Sunny Opticals to India may face delays due to the current policy environment.

 

“Apple was planning to get its component suppliers to India as part of the ongoing shift since last year,” an industry executive said. “Talks were at advanced stages for a joint venture with an Indian enterprise, but the government is now hesitant in granting approvals,” he said.

 

Dragon dilemma in trade 

The broader context includes a shift by Chinese electronics players to invest more in India, especially after the US under US President Donald Trump imposed tariff barriers. But New Delhi’s new conditions stipulate that Chinese companies can only hold up to 10 per cent equity in Indian JVs, and only if they agree to transfer technology.

 

One firm that might navigate this landscape better is Dixon Technologies. Its Executive Chairman Sunil Vachani said the company’s JV with China’s HKC is structured to limit the Chinese stake to 26 per cent, and that approval is still awaited under Press Note 3 rules.

 

“We have only just applied for Press Note 3 approval for the joint venture with [China’s] HKC. It is yet to go to any particular committee or ministry, so it is difficult to say whether it will get affected by recent events,” Vachani was quoted as saying.

 

 

Dixon eyes local value addition

 

Dixon, a key player in India’s contract manufacturing space, is aiming to backward integrate its smartphone and IT hardware assembly operations with electronics component production to improve margins.

 

Press Note 3, implemented in 2020 amid worsening India-China relations, mandates that investments from companies based in neighbouring countries must obtain government approval.

 

Vachani noted that smaller Chinese stakes in JVs might be more feasible under current geopolitical and regulatory conditions.

 

However, industry insiders caution that limiting Chinese participation could hinder real progress. “Given the nature of the business, higher stakes and active involvement in operations are necessary since the products that are manufactured are continuously refreshed and introducing each iteration requires supervision,” one expert mentioned.