The Bharatiya Janata Party (BJP) Government adopted the National Policy on Electronics 2019 (NPE-19) to promote domestic electronics manufacturing and set the goal of USD 400 billion for the year 2025. NPE-19 was designed largely in the mold of NPE-12 initiated by the UPA government but largely implemented by the BJP government. NPE-12 incidentally had set an electronics manufacturing target of USD 400 billion for the year 2020.
India could rustle up electronics production of only USD 59 billion in 2017- 18, which was a paltry 3% share of global production of USD 2 trillion.
Raising electronics production to USD 400 billion in seven years (2018-2025) required a CAGR growth of 31.4%. The NPE-19 relied on the manufacture of mobile handsets (production of 1.0 billion mobile handsets valued at USD 190 billion) to achieve the MPE-19 goal.
The government has rolled out two Production-Linked Incentive (PLI) schemes to achieve the target- PLI for Large Scale Electronics Manufacturing (PLI- LSEM) notified in April 2020 and PLI for IT Hardware (PLI-ITH) notified in March 2021.
It is four years since NPE-19 was announced. How many roads have we travelled so far? What is the likelihood that the NPE-19 goals will be achieved?
Industry sources claim that the domestic production of electronics was $87 billion in the year 2021-22, with mobile phones contributing 43% and IT hardware 5%.
The government officially stated (PIB press release 07 December 2022 titled ‘Production of Electronic Goods’) that the electronics production in 2021-22 was Rs. 640,810 crore (USD 80 billion).
India’s electronics production was only 20% of its goal after 4 years of NPE-19. It registered a woefully low CAGR of only 7.91% during this period.
Not really a happy state of affairs!
Government Lowered the Goal
India’s electronics production grew by a paltry USD 21 billion from USD 59 billion in 2017-18 to USD 80 billion in 2021-22.
It upped the CAGR ask to an impossible 71% to realise the goal of USD 400 billion electronics production by 2024-25. The government saw the writing on the wall and decided to tweak the target.
The MEITy, in charge of the NPE-19 and the two PLIs, released a new 5-year roadmap and vision document on 24 January 2022 titled "USD 300 billion Sustainable Electronics Manufacturing & Exports by 2026”.
Via this document, the production goal was revised down to USD 300 billion and time was extended to 2025-26. Production of mobile phones (USD 126.9 billion; 42.3%) and IT hardware (laptops, tablets, etc - USD 25.4 billion; 8.5%) were expected to contribute to about half of the revised goal.
The USD 300 billion goal required closing the production gap of USD 220 (from USD 80 billion in 2021-22) in 4 years. The requisite CAGR of 39.2%, is certainly not an easy one.
PLI for Large Scale Electronics Manufacturing
The PLI-LSEM offered a production-linked incentive of 4% to 6% on incremental sales to boost domestic manufacturing and attract large investments in mobile phone manufacturing and certain specified electronic components for a period of five years.
The government launched the first round of PLI-LSEM in April 2020. There was quite an encouraging response. The government called for more applications in the second round focussing more on specified electronic components with incentives of 5% to 3% for four years. The Scheme outlay is Rs 40,995 crore (USD 5.7 billion) and extended tenure up to 2025-26.
The government released a publication-Production Linked Incentive (PLI) Schemes of Ministry of Electronics and IT for the year 2022-23. According to this, PLI incentives for mobile phones of the invoice value of Rs 15,000 or more were approved for three contract manufacturers Apple (Foxconn, Pegatron, and Wistron) and Samsung.
PLI incentives for mobile phones without any specified invoice value and for specified electronics components were approved for 12 domestic companies.
In all, 32 beneficiary companies, with a total investment promised of Rs. 7,000 crore, were approved in two rounds of applications under PLI-LSEM. The production plans approved were expected to lead to incremental production of Rs 8,12,550 crore, of which around Rs 4,87,530 crore (60%) were expected to be exported.
The Publication further informed that, by March 2023, the PLI-LSEM had resulted in investment of Rs 6,559 crore. The production and exports of approximately Rs 2.84 lakh crore (about USD 35 billion) and Rs 1.29 lakh crore (about 15 billion) respectively were achieved. MEITy disbursed incentives of Rs 1,645 crore until 2022-23, which was only 4% of the total incentive of Rs 40,995 crore.
The PLI-LSEM has matured and is in full-scale implementation. While the scheme has made good progress, the target of USD 125 billion production for the year 2025-26 is quite unlikely to be achieved.
PLI for IT Hardware
The PLI for IT Hardware (PLI-ITH) offered an incentive of 4% to 2%/1% to eligible companies on net incremental sales over the base year of 2019-20 for a period of four years (2021-22 to 2024-25) on targeted production of laptops, tablets, all-in-one personal computers, and servers.
Applications were received until 30 April 2021 and a total of 14 companies were approved, which included 4 global companies- Dell, Wistron, Flex, and Rising Star and 10 domestic companies including Lava, Dixon, and Saharsa. These 14 approved companies were expected to lead to a total production of about Rs 1.6 lakh crore, of which about Rs 60,000 crore (37%), was expected to be exported. The additional investment promised was Rs 2,500 crore.
As per March 2023 QRR, the PLI-ITH has resulted in an investment of Rs. 195 crore. Additional production of Rs 5,715 crore was also reported. The government came up with the PLI Scheme 2.0 for IT Hardware (PLI-ITH 2.0) in May 2023 with an outlay of Rs 17,000 crore.
The PLI-ITH 2.0 is expected to result in the broadening and deepening of the IT hardware manufacturing ecosystem by encouraging the localisation of components and sub-assemblies and developing the supply chain within the country.
Semiconductor design, IC manufacturing, and packaging have also been included as incentivised components of the PLI-ITH 2.0.
The scheme extends an average incentive of around 5% on net incremental sales to eligible companies for a period of six years. The operational guidelines for the scheme were notified on 14 July 2023. The application window was open until 31 July.
The government is still to release information relating to the applicants and promised investment, production, and export targets.
Clearly, the PLIs on IT Hardware are moving quite slowly. The aborted attempt made in August to bring imports of IT hardware under compulsory licensing was intended to push companies to apply for manufacturing under PLI-ITH 2.0.
Slow Progress of PLI for IT Remains a Concern
The progress of PLI for large-scale electronics manufacturing is good but quite inadequate in the context of the goal. The progress of PLI for IT Hardware is poor with it moving at a snail’s pace. The manufacturing of other constituents of electronics is quite uncertain and relatively small.
The NPE-19’s revised target is surely going to be missed by a wide margin. We should be lucky if we achieve electronics production of about USD 150 billion by 2025-26.
(The author is former Economic Affairs Secretary and Finance Secretary of India. This is an opinion piece and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same.)