It is estimated that imports bill of electronics will overtake the imports bill of oil by 2022 in India; only 30-40% of the electronic products are manufactured domestically. Indian electronics industry is one of the largest and fastest growing industries in the world. In 2015, despite global slowdown it reached a market value of $75 billion. FDI in electronics industry saw an increase from $92 million in 2012 to $2018 million in 2016. The growth is projected to be 17% for electronics products and 23% for electronics services in the next 5 years.
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On 19th November 2012 National Policy on Electronics (NPE-2012) was notified. The vision of NPE 2012 was to create an indigenous electronic industry which was globally competitive and at the same time established India as a world leader in electronic industry. Under NPE 2012 several schemes were inaugurated to promote the supply chain for electronic industry.
Measures Taken in NPE 2012
- Electronics Manufacturing Clusters
- Semiconductor fabrication (FABs) plant
- Centre’s of Excellence in electronics.
- Incubators for startups
- Rationalized tariff structure
- Promotion of exports
- Increasing standards of safety
- Electronics Development Fund
- Technology Incubation and Development of Entrepreneurs (TIDE)
- Skill Development
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National Policy on Electronics – 2018
On 10th October 2018 Ministry of Electronics and Information Technology (MEITY) released the draft version of the NPE (National Policy on Electronics) 2018. It aims to convert India’s domestic electronics industry to $400 billion by the year 2025. The MEITY will provide coordination among different ministries and departments to help expand the electronics hardware manufacturing in India.
Highlights of the NPE – 2018
Goals and Money Allocation
- Goal of manufacturing 100 crore mobile phones by 2025, valued at $190 billion and a target to export 60 crore mobile phones worth $110 billion by the year 2025.
- 20 Greenfield and 3 Brownfield electronics equipment manufacturing clusters have been envisioned with a budget of Rs 3898 crore.
- It propagates a balanced and a liberal tax regime which includes advance intimation to the electronic sector to plan their investments in the form of Phased Manufacturing Programme (PMP) in various segments of electronics.
- Imposing cess on certain electronic goods, to generate some funds which will be utilized to develop certain critical sub-sectors of electronics like semiconductor fabrication, display fabrication, defense electronics, strategic electronics, medical electronics etc.
- Removing the import tariffs on electronic products which are not manufactured domestically to reduce the capital expenditure for setting up of such manufacturing units.
- Promoting ease of doing business for the Electronic System Design and Manufacturing (ESDM) sector.
- Encouraging industries to increase their spending on R&D in the electronics sector.
- It aims to energize the startup ecosystem in the electronic manufacturing.
- Promoting the manufacturing of electronic equipment which comes under the Information Technology Agreement (ITA-1) of the WTO.
- Replacing the M-SIPS with a scheme which is simpler to implement such as interest subsidy and credit default guarantee scheme.
- Encouraging indigenization of microchips.
- Encourage the State Governments to promote the electronic industry.
- Promoting safe disposal of e-Waste.
Phased Manufacturing Programme (PMP)
In May 2017 government of India initiated Phased Manufacturing Programme (PMP) to promote the growth of domestic manufacturing of mobile phones. The Ministry of Electronics and Information Technology (MieTY) is the implementing agency of PMP. The main aim of this program is to impose tariff duties and give tax reliefs and incentives on certain products which are used in the manufacturing of cellular mobile phones. The reason it is called the Phased Manufacturing Programme because it will provide fiscal benefits to domestic manufacturing of various components of cellular mobile phones in different fiscals.
Information Technology Agreement
Under the Information Technology Agreement (ITA) the participating countries have committed to completely remove import tariffs on Information Technology (IT) products included under this agreement. In December 1996 ITA was concluded by 29 countries at the Singapore Ministerial Conference. Currently, it has 82 participating countries which represent nearly 97 % of world trade in IT products. The ITA has included a large number IT products like computers, semiconductors, telecommunication equipment, software, scientific equipment etc.
Modified Special Incentive Package Scheme (M-SIPS)
In 2012 UPA government approved the M-SIPS. The scheme provided a special incentive package to promote domestic manufacturing of electronic products in the country. The scheme provided a 20% subsidy on capital expenditure for investments in Special Economic Zones (SEZs) and 25% subsidy in non-SEZs. The scheme had a provision of reimbursement of countervailing duties and central taxes for bigger capital investment in the electronics sector.
Reasons for amendment of M-SIPS
On 17th January 2017 Union Cabinet under Prime Minister Narendra Modi gave approval for amendments in the M-SIPS. Many projects were getting delayed because a big amount of time was wasted to get the requisite approvals from different ministries. To expedite investments in ESDM sector in India, the Appraisal Committee chaired by Secretary, Ministry of Electronics and IT will recommend approval of projects.
Major Items where Imports have reduced due to NPE 2012
- Mobile Phones
- Set-top box for televisions
- Personal computers
- Electronic Inverters
- Printers and MFDs
- Automatic Data Processing Machines
- Video game consoles
- Audio frequency electric amplifiers
- Microwave ovens
- Make In India – To give a boost to the manufacturing sector.
- Digital India Mission – It is helping in making people aware of various digital and electronic products and at the same time it is increasing people participation in governance through mobile phones.
- Electronic Manufacturing Clusters – providing financial assistance to Greenfield and Brownfield projects in the electronic sector.
- MSIPs – Modified Special Incentives Package Scheme to offset disability and attract investments in the manufacturing of electronic products
- EDF – Electronic Development Fund to provide financial assistance for innovation and R&D.
- Budget provision – the electronics industry received 114 million under the financial year 2018-19 budget, which clearly shows that the government is planning to give a huge boost to the electronics industry.
- Skill India – To provide the requisite skills to the youth for the electronics industry.
- Ease of doing business promoted by the government. India jumped 23 places to 77 in the latest ease of doing business rank report conducted by the World Bank in 2019.
- Easing of labor laws.
- Government providing tax benefits to startups, it also provides a loan under Mudra scheme to the Indian youth to start their own business.
- Two semiconductor fabrication (FABs) plants have been proposed by the government; one in Greater Noida in Uttar Pradesh and second on in Prantij in Gujarat about 50 km from Gandhinagar.
Indian Electronic Industry Globally
India is a signatory to the Information Technology Agreement (ITA-1) of World Trade Organization (WTO). India has not signed ITA-2. India has signed Free Trade Agreements (FTA) with ASEAN countries, South Korea, Japan, etc., because of which any electronic equipment imported from these countries is provided preferential rate, which is lower than normal rate. World over, electronics is recognized as a meta-resource. Besides the economic imperative, focus on electronics hardware manufacturing up to the chip level is required due to the growing security concerns. Indian electronics industry is very small. The world electronics market is estimated to be around $2 trillion, our domestic electronics market is comparatively paltry at $75 billion.
- Frequent policy shift results in lower confidence among the investors and thus lowering the FDI.
- Rare earth metals like Li, Si, and others have to imported which makes India venerable to external shocks.
- Rising problems due to e-waste and lack of political will to tackle these issues.
- Fear of retrospective taxation laws.
- High compliance costs for exporters.
- The high cost of power and finance.
- High logistics and transaction cost.
- Inefficient infrastructure.
- Lack of an efficient supply chain.
Benefits of growing electronic industry
- Employment opportunity.
- Reduction in inequality.
- Poverty reduction
- Better health and education benefits for children.
- Reduction in Import bills
- Reduction in current account deficit and an increase in forex reserve
- Indigenous electronic industry for our defense and military
Hence the electronic industry is an important sector of the Indian economy but more needs to be done to achieve its full potential. Despite all the challenges India is making progress in the field. An excellent example can be the Samsung factory in Noida, which is the world biggest mobile phone manufacturing factory; it was jointly inaugurated by Prime Minister Narendra Modi and South Korean president Moon Jae-In.