Discussions for a New Electronic Components PLI Scheme in India: What We Are Hearing

Posted by Written by Melissa Cyrill Reading Time: 4 minutes

India is reportedly planning a new production-linked incentives (PLI) scheme for electronic components, targeting a value addition of 35-40 percent to replace the expired SPECS program and complement existing PLI programs. Spearheaded by the Electronics & IT Ministry, it could figure in the newly formed NDA government’s 100-day agenda.

What is being discussed?

It is being reported that India’s central government is considering launching a new production-linked incentives (PLI) scheme for electronic components, targeting a value addition of 35-40 percent. This would imply a doubling of the current value-addition levels from about 18-20 percent achieved through various ongoing electronics manufacturing incentive schemes.

It is also understood that the new PLI scheme would replace the Scheme for Promotion of Manufacturing Electronic Components and Semiconductors (SPECS) that expired on March 31, 2024 after an year’s extension. SPECS provided a 25 percent financial incentive on capital expenditure for a list of electronics items, including components, semiconductors, and display fabrication (fab) units. India also has other schemes for hardware and electronics manufacturing.

Under the 2019 National Policy on Electronics (NPE), India aims to earn US$300 billion in revenues from electronics manufacturing by 2025-26; currently, revenue figures are in the realm of above US$100 billion.

Key government stakeholders

The proposed PLI, spearheaded by the Ministry of Electronics and Information Technology (MeitY), is expected to be a part of the highly anticipated 100-day action plan of the newly sworn-in NDA government led by Prime Minister Narendra Modi.

MeitY is consulting with the Indian government think tank Niti Aayog and the Ministry of Finance before finalizing aspects of the new PLI scheme, per reporting in the Business Standard. It could then be implemented in the latter part of the year.

Industry request

The India Cellular & Electronics Association (ICEA) – the apex industry body of the mobile and electronics industry – has requested the central government for a PLI scheme worth INR 300 billion to INR 350 billion (US$3.59 billion to US$4.18 billion) to enable the manufacture of components and sub-assemblies, besides capital expenditure support. This request was made via a submission to the MeitY. India is witnessing rapidly accelerating exports of mobile phones and other electronics – supported by PLI schemes for large scale electronics manufacturing and IT hardware.

Why a new scheme is necessary for the electronics sector

India’s electronics manufacturing industry is projected to see annual growth rate of 41 percent until FY 2025-26 per a report from Equiris Securities. By FY’26, India’s electronics manufacturing market is projected to reach INR 5,980 billion (US$71.6 billion).

In just April-May, US tech giant Apple’s iPhone exports from India reached a value of US$2 billion. Apple’s three vendors in India had committed to hitting production value of US$10.2 billion under the smartphone PLI scheme, inclusive of exports, in FY 2024-25. Twenty-five percent of this target has now been hit in two months alone – Foxconn Hon Hai (65 percent of total exports), Wistron (24 percent of exports), and Pegatron (11 percent). The companies are on Year-Four of the five-year PLI scheme.

Apple has the world’s largest global value chain and reported total iPhone production in India worth US$14 billion in free-on-board value at the end of FY 2023-24.

100-day agenda of the MeitY

The proposed PLI scheme for electronic components is just one of more than 30 action items that MeitY has submitted to the central government as part of the 100-day action plan. High priorities for the ministry include semiconductor manufacturing and processing applications in this domain. The outgoing NDA government had already approved the establishment of chip-making facilities by the Tata Group and Micron. A fresh injection of funds will be needed to implement the next phase of the India Semiconductor Mission.

How will the proposed PLI scheme for electronic components work?

Upon implementation, the proposed PLI scheme would ensure long-term value addition, making India a competitive destination for electronics manufacturing. This is due to the focus on sourcing locally produced components rather than relying on costly imports, which are affected by tariffs and other factors. Additionally, it would increase the share of production revenues earned by India and reduce the country’s exposure to high trade dependencies.

However, the ambitious target of up to 40 percent local value addition is comparable to China, which only achieved its current 40-50 percent value addition after decades of manufacturing and assembly.

India’s imports of electronics, telecom, and electrical products surged to US$89.8 billion in 2023-24, with over half of these imports originating from China and Hong Kong, according to the Global Trade Research Initiative (GTRI). China leads with a 43.9 percent share, reflecting India’s heavy reliance on these markets.

So far, the Ministry of Electronics and IT has reportedly conducted a preliminary identification of the electronic components targeted by the new PLI scheme. This list is expected to be finalized after further consultations with industry and government stakeholders to ensure the policy will be well-received and effectively implemented.

Ashwini Vaishnaw now holds the cabinet ministerial portfolio of Electronics & IT, alongside Railways and Information & Broadcasting. Speaking to the media on June 11, he said that focus areas of the Modi 3.0 government would be manufacturing, the chip sector, and telecommunications.

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