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

Such incentives can boost domestic value addition in devices such as smartphones, televisions and other consumer gadgets and electronics, which companies and consultants feel will be critical to taking the Centre’s ‘Make in India’ objectives to the next level.

At present, the amount of localization on most electronics devices sold to consumers is around 15-20% of their total cost, said Pankaj Mohindroo, chairman of industry body India Cellular and Electronics Association (ICEA). For example, in a smartphone costing ₹3,000 to manufacture and retailed at ₹10,000, only ₹450-600 components are made in India, with the rest being imported.

“While our first level of domestic manufacturing ecosystem is being robustly built, it is important to understand that the next clear step for India is to increase its domestic value addition, which can only be achieved by incentivizing component localization. This will help create a more sophisticated supply chain, and will be key to truly localizing the electronics ecosystem in India," Mohindroo said.

ICEA recommends a cumulative outlay of ₹40,000 crore in the Budget to boost local value addition to up to 35% by building components and sub-assembly ecosystem from around 15% now. In any mature manufacturing economy, the true value is measured by the extent of components that are actually made locally, and not just assembled. China, on this note, stands ahead of India at the moment.

Companies and consultants believe that there is a big opportunity that the Union Budget 2024 can cash in on. Jeetender Singh, chief financial officer of Manesar, Haryana-based domestic contract manufacturer VVDN Technologies, told Mint that an outlay of ₹50,000 crore ($6 billion) can help boost the entire electronics ecosystem for India to "become truly self-reliant and geopolitically secure".

“India has plenty of opportunities for a robust component supply chain to be built, and subsequently thrive. For instance, the Centre plans to install 100 million smart electricity meters across the country in the coming years—this is a captive demand that companies can capture, and manufacturers will receive the impetus to capture this demand if there is a right amount of incentivization from the Centre to boost the local manufacturing ecosystem," Singh said.

Duties and taxes

Regulating import duties will also be key to boosting the domestic component ecosystem in electronics. Saurabh Agarwal, taxation partner at consultancy firm EY India, said, “A systematic increase of import duties on key strategic components in the next five years will create the right platform for companies from around the world to feel the need to set up local operations, which will in turn boost the component ecosystem."

ICEA’s recommendations stated that one such instance would be to increase import duties on lithium-ion cells to 15% in the next three years, from 5% today. 

This, Mohindroo said, will be able to “make up for significant underutilization of domestic manufacturing capability" in such categories. To be sure, lithium-ion cells are a key component of all batteries used in our smartphones, as well as the steadily-growing electric vehicles (EV) ecosystem.

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VVDN’s Singh further added that industries such as EVs will need local manufacturing to support India’s economic goals. “With such industries such as space and EVs, India has plenty of demand within its own shores that a local supply chain can comfortably meet. Right now, the global supply chain of components is fragmented—if we can substantially localize, this will be beneficial for India from a geopolitical security standpoint as well," he added.

In February this year, S Krishnan, secretary, ministry of electronics and information technology (Meity), said at a press conference that India’s electronics manufacturing ecosystem, which was worth around $100 billion at the time, could grow to $1 trillion within the next five years. Each of the stakeholders cited in this story believes that a $6-billion incentive layout could be key in meeting this goal.

EY India’s Agarwal also recommended maintaining the rebated income tax rates of 15% to support the electronics manufacturing sector. “This rate must be maintained and taken forward after March’s interim Budget failed to mention the same," he said.