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Catching up with China and South Korea in Electronics

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September 15, 2021

What is the issue?

To make India a global hub for electronics manufacturing, the government must come up with more incentives beyond The National Policy on Electronics 2019

What is India’s position with respect to electronics?

Electronics

  • Between 2015 and 2020, domestic electronics production jumped from $29 billion to $81.5 billion, a 23 per cent Compounded Annual Growth Rate (CAGR).
  • India is the second largest manufacturer of mobile phones, though most of the components are imported.
  • Now electronics manufacturing makes up 2.7 per cent of India’s GDP.
  • This growth is attributed to the assembly of finished products from imported electronic components
  • Electronics made up as much as 3.74 per cent of total exports in 2019-20.
  • However, electronics imports fell only four per cent in 2019-20.
  • Domestic demand for electronics hardware is expected to increase to around $400 billion by 2025.
  •  Even 10 per cent of this manufactured domestically would lead to significant revenue or employment being generated.

What are the issues in this sector?

  • Inadequate infrastructure
  • Domestic supply chain and logistics challenges
  • High cost of finance
  • Inadequate availability of quality power
  • Limited design capabilities and focus on R&D by the industry
  • Inadequacies in skill development

What initiatives have been taken to promote electronics manufacturing?

  • Modified Special Incentive Scheme (MSIPS) - offers subsidies for electronics industry was launched in 2012.
  • Phased Manufacturing Programme – was launched to promote use of locally made components in mobile phones.
  • Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS)- aims to provide financial incentive of 25 per cent on capital expenditure for the identified list of electronic goods
  • PLI scheme - provides a 4-6 per cent incentive on incremental sales of goods manufactured in India for a period of 5 years

What can we learn from China and South Korea?

China and South Korea control around 48 per cent of the electronics manufacturing market in the world

  • The Chinese government has provided investment and grants of up to 60 per cent of project cost and even 50 per cent subsidies in R&D costs.
  • South Korean government has provided financial support to specific clusters, fund for building plants, tax incentives, low-interest loans and duty-free import of select capital goods.
  • India needs heavy investment in building the R&D ecosystem.
  • To make India a global hub for electronics manufacturing, the government must come up with more short-term incentives.

 

Source: The Hindu, Business Line

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