Relevance: GS-3: Indian Economy, mobilization of resources, changes in industrial policy and their effects on industrial growth.

GS-2: Government policies and interventions for development in various sectors.

Key phrases: Vision Document 2.0, Electronics manufacturing, PLI Schemes, NPE 2019, Import duty, chip manufacturing, MeitY.

Why in News?

• Given the ‘unforeseen and unprecedented’ challenges brought by the pandemic, India is likely to achieve electronics production of $300 billion by 2026, lower than the target of $400 billion by 2025 set as per the National Policy on Electronics (NPE) 2019, according to a vision document released by Ministry of Electronics and IT (MeitY) in association with the India Cellular & Electronics Association (ICEA).

Electronics Manufacturing in India:

• Electronics manufacturing had grown from $37.1 billion in 2015-16 to $67.3 billion in 2020-21 even as COVID-19- related disruptions impacted the growth trajectory in 2020-21.
• Today India are exporting 50 lakh phones, including smartphones. However, the concern remains that we are not still close to a strong electronics brand emerging out of India which could cater locally as well as become India's face globally.
• The import of electronics in 2020-21 reduced to around Rs 2.85 lakh crore from about Rs 2.9 lakh crore in 2019-20 due to an increase in local manufacturing of consumer electronics items especially LED television sets and electronic components.
• However, the import in the IT hardware segment increased to around Rs 79,000 crore in 2020-21 from about Rs 68,400 crore in 2019-20.

Measures need to boost Electronic manufacturing in India:

• One, lower import duties on inputs. High duty on inputs results in expensive finished product that is out-priced by imported goods both in the domestic and export markets. Low duties make domestic firms competitive. Soon many will start shipping directly. Gradually, with better forward and backward linkages, jobs increase as both exporting and importing sectors grow. In Vietnam, five million workers work with direct exporters while seven million work for firms supplying products to exporters.
• Two, increase access to formal finance. Enable top one million small manufacturing firms to get bank finance without collateral at regular interest rates. Less than 4 per cent of small firms in India have access to formal finance. The figure for the US, China, Vietnam and Sri Lanka is 21 per cent.
• Three, simplify process of exporting for small value consignments. For such small value exports, we need to simplify and integrate compliances relating to Customs, GST, DGFT and other concerned agencies. Schemes like making districts as export hubs would benefit from such simplification. The simplification will also help exports by small artisans and firms located in class B and C cities.
• Four, invite large anchor firms in critical products to set up operations in India. Government initiatives like simplified labour laws, PLI incentives, low corporate tax on new manufacturing operations and scrapping of retrospective tax have enthused many firms searching for China plus-one location to shift base to India. India's large number of competitive ancillary units and skill base are a big plus over competing countries.
• While supporting new firms, focus must be on value addition. China gets only $12 for an iPhone being sold at $700. The lure of incentivising high turnover built on 90-95 per cent of imported inputs must be eschewed. Making of EV batteries from imported lithium-ion cells or solar panels from imported solar cells falls under this category.
• Finally, ensure fast entry/exit of containers through the port/customs. Since inputs criss-cross across countries several times as parts and sub-assemblies before the final product is ready, low duties and quick port exit are preconditions for participation in global value chains (GVCs). Any delay at one point disrupts the entire value chain.

Way Forward:

• Addressing industry’s apprehensions over the issue of dual regulations in mobile manufacturing, the Ministry clarified that telecom department is not going to enter into mobile manufacturing and the mobile manufacturing regulatory regime will remain same.
• The report provide the five-part strategy to reach the US$300 billion goal, based on an “all of the government” approach, sharply focuses on broadening and deepening electronics manufacturing in India. This, by building competitiveness and scale by attracting global electronics manufacturers/brands, shifting and developing sub-assemblies and component ecosystem, building a design ecosystem, nurturing Indian champions and steadily removing cost disabilities faced by India.
• The Vision Document makes a strong recommendation on the need to focus on aggregate domestic value addition in the electronics sector, as India transforms from its current state to one that is gearing to compete with the likes of China and Vietnam. It also details the importance of the key role Indian champions will play in addition to global companies – both of whom are already part of the PLI Schemes.
• There is need of competitive tariff structure on electronic components and removal of all regulatory uncertainty to put India on the path to US$300 billion electronics manufacturing. The report recommends a “winner takes all” strategy backed by economies of scale and global competitiveness, new and revised incentive schemes for some sectors, and the need to address issues of sustainability and ease of doing business.

Source: The Hindu

Mains Question:

Q. Vision Document 2.0 released by Ministry of Electronics & Information Technology is one of the roadmaps to become $5 trillion economy by 2025. Illustrate.

Q. Ministry of Electronics & IT releases 2nd Volume of Vision Document on Electronics Manufacturing to achieve electronics production of $300 billion by 2026, in this regard discuss the key highlights of the document. What should be the steps to boost electronics production in India? Critically examine.