How Is India Reshaping Its Electronics Manufacturing Ecosystem Through New Incentives And Policy Reforms?

Introduction

India's electronics market encounters a significant turning point. On one hand, the nation has achieved unprecedented levels of production and consumption of electronics. Conversely, the foundational elements of this sector its components, technologies, and essential inputs predominantly originate from foreign sources. This dichotomy is giving rise to a crucial inquiry for India's forthcoming decade of industrial advancement: can the nation transition from being merely a high-volume producer to establishing itself as a truly self-sufficient electronics economy?

The resolution of this inquiry will influence not only India's competitive edge in manufacturing but also its geopolitical influence, readiness for exports, and long-term viability. For executives those guiding manufacturing, supply chain, operations, strategy, and investment decisions this transformation embodies both a significant opportunity and a multifaceted policy landscape to navigate.

1. The Electronics Surge in India: A Market Progressing Beyond Its Fundamental Framework

The domestic appetite for electronics in India has surged remarkably. The market achieved a valuation of USD 155 billion in the fiscal year 2023, a magnitude that would have been challenging to anticipate a decade prior. The manufacturing output similarly demonstrated significant advancement, escalating from USD 48 billion in FY 2017 to USD 101 billion in FY 2023. This rapid growth has primarily been driven by the mobile phone manufacturing sector, which alone accounts for 43% of India's overall electronics production.

Nonetheless, this impressive narrative of growth uncovers a structural discrepancy. While assembly volumes have escalated considerably, the domestic supply chain for critical components has not evolved correspondingly. Printed circuit boards, semiconductor components, sub-assemblies, and display elements continue to be predominantly sourced from China and Hong Kong. Consequently, even when products are labeled as "made in India," their intrinsic value largely derives from other regions.

2. The Genuine Challenge: Establishing the Essential Intermediate Layers of the Value Chain

What India lacks is not only manufacturing expertise or demand it is deficient in the intermediate tiers of the electronics supply chain: the intricate web of component manufacturers, design-tool providers, packaging facilities, testing laboratories, and material suppliers that underpin global manufacturing centers such as China and Taiwan. The Indian government acknowledges this structural deficiency and has consequently recalibrated its policy framework to address it in a more holistic and forward-thinking manner. The upcoming phase of industrial reform is thus aimed not solely at enhancing assembly operations, but at attaining a more profound backward integration throughout the electronics value chain. This entails fortifying domestic competencies in components, sub-assemblies, and ancillary technologies, thereby ensuring that India's manufacturing expansion is rooted in a more robust and locally integrated supply chain foundation. This is where the new USD 5 billion incentive program becomes pertinent. In contrast to previous initiatives, this particular scheme is explicitly designed to cultivate the component ecosystem, with printed circuit boards (PCBs) identified as a priority sector. PCBs are fundamental every electronic device necessitates one. Without independence in PCB production, genuine self-sufficiency remains unattainable.

3. Insights from the Initial Phase: Assessing the Achievements and Constraints of PLI and Associated Schemes

The preliminary set of initiatives in India specifically PLI, SPECS, and EMC served as a crucial catalyst for sectoral advancement. However, each initiative also uncovered specific structural inadequacies that underscored the necessity for continual policy evolution and refinement.

3.1 PLI Scheme: Effective for Scale, Insufficient in Depth

The Production Linked Incentive (PLI) scheme offered a systematic performance-based incentive by rewarding incremental sales with a 4–6% benefit over a five-year duration. This framework played a crucial role in attracting prominent global manufacturers—particularly within the mobile phone sector—to establish and augment their production activities in India. Importantly, prerequisites such as the stipulation of a minimum revenue threshold of INR 10,000 crore for international applicants ensured that engagement was predominantly led by established industry pioneers endowed with substantial operational and financial prowess. However, the configuration of PLI resulted in companies prioritizing assembly over local component production. Consequently, the outcome was an expansion in scale without the requisite depth in the supply chain.

3.2 SPECS: An Essential Incentive for Capital-Intensive Investments

The SPECS initiative facilitated the reimbursement of 25% of capital expenditures incurred in the manufacturing of electronic components, semiconductors, and ATMP units. It marked the initial organized policy effort directed at fortifying upstream manufacturing capabilities and bolstering critical enablers such as:

1. design instruments, including advanced software platforms vital for component design, simulation, and optimization.
2. technology licensing, comprising agreements that grant access to proprietary manufacturing methodologies, component designs, and specialized technical expertise crucial for upstream production.
3. specialized machinery, encompassing high-precision equipment, fabrication tools, and advanced production systems necessary for intricate component and semiconductor-related manufacturing.

SPECS effectively attracted manufacturers with long-term investment perspectives; however, the overarching ecosystem still necessitates broader and more diversified participation to attain significant scale and ensure enduring competitiveness.

3.3 EMC 2.0: Infrastructure as the Foremost Priority

The framework of the EMC initiative offering financial assistance amounting to 50% of project expenditures, capped at INR 70 crore per 100 acres highlights the essential significance of robust infrastructure as a critical underpinning for industrial advancement. Effectively designed manufacturing clusters reduce operational friction, improve production efficacy, and facilitate the supply chain's operation in a harmonized, integrated, and cohesive manner. However, the development of infrastructure alone is inadequate to create a holistic value chain unless it is accompanied by simultaneous and considerable growth in domestic component manufacturing capabilities.

4. The Significance of Components in India's Upcoming Growth Trajectory

The production of components serves as the fundamental basis for India's forthcoming phase of industrial evolution. As global supply chains have unveiled considerable vulnerabilities and risks associated with concentration in recent years, enterprises worldwide are diligently pursuing more diversified and resilient electronics manufacturing hubs.

India may only seize this opportunity if it provides:

1. robust, scalable, and technologically sophisticated PCB manufacturing capabilities that can accommodate high-volume production as well as specialized, high-precision applications
2. advanced component ecosystems, encompassing a wide-ranging and intricate network of suppliers capable at producing high-quality electronic components across various technology tiers
3. semiconductor packaging capabilities, including advanced assembly, testing, and packaging competencies crucial for establishing a competitive and technologically resilient semiconductor ecosystem
4. high-quality testing infrastructure, comprising advanced reliability testing systems, certification facilities, and precision diagnostic tools essential for validating component performance and ensuring adherence to global quality standards

While the nation's current manufacturing scale offers a competitive foundation, the lack of a robust and diversified component ecosystem presents a substantial limitation, rendering India vulnerable to ongoing reliance on external suppliers.

In this regard, businesses must proactively invest in domestic sourcing partnerships, forge long-term supplier agreements with emerging Indian component manufacturers, and strategically direct capital towards localization initiatives to mitigate exposure to external supply chain risks and enhance operational resilience.

5. A Novel Strategic Narrative: Transitioning from "Make in India" to "Value in India"

The previous stage of India's electronics policy was predominantly focused on the "Make in India" concept, primarily aimed at attracting international assemblers and augmenting domestic production levels. The evolving stage, however, signifies a more advanced policy direction one that deliberately prioritizes value creation within India. This transformation highlights the government's objective to enhance technological proficiency, increase domestic value addition, and cultivate a more integrated, innovation-oriented electronics ecosystem.

This includes:

1. greater local value addition, achieved through a more profound integration of domestic manufacturing processes, heightened utilization of locally produced components, and the establishment of indigenous technological competencies
2. domestic component sourcing, realized through the systematic advancement of local supplier networks, strategic partnerships with emerging Indian component manufacturers, and consistent incorporation of domestically produced inputs throughout production lines
3. diminished dependence on imported electronic components, accomplished through the systematic enhancement of domestic component capabilities, strategic localization of essential sub-assemblies, and the gradual replacement of foreign-sourced materials with competitively manufactured Indian alternatives
4. fostering enduring supplier networks, bolstered by strategic collaboration frameworks, sustained capacity-building initiatives, and mutually advantageous commercial arrangements that reinforce stability and continuity across the value chain
5. facilitating design and upstream innovation through the nurturing of indigenous R&D capabilities, investment in advanced engineering expertise, and the establishment of localized design-to-manufacture pathways that fortify India's standing in the higher-value segments of the electronics value chain

This strategic transformation will significantly benefit businesses by providing greater oversight of supply chains, diminishing exposure to import volatility, and enhancing cost efficiency through localized sourcing. It will also create avenues for companies to engage in higher-value segments of the electronics industry, encompassing component manufacturing, design, testing, and innovation-driven activities. As India fortifies its domestic capabilities, businesses operating within this ecosystem will be more aptly positioned to scale exports, meet global quality standards, and enhance long-term competitiveness in international markets.

6. For Business Leaders: Four Transformations That Should Influence Your Strategy

A thorough examination of India's dynamic policy framework reveals that numerous significant structural transformations are taking place. These transformations collectively redefine the operational priorities, investment considerations, and long-term strategic planning mandated for industry leaders aiming to maintain their competitiveness within the nation's expanding electronics sector:

6.1 Incentives Are Shifting Upstream

While the Production-Linked Incentive (PLI) scheme predominantly encouraged the expansion of finished outputs, the recently introduced USD 5 billion incentive initiative signifies a pivotal and strategic realignment towards component-level manufacturing. As a result, the most substantial future prospects for industry participants will emerge within the upstream segments of the value chain, encompassing advanced PCB fabrication, semiconductor-related processes, and the establishment of high-quality sub-assembly capabilities.

6.2 Infrastructure Will Be Cluster-Oriented

Governments consistently emphasize the advancement of electronics clusters under the Electronics Manufacturing Clusters (EMC) framework, as these clusters offer a structured, resource-efficient, and operationally coherent environment conducive to large-scale electronics manufacturing.

1. shared resources, including consolidated utilities, infrastructure, and common facilities that diminish duplication and facilitate more efficient capital utilization
2. lower operational costs, achieved through economies of scale, shared infrastructure, and streamlined resource utilization that collectively reduce the per-unit production cost
3. enhanced compliance, facilitated through harmonized regulatory processes, streamlined approval mechanisms, and cluster-level administrative support that collectively alleviate procedural burdens on manufacturers
4. integrated supply-chain management, bolstered by coordinated logistics, synchronized production planning, and seamless collaboration between manufacturers and suppliers to ensure end-to-end operational efficiency

Establishing operations within such clusters is anticipated to become a strategic necessity for enduring competitiveness, rather than merely an optional advantage.

6.3 Policy Support Will Emphasize Supply-Chain Resilience

Mitigating reliance on China and Hong Kong has surfaced as a pivotal strategic aim. Organizations that progressively align their operations with India-centric supply chains are anticipated to garner enhanced policy backing, gain from more advantageous regulatory treatment, and encounter diminished compliance-related obstacles as the government persistently motivates the fortification of domestic value chains.

6.4 Compliance Will Intensify and Require Increased Documentation

The Production-Linked Incentive (PLI) scheme has already instituted rigorous revenue eligibility standards and stipulated comprehensive audit trails. Moving forward, impending incentive programs are predicted to impose even more stringent compliance requirements, necessitating businesses to exhibit:

1. transparent reporting, founded on clear, precise, and consistently maintained disclosures that enable regulatory authorities to evaluate adherence to incentive conditions and operational integrity
2. traceable component sourcing, substantiated by comprehensive documentation, supplier verification processes, and explicit audit trails that allow regulators and stakeholders to authenticate the origin, movement, and compliance status of every essential input within the manufacturing framework
3. evidence of value addition, supported by exhaustive documentation, quantitative evaluations, and verifiable records illustrating the incremental domestic value generated at each phase of the manufacturing process
4. validated domestic investment, substantiated through clear financial documentation, audited capital expenditure records, and credible proof of localized funding commitments that conform to the eligibility criteria of the pertinent incentive frameworks.
5. The Way Forward

In light of these transformative dynamics, it is imperative for business leaders to recalibrate their strategic priorities to sustain competitiveness and leverage India's evolving electronics landscape. A proactive approach necessitates that organizations engage more thoroughly with India's burgeoning component ecosystem by discerning opportunities in PCB manufacturing, ATMP facilities, and other upstream operations increasingly bolstered by governmental incentives. Equally significant is the judicious selection of manufacturing locations, as EMC clusters are positioned to serve as the pivotal centers of future electronics production, providing operational efficiencies and regulatory advantages that firms outside such clusters may find challenging to replicate. Fortifying supply-chain partnerships will be crucial to mitigate risks associated with external dependencies, requiring prompt engagement with domestic suppliers and the establishment of enduring, collaborative procurement models. Furthermore, enterprises must brace for more rigorous compliance obligations as incentive initiatives evolve, ensuring that audit preparedness, documentation systems, and governance frameworks are sufficiently robust to meet elevated regulatory expectations and secure continued access to policy benefits.

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