Cabinet Approves ₹22,919 Crore Scheme for Electronic Components Manufacturing
In a significant move to boost India's electronics manufacturing sector, the Union Cabinet has approved a ₹22,919 crore incentive scheme for electronic components production. The six-year program aims to strengthen India's position in global value chains while increasing domestic value addition in the rapidly growing electronics sector.
Key Objectives and Economic Impact
The newly approved scheme is designed to catalyze substantial growth in the electronics manufacturing ecosystem. According to government projections, the initiative is expected to generate:
- Production worth ₹4.56 lakh crore
- Incremental investment of ₹59,350 crore
- Creation of 91,600 direct jobs
A distinctive feature of this scheme is that participating companies' yearly subsidies will be directly linked to the number of jobs they create, alongside capital expenditure needs and annual production metrics.
Target Components and Applications
The government has identified several critical electronic components to be manufactured under this scheme, including:
- Display modules
- Sub-assembly camera modules
- Printed circuit board assemblies
- Lithium cell enclosures
- Resistors and capacitors
- Ferrites
These components are essential for a wide range of consumer electronics and home appliances, from smartphones and laptops to refrigerators, microwave ovens, and toasters.
Strategic Shift from Import Substitution to Export Promotion
Union IT Minister Ashwini Vaishnaw emphasized a significant shift in the approach to electronics manufacturing, stating: "We need to come out of the import substitution mindset and go forward with export-led promotion. Viability comes after large-scale manufacturing."
The Minister noted that electronics manufacturing in India currently stands at approximately $120 billion, with ambitious plans to expand to $500 billion in the coming years. This remarkable growth target underscores the government's commitment to making electronics a cornerstone of India's economic development strategy.
Addressing the Components Gap
Despite the success of earlier Production Linked Incentive (PLI) schemes in attracting global giants like Apple and Samsung to establish assembly operations in India, domestic value addition has remained relatively low at 15-20%. The government aims to increase this to 30-40% through the new components scheme.
An internal assessment by the IT Ministry identified a massive demand-supply gap in the electronic components sector:
- Gap of $100 billion for domestic consumption alone
- Potential gap of $140 billion if India pursues component exports
- Current domestic production capacity of just $10.75 billion (2022-23)
Electronics currently ranks as India's second-largest import commodity after oil, accounting for nearly 75% of the total electronics production in the country. This high import dependency highlights the critical need for developing robust domestic manufacturing capabilities.
Key Challenges in Components Manufacturing
The government has identified three major challenges that need to be addressed to build a successful electronic components ecosystem in India:
- Lack of domestic scale - Current production volumes are insufficient to achieve cost competitiveness
- High investment-to-turnover ratio - While smartphone manufacturing yields approximately ₹20 for every rupee invested, component manufacturing typically generates only ₹2-4 per rupee invested
- Growing import dependency - Component imports are increasing at around 12% annually, requiring domestic production to grow at a CAGR of more than 53% to meet projected demand of $160 billion by 2028-29
Complementary Measures to Support Growth
To further bolster the electronics manufacturing ecosystem, the IT Ministry is coordinating with other government departments on several fronts:
- Discussions with the Labour Ministry on sector-specific labor reforms
- Working with the Commerce Ministry to resolve classification issues for components
- Engaging with the Finance Ministry on rationalizing import duties
While the PLI scheme for smartphones has successfully reduced imports of finished products, imports of key components and sub-assemblies have continued to rise, increasing from $29 billion in FY21 to $46.5 billion in FY23. The new components scheme aims to address this growing dependency on imports.
With electronics already among India's three largest exported commodities (valued at ₹2.5 lakh crore), the government expects this figure to double within the next four years, demonstrating the sector's immense growth potential.
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