PLI scheme for electronics components in the offing

The government is working on a production-linked incentive (PLI) scheme for electronics components. Sources said that discussions with the industry is underway to finalise a long-term road map with the right incentive structure, which will attract global supply chains to relocate their base to India.

Industry as well as government sources said that while PLI schemes for smartphones, consumer electronics, IT and telecom will yield results in terms of domestic manufacturing as well as increasing exports, but unless there’s a similar scheme for electronics components, trade deficit will continue to widen.

Countries like China, Thailand and Vietnam, which are competing economies for India as far as electronics trade is concerned and where most of the component manufacturers are located, have trade surplus.

Trade deficit in electronics hit a record $56 billion in FY22, as both imports and exports scaled fresh peaks during the year.

While electronics exports surged 41% last fiscal from a year before to $15 billion, imports jumped 35% to $70.8 billion, according to the commerce ministry data.

Officials as well as industry executives said that with PLI schemes for smartphones, domestic manufacturing has increased and so has exports, but since the components used in such products continue to be largely imported, especially from China and Vietnam, imports will also continue to rise.

“The only way to check trade deficit in electronics is to increase domestic value addition and that can happen when more and more components start getting manufactured domestically. This can only happen if a suitable PLI scheme with the right incentives is put in place,” industry executives told FE.

For perspective: Apple closed FY22 with exports worth `10,000 crore. This came within eight months – August 2021 till March 2022 – of starting production in the country under the PLI scheme. During the year, it was able to meet 75-80% of its total demand in India through domestic production compared to only 10-15% a year back. In all probability, during the current fiscal, the company will be able to meet the entire domestic demand through its domestic output. But then, as its domestic production and export go up, so will imports of components.

In fact, a substantial part of the imports in FY22 comprised electronics components even as the growth in purchases of telecom instruments, including mobile phones, was negligible. This means domestic value addition needs to rise at a much faster rate than what’s happening currently.

Electronics components witnessed a 67% surge in imports to $25.6 billion in FY22, while imports of computer hardware and peripherals jumped 45.4% to $15.2 billion. Similarly, imports of consumer electronics climbed 27.7% to $5.8 billion, while those of electronic instruments and telecom instruments rose 21.4% and 2.3%, respectively, to $9 billion and $15.2 billion.

Similarly, exports of electronics were driven by a 66% jump in the telecom instrument segment, which includes mobile phones, to $7.4 billion, or nearly a half of the country’s overall electronics supplies last fiscal. Exports of consumer electronics climbed 33% to $0.9 billion, while those of electronics instruments and electronics components rose 17.5% and 23%, respectively, to $3.3 billion and $3 billion. Computer hardware and peripherals exports rose 32% to $415 million last fiscal. Financial Express