Exclusive: India’s electronics manufacturing is ready to move from import substitution to export-led growth, says Ashwini Vaishnaw

With India's electronics and mobile phone manufacturing volumes reaching a critical mass, leading to increased local value addition, the country is poised to transition from an import-substitution regime to export-led growth, Union Minister Ashwini Vaishnaw told Moneycontrol in an exclusive interview.

In the past several years, the current government has been following an ‘import substitution’ model to bolster domestic manufacturing, wherein local production is incentivised through various schemes and imports are discouraged through policy interventions like taxes and licensing curbs.

“This is an industry where it's very important to create a critical mass. We have crossed that threshold now with $100 billion of electronics production and $44 billion of mobile phones. Today, we are in a position where we can move away from the import-substitution model and move on to an export-led model,” said Vaishnaw.

“I am very glad to share with you that quite a large number of components have started getting manufactured in India because of the volume of the final product. In the value chain, we are going higher. And now we have to focus on making it export-led growth — which is very important because it will generate a huge number of employment opportunities… That is our next focus,” he added.

Vaishnaw's comments are coming months after the World Trade Organisation ruled that India's tariff treatment of certain ICT products was in excess of duty-free rates that India was obliged to provide under multilateral trade rules.

The Cabinet minister also told Moneycontrol that smartphone makers in the country are gradually moving their supply chains to procure at least 5 major subsystems domestically, which will help India corner a bigger share of the value-addition pie.

Vaishnaw said that another important factor in increasing local value addition would be to get the electronics design ecosystem up and running in the country.

“Our focus is first on increasing the value addition in the country — getting more and more design elements here, so that we get more for the value of what we produce here,” he said.

India has set an ambitious goal of producing $300 billion in electronics products by 2025-26, offering generous incentives through its production-linked incentive (PLI) schemes to attract device makers seeking to diversify their manufacturing capabilities beyond China.

Over the past year, Apple has been aggressively ramping up local production of its flagship iPhone devices in India. The Cupertino-based tech giant reportedly plans to increase production in India to over $40 billion in the next 4-5 years, after crossing the $7 billion production mark in the last fiscal.

Meanwhile, Google announced recently that it plans to make its Pixel smartphones in India, giving a big boost to the country's ambitions of becoming a global manufacturing hub. It plans to start local manufacturing with Pixel 8 and Pixel 8 Pro, with the first devices expected to roll out in 2024. The company will be working with domestic and international manufacturers to produce these smartphones.

Mobile phone shipments under the 'Make in India' initiative achieved a significant milestone, surpassing 2 billion units in 2022. This was underpinned by an impressive Compound Annual Growth Rate (CAGR) of 23 percent over nine years.

In 2022, more than 98 percent of shipments in the overall market were ‘Make in India’, compared to just 19 percent when the current government took over in 2014. Local value addition in India currently stands at an average of more than 15 percent, compared to the low single digits eight years ago.

Vaishnaw said on November 27 that over 99 percent of mobile phones used in India today are manufactured locally, while the mobile manufacturing industry has crossed $44 billion in value.