India reportedly to announce US$3 billion incentive scheme to boost electronics manufacturing, benefitting Apple

Amid potential tariff hikes by the upcoming US administration, which may disrupt the global supply chain and once again benefit India, the Indian government reportedly plans another incentive scheme to boost the development of a local electronics manufacturing ecosystem.

The Economic Times, referencing unnamed sources, has revealed that India's Ministry of Electronics and IT and the Ministry of Finance reached an agreement on a significant incentive scheme. This scheme involves an investment of INR250 billion (approx. US$2.91 billion) aimed at bolstering the domestic production of electronic components. The initiative aspires to generate electronic components valued between US$50-60 billion over a five-to-six-year period.

In a similar vein, Bloomberg has reported, citing unnamed sources, that the Indian government intends to offer subsidies to electronic component manufacturers and reduce import tariffs with the goal of enhancing local production. This move is particularly focused on supporting the manufacture of smartphones by companies such as Apple.

Following the approval from India's finance ministry, these reports suggest that the incentive scheme is likely to be formally announced in the country's annual budget in February.

The rumored forthcoming incentive scheme is expected to be smaller in scale compared to previous Production Linked Incentive (PLI) schemes, which encompass 14 sectors and have an overall budget of approximately INR2 trillion. Unlike the PLI schemes that mandate beneficiaries to utilize benefits based on their production value, export value, and investments, this new scheme aims to introduce a design change to ensure the complete utilization of the allocated budget.

According to the Economic Times, the component scheme offers variable incentives based on the product's manufacturing challenges and localization levels. Because components and subassemblies require significant investment, unlike the smaller investments needed for smartphone manufacturing, the new scheme will reward products facing greater manufacturing constraints, particularly compared to China and Vietnam, with more incentives. The incentives may be increased if the entire budget allocation is utilized.

According to the reports, the Ministry of Electronics and IT has proposed providing manufacturers of components such as batteries and camera parts with support amounting to at least INR230 billion. The scheme will also include components such as PCBs, display sub-assemblies, lithium-ion cells, speakers, vibrator motors, and mechanics, which account for nearly 50% of a mobile phone or laptop's bill of materials.

Additionally, the ministry has suggested reducing tariffs on certain electronic components to lower production costs, addressing a key industry demand.

The scheme aims to establish a comprehensive ecosystem for component manufacturing in response to India's projected increase in electronic components demand, which, as reported by the Confederation of Indian Industry, is expected to rise from US$45.5 billion in 2023 to US$240 billion by 2030.

The Indian government intends to enhance local value addition in electronics manufacturing from the current 15-18% to 35-40% during the scheme's duration, eventually reaching 50% of the non-semiconductor bill of materials.

Iteration from PLI schemes

Since 2020, India has progressively rolled out its PLI schemes across 14 industries, experiencing mixed outcomes. The generous subsidies and robust domestic demand have propelled India to become the world's second-largest smartphone producer.

However, the IT hardware sector, which includes notebooks and tablets, has faced challenges in drawing adequate investment from supply chain participants. Additionally, companies that manage to qualify for PLI benefits, such as Samsung Electronics, might not receive the anticipated subsidies due to various factors.

Notably, India is actively working to enhance its electronics manufacturing supply chain, aiming to take advantage of the ongoing global shift in supply chains. With Donald Trump assuming office and his consistent focus on increasing tariffs on various trade partners, this shift could gain further momentum. Many believe that these changes present another opportunity for India to benefit significantly.

Source: Ministry of Electronics and IT of India, September, 2024