Experts believe that as India harbours ambitions to establish itself as the electronics manufacturing hub of the world, the country’s next step is to go deeper into the supply chain and work on increasing the domestic value addition.
The percentage of local value addition should increase from 18-20% to 40% within the next five years, they added. Another crucial step, most experts and industry groups believe, is to have a scheme which will help develop from scratch the near-absent domestic electronic component supply base in India.
The central government’s plan to roll out a financial support package to help foster the fledgling electronic component ecosystem is a step in that direction. It will aid domestic companies to join the global supply chain and attract global component makers to India.
“While there has been improvement in the infrastructure and ease of doing business, a special scheme with Production and Capital incentives is the need of the hour. We still import 70% of electronic components and this is a great disability for our industry,” said Rajoo Goel, secretary general of the Electronics Industries Association of India (ELCINA).
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India’s progress in mobile, laptops, tablets, all-in-one-personal computers, servers, and other electronic components has all global players eyeing India as a crucial cog in their global supply chain wheel.Most global and domestic electronics manufacturing companies are looking to capitalise on talent support, easy availability of resources such as land, water, and electricity, and a stable governance structure to make components and sub-assemblies that are in high demand.
Consider this: domestic electronic goods manufacturing champion Dixon Technologies recently inked a deal with Chinese display maker HKC to manufacture display modules for smartphones, tablets, and laptops.
The company will invest Rs 250 crore in a new facility from where it will ship liquid crystal modules, TFT-LCD modules and displays.
Similarly, Japanese company TDK, a leading supplier of lithium-ion cells to Apple and other smartphone brands, is setting up a 180-acre facility in Manesar and investing around Rs 7,000 crore in phases to supply batteries tofinished electronics goods.
The company acquired Hong Kong-based Amperex Technology (ATL) in 2022 and has quickly captured a third of the smartphone battery market. Homegrown auto component maker Motherson Group has formed a joint
venture with Hong Kong-based BIEL Crystal Manufactory to supply high-quality cover glass for mobile phones.
As part of the agreement, BIEL will initially acquire 10% equity in a subsidiary of Motherson’s, with the potential to increase it to 49% and provide both financial and technical assistance for the auto parts maker to enter the smartphone supply chain.
Apart from them, Gorilla Glass Maker Corning is setting up a facility in Telangana to supply cover glass for mobile phones. Chennai-based Murugappa group is planning to make camera modules, while US-based Vishay
Intertechnology and Japan-based Murata Manufacturing are planning to set up a base in India.
Changing priorities
These developments, experts say, mark a shift in the country’s approach towards becoming self-reliant in electronics manufacturing.
The industry is currently dominated by mid to small-size homegrown companies that offer components that lack quality and hence do not find acceptance with global companies with ready alternatives which meet the
technology, precision and quality standards per the global company’s requirement, a CII report said, adding that the government needs to provide fiscal support to the tune of 9% for 10 years to offset disabilities and achieve
scale in this field.
The industry developments where several large players are entering into the component space and established component firms are entering India, which come in anticipation of a comprehensive support package from the
government, will help upgrade the ecosystem to attain global manufacturing practices.
Industry experts said this requires creating appreciable demand, technical collaboration, and commensurate investments.
“Immediate financial support is required to boost investments in manufacturing of components with special focus on PCBs, Passive chip components, connectors, relays, special raw materials and audio, video
modules,” Goel added.
The support package, expected to be tabled at the cabinet sometime in December, will likely seek a financial outlay of Rs 40,000 crore for subsidies and incentives, aimed at removing the widening cost disability gap as
compared to competing nations like China and Vietnam.
The package will encompass the making of non-semiconductor components, which account for at least 40% of the bill-of-materials (BoM) in electronics goods.
ETtech*Electro-Mechanical #Data source: ICEA
These include printed circuit boards, display assemblies, camera modules, mechanics, connectors, lithium-ion cells, and more. As of FY23, local electronics component production stood at $10.75 billion, accounting for only
around 10% of total electronics production, CII said.
Presently, camera and display module manufacturers have established capacities in India and currently cater to 15% to 25% of the domestic demand.
Similarly, enclosures fulfil 20% of the domestic demand thus highlighting the significant gap in demand-supply gap existing in the industry, which is being fulfilled through imports, the report said.
India imported $76 billion worth of components that go into the finished electronic products in FY24, to make finished goods worth $115 billion, the majority of which came from China and Hong Kong, highlighting the deep-
seated dependency to support the growing scale in electronics manufacturing, according to the India Cellular and Electronics Association.
Overcoming challenges
The Directorate General of Foreign Trade (DGFT) said 60-70% of electronics imports (which in itself is the second largest imported commodity after oil) are components and sub-assemblies, even as domestic value addition has been stagnant at around 18-20%.
This dependency on imports for components is projected to increase to $250 billion by 2030 to cater to a projected electronics production of $500 billion. Industry experts estimate that to cater to the growing demand, component
production will have to grow at 53%, compounded annually, highlighting an estimated demand-supply gap of over $100 billion.
According to the industry, a lack of scale, high investment-to-turnover ratio, high gestation period, lack of access to global demand, and an absence of original design manufacturers are the challenges the nascent component
ecosystem will have to overcome to cater to the growing demand.
ETtechIn addition, on account of a variety of factors, component manufacturing in India faces a 14-18% disability in India, out of which tariffs and materials account for a 4-5% disadvantage compared to China due to the high cost of
inputs. Logistics costs add another 2-3% disability, while high finance costs add up to 4% for components, a NITI Ayog report concluded.
Addressing this disadvantage, the financial support package will structure the incentives in either providing op-ex support, capex support or both. Some, like camera and display modules, which already has a presence in India will only receive op-ex support, while others like 8-layer PCBs and above will get both op-ex and capex support. Further, components like lithium-ion cells and mechanics will only receive capex support.
The government has identified some 80 companies across these component categories, which could be eligible for the incentives with varying targets for investments based on their investment-to-turnover ratio. For each segment,
the government is targeting high domestic value addition — 80% in the case of lithium-ion cells, 65% for electro-mechanicals, and PCBs and 20% for display and camera modules.
Meanwhile, end customers of these components are also working with potential companies to handhold them into delivering the quality desired in the global value chains. Companies like Apple, executives said, have a vendor
development team of 30-40 people, who are shortlisting potential suppliers
out of India to bring them into the fold.
Industry executives said Apple is looking to integrate at least 40-70 companies to be a part of their supply chain. Apple currently has 15 suppliers present in India, which it aims to ramp up.
Similarly, companies like Bhagwati Products which earlier made phones for Micromax have inked a partnership with Chinese ODM Huaqin, while Dixon Technologies has formed a partnership with another large ODM Longcheer to gain the necessary expertise to make original designs and tap into their existing base of suppliers.
“The nation has built an excellent scale of over $50 billion of mobile phone output. This has kindled huge interest in the development of the supply chain. A stimulus to develop the middle ground in this supply chain along with the
supply chain for other verticals like IT Hardware will be very timely. We can build massive scale in PCBs, passives, electro-mechanicals, capital goods, mechanics etc.,” said Pankaj Mohindroo, chairman of the India Cellular and
Electronics Association.
