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India takes on China, Vietnam in electronics manufacturing, Target $300 billion production

India takes on China, Vietnam in electronics manufacturing, Target $300 billion production

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  • GS 3 || Science & Technology || Information and Communication Technology || Mobiles

Why in the news?

India takes on China, Vietnam in electronics manufacturing

Electronics Manufacturing in India:

  • Despite COVID-19-related interruptions, electronics manufacturing expanded from $37.1 billion in 2015-16 to $67.3 billion in 2020-21.
  • At the moment, India exports 50 lakh phones, including smartphones. However, there is still concern that India will not see the emergence of a large electronics brand capable of catering both nationally and globally.
  • As local manufacturing of consumer electronics items, particularly LED television sets and electrical components, increased, electronics imports fell to around Rs 2.85 lakh crore in 2020-21, from around Rs 2.9 lakh crore in 2019-20.
  • However, IT gear imports increased to nearly Rs 79,000 crore in 2020-21, up from around Rs 68,400 crore the previous year.

Measures need to boost Electronic manufacturing in India:

  • Domestic and export markets by imported goods: One, lower input import duties. High input tariffs result in an expensive finished product that is outpriced in both the domestic and export markets by imported goods. Low tariffs make domestic firms more competitive. Many will soon begin shipping immediately. With improved forward and backward links, jobs will gradually increase as both the exporting and importing sectors expand. In Vietnam, five million people work for direct exporters, while seven million work for companies that sell items to exporters.
  • Broaden access to formal money. Allow the top one million small manufacturing enterprises to obtain bank financing without the need for collateral at standard interest rates. In India, less than 4% of small businesses have access to formal finance. The figure for the United States, China, Vietnam, and Sri Lanka is 21%.
  • Streamline the exporting process for low-value consignments. For such low-value exports, we must simplify and unify compliance with Customs, GST, DGFT, and other relevant agencies. Such simplification would aid schemes such as establishing districts as export centres. Small artisans and enterprises based in class B and C cities will benefit from the simplification as well.
  • Invite significant anchor corporations in vital products to open offices in India. Government initiatives such as streamlined labour rules, PLI incentives, cheap corporation tax on new manufacturing operations, and the elimination of retrospective tax have enticed many enterprises looking for a China plus-one location to relocate their operations to India. India’s large number of competitive ancillary units and skill base provide it a significant advantage over competing countries.
  • When assisting emerging businesses, the emphasis must be on value addition. China receives only $12 for each iPhone sold for $700. The allure of rewarding high turnover based on 90-95 percent imported inputs must be avoided. This category includes the production of EV batteries using imported lithium-ion cells and solar panels from imported solar cells.
  • Finally, ensure that containers enter and exit the port/customs as quickly as possible. Because inputs pass multiple nations as parts and sub-assemblies before the final product is ready, cheap duties and speedy port exit are prerequisites for involvement in global value chains (GVCs). Any delay at any point in the value chain disturbs the entire chain.

National Policy on Electronics (NPE) 2019:

  • The Ministry of Electronics and Information Technology (MeitY) introduced the National Policy of Electronics 2019 (NPE 2019) to replace the National Policy of Electronics 2012. (NPE 2012).
  • The goal of the NPE 2019 is to establish India as a global hub for Electronics System Design and Manufacturing (ESDM).
  • The initiative seeks to achieve a US$400 million turnover in the ESDM sector by 2025 through domestic manufacture and export. This will include a goal of producing 1 billion mobile handsets by 2025, with a value of $ 190 billion.

Production Linked Incentive Scheme (PLI)- Large-Scale Electronics Manufacturing:

  • The strategy calls for a monetary incentive to boost domestic production and attract large investments in the electronics value chain, which includes electronic components and semiconductor packaging.
  • Under the plan, electronic manufacturing enterprises would be eligible for a 4–6% incentive on increased sales (above base year) of items created in India and covered by target categories during the next five years.
  • The plan will only cover mobile phones and specific electrical components.
  • The PLI plan, according to the government, will enhance domestic value addition for mobile phones from 20-25 percent to 35-40 percent by 2025, resulting in an additional 8 lakh jobs, both direct and indirect.

Promotion of Electronic Component Manufacturing Scheme:

  • Under the initiative, the Union Cabinet has granted a financial incentive of 25% of capital investment for the manufacture of products that comprise the supply chain of an electronic product.
  • The SPECS for making electronics components and semiconductors has an eight-year budget of Rs 3,285 crore.
  • The government estimates that the push to manufacture electronic components and chips will result in the creation of approximately 6 lakh direct and indirect jobs.

Recent policy reforms:

  • Incentivizing the import of mobile phone parts has had an unintended consequence.
  • While local value addition climbed to 17% in 2018 and saved us $2.5 billion in forex, it simultaneously boosted imports of mobile components to $13.5 billion because India does not make many high-value parts.
  • “Making a single mobile phone necessitates the use of over 300 components and sub-components.” It is exceedingly tough to source them all in one place because we do not rely on China for every component.
  • India’s True Value Addition is currently around 12%, thanks to the government’s phased manufacturing initiative. We improved low-hanging components such as chargers, surface-mount technologies, packaging, camera modules, and so on.”
  • According to Credit Suisse analysis, India produced 300 million mobile phones in FY19, accounting for 20% of worldwide manufacturing. However, the vast majority of these were low-end phones.
  • According to the research, India generated 40% of the world’s low-end phones.

Way Forward:

  • In response to industry concerns about dual rules in mobile manufacturing, the Ministry stated that the telecom department will not enter mobile manufacturing and that the mobile manufacturing regulatory framework will stay unchanged.
  • The paper outlines a five-part strategy for reaching the US$300 billion target, which is based on a “all-government” approach and focuses on widening and deepening electronics manufacturing in India. This is accomplished by luring global electronics manufacturers/brands, shifting and creating sub-assemblies and component ecosystems, developing a design ecosystem, cultivating Indian champions, and slowly decreasing cost barriers that India faces.
  • The Vision Document emphasises the importance of focusing on aggregate local value addition in the electronics sector as India transitions from its current status to one that is ready to compete with China and Vietnam. It also emphasises the critical role that Indian champions would play alongside global firms, both of which are already members of the PLI Schemes.
  • A competitive tariff structure on electronic components, as well as the elimination of all regulatory ambiguity, are required to put India on the path to US$300 billion in electronics manufacturing. The paper advocates a “winner-take-all” strategy based on economies of scale and global competitiveness, as well as new and altered incentive schemes for specific sectors and the need to address concerns of sustainability and ease of doing business.

Conclusion:

If the Indian government’s ambitions are realised, by FY24, India might be producing approximately 10% of the world’s handsets in terms of both value and volume. If the value-added targets are also satisfied, India’s trade imbalance will be reduced by US$24 billion (0.7 percent of then GDP). However, these plans may face some delays due to the coronavirus, as well as perceptions of policy instability (particularly at the state level) among global manufacturers. The ability of China to reap the benefits of these programmes will also be determined by the times ahead. The government has already scrutinised Chinese investments, which has irritated Chinese investors.

Mains oriented question:

The Ministry of Electronics and Information Technology has released the second volume of the Vision Document on Electronics Manufacturing, with the goal of reaching $300 billion in electronics production by 2026. What initiatives should be taken to increase Indian electronics production? Examine it critically. (250 words)