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NITI Aayog Proposes Measures to Boost Electronics Sector
Context: NITI Aayog released a report called “Electronics: Powering India’s Participation in Global Value Chains,” which examines India’s electronics industry, highlighting its opportunities and obstacles.
Report Highlights:
- NITI Aayog aims to increase India’s electronics sector to $500 billion by 2030.
- The Global Electronics Market is valued at USD 4.3 trillion, with India contributing USD 155 billion in FY23.
- India’s Electronics Exports is approximately USD 25 billion annually, representing less than 1% of global share.
- India aims to achieve USD 500 billion from $100 billion in electronics manufacturing by FY 30, creating 5.5 million to 6 million jobs.
Global Value Chains (GVCs): GVCs involve international collaboration in design, production, marketing, and distribution.
- They represent 70% of international trade.
- Electronics, with 75% of its exports from GVCs, is a key area for India to enhance its global participation.
Challenges Faced by Electronics Sector:
- India has high average tariffs on electronics components around 7.5%, which is higher than those in China (4%), Malaysia (3.5%), and Mexico (2.7%).
- This tariff structure creates a 5-6% cost disadvantage for Indian electronics exports, limiting competitiveness in the global market.
- Moreover, India currently has one of the most complex tariff structures with multiple tariff slabs at 0%, 5%, 10%, 15%, and 20%+.
- Lack of Robust Component Ecosystem with Insufficient infrastructure and high cost of capital.
- Electronics manufacturing in India faces high financing costs of 9%-13%, compared to 2%-7% in China, Vietnam, and Taiwan, due to interest subsidies.
- Current incentives offered by schemes like Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) and Production Linked Incentive (PIL) fail to address component manufacturing realities.
- Indian component manufacturers lack access to latest global technologies & machines, and need knowledge/tech transfer from leading global manufacturers.
- Inadequate R&D and Design Ecosystem, shortage of skilled engineers and trained workforce.
Key Recommendations:
- NITI Aayog recommends simplifying import tariffs for components.
- It also suggests offering fiscal incentives for domestic manufacturing of components.
- Recommendations include fiscal support for design-focused companies and easing technology transfer processes.
- NITI Aayog emphasises the need for operational and capital expenditure support tailored to the complexity of components being manufactured.
- The report suggests developing four large greenfield and six brownfield industrial clusters to strengthen supply chains.
- It calls for a thorough audit of existing Electronics Manufacturing Clusters (EMCs) to assess utilisation and address implementation issues.
Case Study of Vietnam
Since 2008, Vietnam has rapidly grown as an electronics manufacturer and exporter, with exports rising from $3 billion to $135 billion by 2023. Key strategies included:
- Signing Free Trade Agreements (FTAs) with major trading economies,
- Attracting significant FDI through incentives,
- Maintaining an export-oriented approach.
Current Sector Status:
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To improve access to skilled labour, the report proposes establishment of Electronics Skill Training Hubs. Implementing these recommendations can help generate 50-60 lakh jobs, with exports projected to reach $240 billion by FY30.
