Electronic components subsidy policy: Centre, industry disagree over job creation

“Take printed circuit board assembly (PCBA) for instance. The government is asking that we employ 3-4 people per PCBA unit produced locally. But, we are telling that the process is highly mechanised, and only needs 1-2 people per unit. There are many other components on which there has been a lot of back and forth as far as employment is concerned,” an industry executive said.

The IT Ministry did not respond to a request for comment.

Incentivising electronic components manufacturing is the next key frontier for India, after it successfully managed to localise assembly of finished electronics products such as smartphones. However, as smartphone companies like Apple and Samsung ramped up their assembly processes, it has resulted in a surge in import of component imports given that India has very little footprint in the domain, which is largely dominated by China.

The incentive policy for electronic components could have a government subsidy component to the tune of Rs 40,000 crore, with the expected investments in the space to the tune of Rs 82,000 crore. The government is exploring various incentive models, including subsidising either operational or capital expenditure or a combination of the two, depending on the type of component.
In an internal assessment, the government has also identified a “huge” demand-supply gap in the electronic components sector – to the tune of $100 billion for domestic consumption alone, and $140 billion if India wants to export some components. That would be almost ten times of what India’s current domestic capacity is. In 2022-23, electronic components production in the country stood at $10.75 billion accounting for only about 10 per cent of total electronics production.

In a deck prepared by the IT Ministry, the government has identified three key challenges facing India in terms of electronic components manufacturing. First is the current lack of domestic scale in the country. Second is a high investment to turnover ratio – in terms of finished products such as smartphones, which is what India is currently focusing on, every rupee of investment can bring it around Rs 20.

However, in case of electronic components, every rupee worth of investment will bring in between Rs 2- Rs 4. And third is that because India has big domestic demand, a large chunk of components are being imported: electronics imports is the second largest import commodity after oil, and account for nearly 75 per cent of the total electronics production in India.

Going by this trend, component demand is expected to reach $160 billion by 2028-29. “As component imports continue to grow at around 12 per cent, our component production with exports would have to grow by a CAGR of more than 53 per cent to meet demand,” the deck prepared by the IT Ministry said. This is why it is critical for the country to work out a domestic manufacturing scheme in the components sector.

The deck acknowledges that while post the production linked incentive (PLI) scheme for smartphones has resulted in a near tapering of imports of finished products, import of key components and sub-assemblies, including integrated circuits (ICs) increased from $29 billion in FY21 to $46.5 billion in FY23. Under the incentive policy, the government could offer an opex subsidy for non-solder mask passive components, flex PCBA, and sub-assembly display and camera modules. Mechanics, capital goods used in electronics manufacturing, and Lithium cells for electronics may receive capex subsidy. PCBs with more than eight layers, flex PCBs, and solder mask defined passive components could qualify for both an opex and capex subsidy.