Report on “Electronics: Powering India’s Participation in Global Value Chains” by NITI Aayog

Indian Economic System(CSC) Industry

Context: Recently NITI Aayog launched the report titled “Electronics: Powering India’s Participation in Global Value Chains”.

The report suggested that the government needs to undertake a thorough audit of existing electronics manufacturing clusters (EMCs) to evaluate utilisation, implementation problems, and the state of facilities provided.

GVCs are international production sharing, where the full range of activities i.e., design, production, marketing, distribution and support to the final consumer, etc. are divided among multiple firms and workers across geographic spaces, to bring a product from conception to end-use and beyond.
The global electronics market is estimated at US$ 4.3 trillion.
The electronics GVC is intricate, with a select group of nations like China, Taiwan, the USA, South Korea, Vietnam, Japan, Mexico, and Malaysia.
China is the world’s largest electronics producer, accounting for nearly 60% of worldwide electronics production.

India’s electronics sector reached USD 155 billion in FY23.
The electronics production nearly doubled from USD 48 billion in FY17 to USD 101 billion in FY23, driven primarily by mobile phones which constitute 43% of total electronics production.
This comprises USD 86 billion in finished goods production and USD 15 billion in components manufacturing.
The country’s electronics export is expected to reach $120 Bn by FY26.
During May 2024, electronic goods exports were recorded at $2.97 Bn as compared to $2.41 Bn during May 2023, registering a growth of 22.97%.

Scheme for setting up of Semiconductor Fabs in India provides fiscal support to eligible applicants for setting up of Semiconductor Fabs which is aimed at attracting large investments for setting up semiconductor wafer fabrication facilities in the country.
Initiatives like Make in India and Digital India, improved infrastructure and ease of doing business, supported by various incentives, have stimulated domestic manufacturing and attracted foreign investments.
Design Linked Incentive (DLI) Scheme offers financial incentives, design infrastructure support across various stages of development and deployment of semiconductor design for Integrated Circuits (ICs), Chipsets, Systems & IP Cores and semiconductor linked design.
In India 100% FDI is allowed under the automatic route. In the case of defense electronics, FDI up to 49% is allowed through automatic route and beyond 49% requires government approval.

Market Competition: The global electronics market is dominated by countries like China, Taiwan, USA, South Korea, Vietnam and Malaysia.
India currently exports approximately USD 25 billion annually, representing less than 1% of the global share.
Technical Skills: There is a lack of adequately trained technical personnel for advanced manufacturing processes.
Capital Intensive industry: Electronic manufacturing is a complex and technology-intensive sector with huge capital investments, high risk, long gestation and payback periods, requiring significant and sustained investments.
Import dependency: Heavy reliance on imports for key components, especially semiconductors, makes the industry vulnerable to global supply chain disruptions.
India’s electronics industry is focussed primarily on assembly, with limited capabilities in design and component manufacturing.

India has set a target to achieve 500 billion USD in electronics manufacturing in value terms by 2030.
To enhance competitiveness, India needs to localize high-tech components, strengthen design capabilities through R&D investments, and forge strategic partnerships with global technology leaders.
There is a need for promoting components and capital goods manufacturing, incentivising R&D and Design, tariff rationalization, skilling initiatives, facilitation of technology transfers, and infrastructure development to foster a robust electronics manufacturing ecosystem in India.

India possesses immense potential to establish itself as a global leader in electronics manufacturing.
By capitalizing on emerging opportunities, enhancing value chain integration, and overcoming existing challenges, India can transform its electronics sector into a cornerstone of economic growth and job creation.