100-Day Agenda: Rs 30,000-cr electronic component scheme with capital subsidy likely in Aug-Sept

Electronics component PLi

The Ministry of Electronics and Information Technology (MeitY) plans subsidies for acquiring land to set up factories under certain high-value electronics component categories under an incentive scheme to be rolled out in August-September with an expected outlay of Rs 30,000- Rs 40,000 crore.

The subsidy scheme for electronics components manufacturing is a part of the government's 100-day agenda, sources directly aware of the matter told Moneycontrol. According to the sources, the bulk of the expenditure will be towards capital subsidies for land acquisition to set up factories in some component categories where the capital investment to output ratio is not high.

The new scheme will replace the Scheme for the Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), which ended on March 31 and provided a financial incentive of 25 percent of capital expenditure for various electronic goods, including electronic components and display fabrication units.

“We are not doing it as a PLI scheme… It may or may not be a PLI. It could be a mix and match of a variety of things because there will be certain cases where we have to do a capital subsidy,” a senior government source told Moneycontrol on the condition of anonymity.

The official further said that the PLI scheme typically works in areas where the capital investment to output ratio is very high. “But, in many component categories that may not be the case, because there are items where the investment levels will be high but the turnover may not be commensurate with that. So, there is the need to calibrate at the policy level. The scheme is a priority under the 100-day agenda,” the official said.

Having completed initial one-on-one meetings with industry stakeholders and associations, MeitY is consulting the NITI Aayog and the finance ministry. It will do a few more rounds with industry stakeholders before finalising the new scheme.

“The scheme will target select component items, and we will target areas where the opportunity of value add is significant along with areas where we don’t have any presence but we can ramp up quickly. Thirdly, areas which would become strategic in nature similar to semiconductors,” said another senior government official, refusing to be identified.

“Through this, we are building competencies to ensure that it caters to a whole segment of industry. This is the next stage of PLI schemes which are there currently for mobiles and IT hardware,” the official said.

The government expects to give swift approvals after due diligence to companies from China who may look to enter the country through Indian partners to set up component facilities under the new scheme. “The idea is that it is in the overall China Plus One strategy, we have to be in that plus-one category. if you don't do it, then lose it. There will be government-wide cooperation on this,” the person said.

With this new scheme, coupled with existing PLI schemes for mobiles and IT hardware, the government is targeting 35-40 percent local value-addition in the electronics supply chain from the current levels of 18-20 percent.

“We want to be a part of the global value chain. When we start producing, those components are produced not only for consumption within the country into final finished products, but also for export and that will make us competitive, especially to China which currently has a value addition of 40-50 percent,” the official said.

An increase in value addition in electronics manufacturing means more components will be sourced locally, instead of being imported, resulting in a higher share of revenues for the country.

India has a goal of achieving $300 billion in revenues from electronics production by 2025-26, up from around $103 billion now.

The India Cellular & Electronics Association (ICEA), in a submission to MeitY, asked the government for a Rs 30,000-35,000 crore outlay for the scheme for components and sub-assemblies, along with capital expenditure support. It also said the incentive scheme is needed to support growing demand for electronic components to the tune of $75-80 billion by 2026, and $300 billion by 2032 to support $300 billion worth of electronics products manufacturing by 2026 and $1.2 trillion by 2032.