Cabinet note on electronics component scheme likely next month, may allow JVs with Chinese firms

electronics components scheme

The ministry of electronics and information technology (MeitY) is preparing a cabinet note for the long-pending electronics component-manufacturing scheme with an outlay of around Rs 40,000 crore. The note is expected to be floated by mid-December.

Sources indicate a favourable response from the highest levels of government and are keen to push the policy swiftly though some work remains on the expenditure side, which the finance ministry is addressing.

“The cabinet note is under preparation. The cabinet note will be floated in December's first or second week. Most of the consensus is already in place and only minor adjustments on expenditure are pending,” a source told Moneycontrol. “The government is likely to announce the scheme by late December or early January.”

The policy is expected to focus more on operational subsidies, aligning with the finance ministry’s preference for production-linked incentive (PLI) schemes that are tied to specific achievements.

“Capital subsidies involve reimbursing capex without linking it to production outcomes, which has led to some resistance from the finance ministry. However, these differences will likely be resolved before the cabinet note is finalised,” the source added.

MeitY recently held talks with industry stakeholders on capital and operational subsidies across various component categories. It identified non-semiconductor electronics components as the focus of the new policy.

The new policy will follow the Rs 3,285-crore Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), which ended March 31. Under SPECS, the government offered incentive of 25 percent on capital expenditure for manufacturing.

The industry has called for a more refined scheme with increased scale and higher incentives.

With the new policy, the government aims to increase domestic value addition in electronics components from 15-18 percent to 35-40 percent initially, targeting 50 percent over time.

The scheme for electronics component manufacturing, a part of the government’s 100-day agenda, has faced delays due to a lack of coordination during inter-ministerial meetings and the finance ministry’s reservations on capex subsidies.

The India Cellular & Electronics Association (ICEA) and the Electronic Industries Association Of India

( ELCINA), in their submission to MeitY earlier this year, proposed a Rs 40,000-Rs 45,000 crore outlay for the scheme, stressing on capital expenditure support.

They said the scheme is essential to meet the growing demand for electronic components, estimated at $75–80 billion by 2026 and $300 billion by 2032 to support manufacturing worth $1.2 trillion by the same year.

Industry sources see a shift in the government’s stance toward Chinese companies. While blanket approvals for Chinese firms are off the table, the government is open to joint ventures (JVs) with Indian firms, provided there are appropriate checks and balances.

“This is an inter-ministerial issue led by the Ministry of Home Affairs (MHA). There has been a recent positive change in perspective, recognising the need for deeper value addition. India cannot reinvent the wheel but it is striking a balance between security and business,” a second industry source, who attended MeitY meetings, told Moneycontrol.

The inter-ministerial committee, chaired by the home ministry, will evaluate proposals on a case-by-case basis, relying on feedback and security insights from relevant ministries. “MHA will lead the intelligence and security assessments,” the source added.

JVs with Chinese companies are seen as a practical approach to providing Indian firms access to Chinese technology. “The China +1 strategy in the non-semiconductor segment positions India as part of the global value chain. JVs are the way forward,” a source said.

While China remains dominant in the electronics components sector, the government is also looking to attract companies from South Korea, Japan, Taiwan and Thailand.

“Whether to allow JVs with Chinese firms will also depend on how the new US administration approaches its policies toward Beijing,” a government official said.

The Trump administration, which comes in late January, is expected to take an aggressive stance on Chinese imports.

The government also plans to phase out the smartphone PLI scheme by merging it with the new components scheme.

The smartphone PLI, the most successful of all 14 such schemes, may be extended by a couple of years beyond 2025-26 when it officially ends.

“Another PLI for smartphones won’t come; it will be subsumed into this one,” the official added.

The five-year PLI scheme, which started in 2020, ends in 2026, and each company can choose any five consecutive years. While Apple has chosen 2021-2026, Samsung has chosen between 2020 and 2025.

Apple and Samsung are the biggest beneficiaries of the scheme. Apple assembles iPhones via contract manufacturers – Foxconn and Tata Electronics. Tata has now taken over operations of Apple's other two contract manufacturers -- Pegatron and Wistron in India.

Local contract manufacturer Dixon has also benefitted from the scheme. It makes smartphones for Xiaomi, Samsung, Motorola, Realme and Transsion group-owned brands like iTel, Tecno and Infinix. It is also going to start manufacturing Google Pixel phones soon.