To encourage participation of micro, small and medium enterprises (MSMEs) in electronics manufacturing, the government should reduce the minimum investment threshold under Production Linked Incentive (PLI) scheme, says a research study - titled "Promoting electronic manufacturing in India" - of MVIRDC World Trade Center Mumbai.

Launched in April 2020, the PLI scheme offers an incentive of 4 per cent to 6 per cent on incremental sales (over base year) of goods under target segments that are manufactured in India to eligible companies, for a period of five years subsequent to the base year (FY2019-20). According to MVIRDC study, government should reduce the investment limit under the PLI scheme for select electronic components to Rs 200 million from Rs 1,000 million as it will allow MSMEs to participate in this scheme. In addition, the study has suggested extension of PLI scheme to IT and datacom products (computers, laptops, tablets, servers) to offset domestic manufacturing disability.

"Government of India announced Production Linked Incentive (PLI) scheme to promote local manufacturing of mobile phones and specified electronic components. In order to avail of these incentives for specified electronic components, the government has prescribed minimum investment of Rs 1000 million over four years. The government should reduce this investment threshold to Rs 200 million, so that domestic small and medium enterprises can also set up electronic component manufacturing units and avail incentives under the scheme," said Sanjiv Narayan, Co-founder & Board Member, SGS Tekniks Manufacturing, and Past President of ELCINA (Electronic Industries Association of India), in the study.

According to ELCINA, India lacks robust supply chain for OEMs as the country does not have adequate manufacturing of components and raw materials, and is heavily dependent on imports. "Thus, we need to encourage a strong MSME sector which can be developed to strengthen the supply chain. There is also a need to invite large companies to fill in the gaps in supply chain particularly components such as passive chip components, high-end PCBs, etc, which require technology as well as large capex to be viable. Schemes such as SPECS and PLI will help in this and we also have to ensure that we encourage and support our MSMEs which have a crucial role to play in the supply chain," added ELCINA in the study.

Today, India depends on imports to meet more than 40 per cent of its electronic goods demand with imports of components such as printed circuit boards (PCBs), SMT components, memory, microprocessors and others increasing more rapidly in recent years. In fact, India’s trade deficit in the electronics sector is second largest after crude oil and it has increased from $ 34 billion in 2015-16 to $ 41 billion in 2019-20. "There is a need to control this burgeoning trade deficit by progressively increasing domestic value addition in electronic manufacturing," says the MVIRDC study. 

The report of MVIRDC World Trade Center Mumbai examines the opportunities and challenges facing the electronic manufacturing ecosystem in India. The report combines meticulous data analysis with a comprehensive primary survey involving leading manufacturers, industry associations, Electronic Sector Skill Council, policy analysts, independent consultants and other stakeholders. "Based on interaction with these stakeholders and granular analysis of data, the report presents market opportunities and policy suggestions to benefit from these opportunities," said Y R Warerkar, Director General, MVIRDC World Trade Center Mumbai.

The size of global exports in electronics goods is second largest after trade in fuel and mining products. World export market for 330 electronic goods stood at $ 2.45 trillion as of 2019, of which India’s exports was hardly $ 15.8 billion or 0.6 per cent. "Thus, there is huge potential to develop export-led manufacturing investment in this sector. In the information technology (IT) and datacom (Computers, laptops and servers) sector itself, there is export opportunity worth $ 360 billion," says the report.

India can recreate the success it achieved in bringing large scale manufacturing in automobile, power and heavy engineering, where leading global companies such as Cummins, ABB, Ford India, GE and others have made India a global hub for manufacturing and exports.

As per MVIRDC World Trade Center Mumbai study, India’s electronic production across seven categories grew at a CAGR of 20 per cent since 2013-14. These include consumer electronics, industrial electronics, computer hardware, mobile phones, strategic electronics, electronic components and Light Emitting Diodes (LEDs).

However, most of the components and sub-assemblies used in these products are imported from China, Taiwan and other countries. Therefore, the goal of electronic manufacturing has shifted from import-and-assemble to local manufacturing of components and sub-assemblies. India needs to increase progressively local value addition of electronic sub-assemblies, core components and materials to reduce dependence on import, says the study. 

Despite existing challenges, most of the survey respondents feel there is scope for attracting foreign investment in the current circumstance as many electronic manufacturing companies are looking for alternative destinations to diversify their supply chains. According to them, India can be a hub for export-oriented electronic manufacturing if the central government and state governments coordinate to provide right policy environment.