MeitY preparing for elec components PLI scheme announcement as 100-day agenda

The Ministry of Electronics and Information Technology (MeitY) has asked stakeholders to create a list of benchmarks for electronics component manufacturing. The government will use these in formulating the proposed production-linked incentive (PLI) scheme for the sector.

MeitY is hoping to launch the scheme as part of its 100-day agenda after the new government is formed. After the general elections.

The benchmarks are to be based on four key criteria: India’s disability against competing countries in electronics components compared to other countries; the identifiable foreign and homegrown players that could or are planning to make investments in setting up manufacturing plants; the major original equipment manufacturer (OEM) buyers of components and sub-assemblies; and the export potential of the products.

The inputs are being worked out by key industry bodies such as the India Cellular and Electronics Association (ICEA), the Electronic Industries Association of India (Elcina) and industry associations like Confederation of Indian Industry and Federation of Indian Chambers of Commerce & Industry. Sources say the report is expected to be ready by this month.

Export potential of products
MeitY has held numerous consultations with industry players and is hoping to launch the scheme as part of its 100-day agenda after the new government is formed after the general elections. It will also help the ministry determine the amount of money to be earmarked for the scheme when the Budget is presented after the formation of the new government.

“Scale ignites real investments. Now scale with a 50 billion-plus mobile output has been built and we are seeing giant investments ahead,” said Pankaj Mohindroo, chairman, ICEA.

“A deep analysis of the state of play with the components ecosystem and its disabilities has been conducted and we are confident that in five years, we will have a component ecosystem of $75 billion with global scale capacities.”

The first criterion put forward by the government to stakeholders is a replication of a similar exercise undertaken when the PLI scheme for mobile devices was chalked out. The ICEA had conducted an independent analysis which concluded that the gap in the cost of production with China was as high as 18-22 per cent and with Vietnam it was 9-11 per cent. This formed the basis of the 4-6 per cent incentive for mobile devices under the scheme, and was given to partly tide over the disability.

A similar exercise for components and sub-assemblies for which PLI support would be required is nearing completion. It will help in identifying competitive areas. For instance, India is already exporting mobile chargers to China.

About the second criterion of identifying possible players that may invest in components and sub-assemblies at scale, stakeholders say that unlike in mobile assembly, which is labour-intensive, components and sub-assembly units are capital intensive as they require scale to be competitive.

The third criterion of identifying who will be the buyers emanates from earlier experience. For instance, in the PLI scheme for mobile devices, many eligible players were not able to claim incentives as they could not sign up for contracts with OEMs to assemble products for them to meet their incremental production and investment targets.

The fourth criterion is in line with the PLI scheme’s overall objective of making India a manufacturing hub for exports. This has seen huge success in mobile devices. For example, India exported mobile devices worth $15.5 billion in FY24, accounting for 53 per cent of the country’s total electronics exports. This meant overall electronics exports jumped to the fifth position, displacing drugs and pharmaceuticals.

The stakeholders say that they will also discuss taxation policies with the government. Import duties on components and their parts need to go down once PLI is offered.

Stakeholders point out that one area that lacks clarity is whether the government will re-examine the restricted foreign direct investment policy for Chinese companies that make the bulk of the world’s supply of components and sub-assemblies. A key question that remains is whether or not Chinese companies will be permitted to set up joint venture plants in India and be eligible for PLI. Business Standard