India’s Plan: Boosting Electronics, Reducing China Reliance
While the heat on the actual line of control (LAC) in Ladakh may have dozed off with both countries withdrawing their troops, India is all set to counter the over-reliance on China in the electronic production sector with its well-thought and strategically devised incentive plan to the tune of USD 5 billion.
India’s burgeoning electronic production — which has more than doubled in the last six years to USD 115 billion — continues to depend heavily on China, with imports from Beijing rising to USD 46.6 billion, up from USD 42 billion during the same period last year. To counter this and build a self-sustaining ecosystem, the Indian Government has set this ambitious incentive plan for the electronics sector, whose value stood at USD 101 billion as of FY 23.
What’s the Plan?
As per sources, the Indian Government will provide incentives up to USD 5 billion to eligible companies to make components locally for a range of electronic devices such as laptops, mobile phones, etc. The incentives to be offered under a new scheme, likely to be launched within two to three months, aim to steadfast India’s status as a major player in the global electronics market along with deepening local supply chains that have a ripple effect on the entire electronics ecosystem. To know the different benefits of this incentive plan, just read below.
Reduction in Manufacturing Costs for Laptops and Electronic Items
The incentive plan, when rolled out, can drastically cut down prices of laptops and other electronic items. Note that high prices for laptops and electronic gadgets have much to do with imports of these items and their components from countries like China.
From April to August 2024, laptops and computers, along with machinery, accounted for imports worth 10,556 million USD, up from 9037 million USD during the same period in 2023 from China. Experts believe laptop prices can be reduced by 60% if chips are made in India.
Benefits for Other Industries
While the incentive plan will benefit the electronics industry, it will have a ripple effect across diverse industries such as automotive and telecommunication. It must be noted that the global shortage of semiconductors had a cascading impact on India's automobile production and sales across FY 21, FY 22 and a large part of FY 23.
The auto sector is the second largest consumer of chips produced at 13% and India ranks among the top five auto markets in the world. Incentivising local manufactures will enable auto behemoths like Tata Motors, Maruti Suzuki, Mahindra & Mahindra and others to stabilise production and meet the growing demand for connected vehicles, expected to touch USD 32.5 billion by 2030.
Similarly, India’s telecommunication sector, on its 5G expansion mission, runs the risk of a dip in quality services due to the shortage of key electronic components. For instance, critical 5G network gears can face potential disruption due to a shortage or tight supply of semiconductors. Note that India is expected to have 270 million 5G subscribers by the end of 2024, a significant rise from 110-120 million users in 2023.
The environment can become more conducive for telecom players if domestic companies get incentivised to produce key components locally, leading to better services and lower operational costs.
Powering India’s $5 Trillion Dream
Apart from benefitting other industries, the incentive plan in the pipeline for the electronic production sector can galvanise India’s march towards becoming a USD 5 trillion economy. It must be noted that to fuel this dream, the Indian Government aims for USD 300 billion in electronics production, including USD 100 billion in exports.
It must be noted that electronics exports registered a 22% boost in FY 24 and breached the USD 20 billion mark and given the pace at which it has risen, 23% annually, achieving the USD 100 billion target looks viable.
However, this warrants making local players competitive and drawing foreign players to its shores. The incentive plan to be rolled out for the sector can enhance local production, ease supply chain constraints, foster an environment for innovation and bolster the indigenous ‘Make in India’ campaign, ultimately positioning India as global electronics manufacturing hub and positioning the nation as an alternative to China.
This strategic shift will not only generate employment opportunities and contribute to economic growth but also bring the country closer to realising its vision of becoming a USD 5 trillion economy.
In Conclusion
India’s incentive plan for the electronic production sector is a proactive and strategic step to cut reliance on China and strengthen local capabilities. It’s an investment for the country’s future and transition into a global electronics powerhouse. That said, the initiative’s success will hinge largely on its effective implementation and fostering a collaborative environment that encourages players to invest in the country’s electronics sector.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. It is not produced by the desk of the Kotak Securities Research Team, nor is it a report published by the Kotak Securities Research Team. The information presented is compiled from several secondary sources available on the internet and may change over time. Investors should conduct their research and consult with financial professionals before making any investment decisions. Read the full disclaimer here.
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