manufacturing sector in India offers huge scope for micro, small and medium enterprises (MSMEs) in the country. India’s electronics market is estimated at USD 250 billion as of 2020 and it is expected to grow to USD 540 billion by 2025, according to a report by Frost & Sullivan. Of the USD 250 billion market demand as of 2020, domestic production caters to hardly USD 105 billion, while the remaining market demand is met through imports. Thus, there is tremendous opportunity for substituting imports by encouraging local production, especially by supporting MSMEs. India depends on imports for printed circuit boards, semiconductors, components used in LED lightings, computer peripherals, telecom equipments etc.
However, according to industry estimates, local manufacturers face around 10-12% cost disadvantage over their competitors in China, Vietnam, Philippines and Indonesia. It is alleged that Indian SMEs lack access to low cost capital for upgrading their technologies. SMEs in China operate on a large scale, which reduces their unit cost of production and helps them offer products at competitive price. Other challenges being faced by Indian MSMEs are poor logistics infrastructure, high compliance burden because of obsolete labour laws and sub-optimal GST system.
This cost disadvantage, which is famously called as domestic disability, has to be compensated through fiscal incentives such as investment subsidy, production subsidy, loan facility at subsidized interest cost, reimbursement of all taxes and other levies etc.
In order to overcome this disability and enable local manufacturers to compete with imports, Government of India notified three schemes with total outlay of Rs 50,000 crore in the months of April 2020 and June 2020.
One of these three schemes is the Production Linked Incentive (PLI) scheme with an outlay of Rs. 40995 crore and which provides 4-6% production linked incentives for mobile phones and electronic components. The second one is the Scheme for Promotion of Electronic Components and Semiconductors (SPECS) which provides capital incentives for manufacturing active & passive electronic components, semiconductors and other products. This scheme is worth Rs. 3285 crore. The last scheme is the Modified Electronics Manufacturing Cluster Scheme 2.0 (EMC 2.0), under which the government will bear a part of the cost for setting up common facility centres and support infrastructure in electronic clusters. The total outlay for this scheme is Rs. 3762 crore. It is hoped that these three schemes will offset the cost disadvantage associated with domestic manufacturing in the electronic sector and thereby reduce India’s dependence on imports.
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Notifications
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Press Information Bureau, Government of India
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DGFT
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