In a major move to bolster its electronics manufacturing ecosystem, the Finance Ministry of India has approved an incentive scheme worth Rs. 25,000 crore (US$ 2.92 billion). This ambitious initiative is designed to promote the local manufacturing of electronic components and aims to generate an estimated Rs. 4,28,000-5,13,600 crore (US$ 50-60 billion) worth of components over the next five to six years.

Key Highlights of the Scheme

The new electronics components incentive scheme has received approval from the Finance Ministry and will soon be presented to the Cabinet for final approval. Set to roll out in April 2025, the scheme is expected to create a significant impact on the domestic electronics manufacturing landscape.

Initially, discussions between the Ministry of Electronics and Information Technology (MeitY) and the Finance Ministry suggested an allocation of Rs. 30,000-40,000 crore (US$ 3.5-4.67 billion). However, the final approved amount has been reduced to Rs. 25,000 crore, based on industry feedback regarding investment levels, demand, and production. Despite the reduction, the government is determined to ensure that the entire fund is utilized effectively, addressing the challenges faced in previous incentive schemes where funds remained underutilized.

Incentives Based on Manufacturing Constraints and Localisation

The scheme will offer incentives depending on two main factors:

1. Manufacturing Constraints: Products that face more difficulties in manufacturing compared to countries like China and Vietnam will receive higher incentives.
2. Localization Levels: The scheme will encourage greater localization in the production of electronic components, with a focus on reducing dependency on imported components.

Unlike earlier Production-Linked Incentive (PLI) schemes, which primarily targeted smartphone manufacturing, this initiative will focus on the capital-intensive nature of components and subassemblies. Building a comprehensive manufacturing ecosystem for components requires substantial investment, and the government aims to foster such growth through this targeted approach.

Meeting Future Demand and Enhancing Local Value Addition

India’s electronics industry is poised for tremendous growth, with demand for electronic components expected to reach Rs. 20,54,400 crore (US$ 240 billion) by 2030, up from Rs. 3,89,480 crore (US$ 45.5 billion) in 2023. This growth is driven largely by the increasing demand for domestic mobile phone production, and the government's strategic focus on self-reliance in electronics manufacturing is aligned with the nation’s broader goals of economic resilience and technological innovation.

The scheme’s overarching goal is to increase local value addition in electronics manufacturing, with the target set to achieve 35-40% local value addition during its tenure. By the end of the scheme, the aim is to cover 50% of the non-semiconductor material bill, thus significantly reducing India’s reliance on imported electronic components.

Addressing Customs Duty Concerns

The government has also acknowledged concerns raised by the domestic electronics industry regarding high customs duties on certain smartphone parts. Industry stakeholders argue that the current customs duties undermine the impact of the incentive schemes. As part of the ongoing strategy to strengthen local manufacturing, the government is likely to revisit the duty structure to create a more favorable environment for the industry.

Impact of the Scheme on Electronics Manufacturing

The Rs. 25,000 crore scheme is expected to have a profound effect on electronics manufacturing in India. With a clear focus on enhancing local capabilities, this initiative will:

• Create job opportunities in the electronics sector.
• Foster the growth of a robust local supply chain for electronic components.
• Support investment in cutting-edge technologies for the manufacture of high-value components.
• Encourage research and development in areas such as semiconductors, 5G technologies, and advanced consumer electronics.

The Road Ahead

As India continues to strengthen its position as a key player in the global electronics supply chain, this new scheme could be a game-changer for the domestic electronics industry. The government’s strategic push for self-reliance will not only stimulate economic growth but also position India as a leading hub for electronics manufacturing in the coming years.

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