Policies for promotion of electronics manufacturing have been formulated with a long term vision but their implementation has lacked the same tenacity and a long term sustained approach for promoting high value added manufacturing. A suitable policy must support large investments in manufacturing facilities for raw materials, parts, components and PCBA/EMS for electronics. This is the segment of the ESDM value chain where there is concentration of technology and requires R&D, IP creation and continuous and consistent investments if we want to create a resilient value chain in the country. This is the only way to reduce our dependence on imports and also reduce the insecurity and uncertainty which accompanies it.
The electronics manufacturing sector can be broadly classified into three tiers:
- Finished Products
- PCB Assembly / EMS
- Components, Parts & Raw Materials
A strong component manufacturing base in the country is a pre-requisite for a self-reliant ESDM sector in the country. In the recent past, the focus of policy makers is on manufacturing of electronics products irrespective of the degree of value addition. Majority of inputs such as parts, Sub-Parts, Components are allowed for import at zero or minimal duty. This policy has encouraged low value added manufacturing/assembling but simultaneously has stymied the growth of the existing component manufacturing base and FDI in the sector.
Large Foreign or Domestic investments in electronic component manufacturing will happen only if India offers a cost advantage in component manufacturing. It is argued that low value added manufacturing would result in investments in component manufacturing due to demand pull. However, even low value added manufacturing will sustain if duty benefits are allowed to continue over time with increasing value addition under a PMP program.
Challenges for Component manufacturing in India
- Allowing zero duty imports of inputs/components for the assembly of high volume and high growth products such as mobile phones, PoS Machines, Micro ATM’s, Set Top Boxes etc. has depressed growth in demand of components and discouraged new investments in the segment.
- Tedious process and obligations to avail benefits under Cust. Notif. 25/99 on inputs for the manufacture of components.
- High Cost of Finance becomes a greater disadvantage with greater value addition
- Duty Free imports of PCBA’s reduce the demand for domestically manufactured PCB & components.
- Existing eco-system of component manufacturing in the country lacks global scale and capability and thus remains uncompetitive.
A two pronged approach to encourage high value added manufacturing:
- Provide differential duty benefits/BCD protection to assembly of equipment, specially high volume products such as Mobiles, Tablets, Set Top Boxes, POS Machines etc under a 5 year PMP program with graded increase in Value addition
Distribute components into ITA-1 and Non-ITA-1 categories and provide 10-20% protection.