Govt mulling $3 billion incentives package for electronics R&D, products

A task force set up by the ministry of electronics and information technology (Meity) six months ago studied the viability and market-readiness of such a scheme and submitted actionable points, the people said on the condition of anonymity. Once approved, the proposal will go to the finance ministry.

Talks are on to identify the best ways to encourage maximum local value addition, one of the two people said. “It is crucial that the Centre moves fast to boost product manufacturing in India—without this, India’s assembly-focused electronics manufacturing services (EMS) players will soon hit a glass ceiling in terms of how far they can grow," the official said.

The second official said the Centre is considering these incentives “to build a domestic electronics market that local fabs can supply to, which, in turn, will attract bigger global companies to the semiconductor ecosystem as well".

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At Meity, there is consensus that a large outlay is needed to build a value-added domestic electronics market to avoid the fate of local brands after the entry of Chinese phonemakers, the second official said. The incentives are likely to be segregated into three tranches, and will vary with the revenue of companies, the official said.

An email sent to Meity seeking comments remained unanswered.

Though India is the world's second-largest market for electronics, the country accounted for just $155 billion of the $4.3 trillion global electronics industry in 2023, data from federal think tank Niti Aayog showed. According to industry stakeholders, this is because of a lack of domestic brands holding intellectual property (IP) rights.

Growing India’s global market share would require greater localization, industry experts said.

Ajai Chowdhry, industry veteran and co-founder of HCL, said that while India has succeeded in building scale in the domestic electronics industry by incentivizing assembling, a greater push will be critical to generate bigger value.

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“Now is an opportune moment for us to climb up the value chain, by localizing products as well as components that go into the electronics ecosystem. For this to happen, significant incentivization of private-sector research in electronics, building products from local ventures, and localizing full-scale component manufacturing will be crucial. Elements such as systems-on-chips (SoCs), sub-systems and components should be designed in India, and engineers should design products that are made in India—in order to increase local value addition in India’s electronics economy," Chowdhry said.

On 17 September, a report by industry body India Cellular and Electronics Association (ICEA) projected that the industry needed a 22% annualized growth pace to reach a valuation of $500 billion by FY30. On 30 November, fellow industry body Confederation of Indian Industry (CII) said the Indian market was growing at 26% annually, remaining on track to reach the target valuation.

Tarun Pathak, director and partner at market researcher Counterpoint India, said India has multiple industries where a large incentivization plan can drive innovation.

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“Conducting R&D to create IPs and generate local value will be more difficult in the smartphone ecosystem since it is already a globally mature supply chain," Pathak said. “However, India has major opportunities to generate greater local value by domestically manufacturing industrial Internet of Things (IoT) components and sensors that will go into smart applications, while the smartwatches industry can also majorly benefit by developing IPs through R&D."

Moreover, Pathak said, “Currently, most R&D is undertaken for product and component testing procedures among domestic ventures, and private-sector spending is limited since it is important for companies to generate profitability too. The right incentivization strategy can offer a major fillip to the domestic market."

For this, technology transfer agreements with foreign entities eyeing India will be key, according to Chowdhry. “Such agreements will be crucial, rather than just letting them assemble products locally or use India as a consumption market. This will help bring in more revenue to local companies, rather than losing the money to foreign companies," he said.

“India is one of the world’s most important markets today, and the right strategies to incentivize will be critical since global geopolitics has also become increasingly fragmented," said Chowdhry. “To do this right, the Centre must evaluate how best to utilize their incentivization of the electronics economy, which will, in turn, help India’s push for strategic autonomy."

And read | Budget 2024: Electronics industry seeks up to ₹50,000 crore incentives for Make in India