KEY HIGHLIGHTS
With global supply chain for electronic goods witnessing a restructuring as companies look to reduce dependence on China, India's domestic electronic goods industry is staring at a potential windfall. Estimates by Electronics and Computer Software Export Promotion Council (ESC) suggest electronics exports from India may potentially hit $180 billion by 2025 from just $11.28 billion in 2019-20.
To achieve that however, the industry believes it needs proper long term policy support from the government. ESC has submitted a charter to the government that proposes expanding the existing production linked incentive scheme beyond just mobile and smartphones to the entire electronic manufacturing sector.
"We have created a roadmap for taking India's electronics exports, which includes mobile phones and accessories, components and other electronics and hardware items to $180 billion by 2025 to bring exports from the segment more or less at par with software exports," says Mr. Sandeep Narula, Chairman, ESC. "Bold decisions are needed to create an enabling ecosystem for the sector to strengthen its manufacturing base and exports."
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India's domestic production in the sector at $70 billion accounts for just 3.3 percent of the global electronics market estimated at $2.1 trillion giving it a significant headroom for growth. The domestic industry however suffers from disabilities like higher taxation, cost of finance and power which make it uncompetitive against China, Taiwan, Korea, Vietnam or Japan.
"The disadvantage works out to at least 8 to 10 percent, which is enough to price out Indian products from the global market. This would also make Indian products, particularly components, costlier for Indian electronic product manufacturers, forcing them to go for large scale imports," says Narula.
India is a significant importer of electronic goods components and a substantial portion of them comes from China. According to an analysis done by World Trade Centre Mumbai, India imported electronic goods worth Rs 3.59 lakh crore between April 2019 and February 2020 with China accounting for 40 percent of them. It accounts for a third of all imports from China and any reduction in this area will go a long way in reducing trade deficit with the dragon.
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"There is a need for bringing down the minimum incremental investment under PLI from Rs 100 crore so that MSMEs across the spectrum can take advantage of the benefits under the scheme," Narula says. "The phased manufacturing program to promote local sourcing of components is more directed at mobile phone. It has helped in that segment but it should be extended to all components manufactured in India. A measure of protection to the domestic component industry should be provided by increasing import duty on such products."
ESC has also asked for income tax incentives to be extended in the sector to help tide over the current crisis due to the pandemic. "It may take at least 2 to 3 years for the impact of the supply and demand disruptions caused by the COVID-19 to get bottomed out. Till that time at least the Income Tax incentives should be extended to exports and the domestic production should be treated as deemed exports," Narula added.
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