Electronics Manufacturing in India

The electronics manufacturing sector in India falls under the purview of the Ministry of Electronics and Information Technology (“Ministry”). Presently, India’s electronics manufacturing sector is witnessing unprecedented growth, resulting in electronic products being the 5th largest export commodity of India, valuing at $29.11 billion during the financial year (“F.Y.”) 2024, which is an approximate increase of $5.5 billion from F.Y. 2023. This unprecedented growth can be attributed to the plethora of policies and initiatives set up by the Ministry and the central and state government(s).

In light of the aforementioned, this article aims to empower its readers with all the relevant information about the electronics manufacturing sector in India, including but not limited to, the overview of the sector, the policies and initiatives offered by the Ministry and the government(s) along with the key regulations and compliance requirements, which an investor would be required to adhere to at the time of incorporating an electronic manufacturing plant.

Overview of the Electronics Manufacturing Sector in India

As aforementioned India’s electronics manufacturing sector has witnessed unprecedented growth in the recent past wherein the sector has grown from a small industry primarily focused on basic consumer needs to having a strong global presence. This sector has become crucial for India’s economic development by boosting the country’s GDP and generating employment. This expansion is reflected in the sectors compound annual growth rate (CAGR) which has been approximately 13% from F.Y. 2017 to F.Y. 2023. The same can be attributed to several reasons like an increase in domestic consumption, export opportunities and inclusive government policies. Additionally, the setting up of special economic zones (SEZs) and the move towards digital transformation have played a key role in the growth of the electronic manufacturing sector.

Furthermore, the smartphone and electronic segments have materialized as the pioneers of this electronics manufacturing revolution. India is the 2nd largest smartphone manufacturer globally. Apart from smartphones, this sector has also expanded into a wide range of different products which include computers, televisions and industrial electronics. The rapid adoption of advanced technologies such as artificial intelligence (AI), robotics and the Internet of things (IoT) have aided this expansion. Regions like Bengaluru, Pune and Noida are now developed into manufacturing hubs which has further improved India’s position in the international electronics market thus attracting significant investments from both domestic and international investors. India’s electronic manufacturing sector has also made exceptional growth in its production volumes and export statistics.

In light of such unprecedented progress, the Government of India has set the future target for the electronic manufacturing sector as $300 billion by 2025-26. To achieve this goal the government has implemented multiple policies and schemes targeted at expanding the electronics manufacturing sector, which are further elaborated hereinafter. These efforts supported by India’s competitive pricing, favourable policies and quality products has established India as an attractive destination for electronics manufacturing investments.

Key Regulations and Compliance Requirements

The electronic manufacturing sector in India, in addition to the Ministry, falls under the ambit of the Bureau of Indian Standards (“BIS”), the Central Pollution Control Board (“CPCB”) and the Directorate General of Foreign Trade (“DGFT”). These regulators along with the Ministry, govern the electronic manufacturing sector of India wherein they establish and enforce the standards of, including but not limited to, product quality, environmental protection and mandatory compliances. Furthermore, they facilitate import-export activities and provide comprehensive regulatory and legal frameworks.

The primary compliance and regulatory requirement would arise at the instance of setting up an entity in India, which is essential and mandatory to set up an electronic manufacturing plant, herein, the business structure of an entity will have to be determined upon which the entity must be duly incorporated and registered in accordance with the compliance requirements provided under the Companies Act, 2013. Thereafter, the entity would be required to acquire land, as per its requirements, and in connection with the land procure all the necessary permits including but not limited to a ‘consent to establish’, from the State Pollution Control Board (SPCB). Such an entity shall procure a BIS certificate and comply with the regulations, compliances and mandates provided under the E-Waste Management Rules, in furtherance of duly complying with the environmental legislations. Furthermore, to comply with tax compliances, an entity must register under the GST Act. Lastly, in the event the entity established herein, intends to either import certain raw-materials or export their finished goods, the entity would be mandated to obtain an import-export code, which is issued by the DGFT. An entity who has not duly procured an import-export code would not be permitted to undertake any international trade activities.

In addition to the aforementioned, entities shall procure a registration under the Factories Act, 1948, which is essential for commencing manufacturing operations. However, for an entity to duly register under the Factories Act, the below mentioned compliance would have to be duly undertaken which are including but not limited to the following:

1. Procuring an Industrial Entrepreneurship Memorandum;
2. Pre-operations registrations and licenses;
3. Registration of the proposed building plan;
4. Compliance with requisite occupational safety and welfare measures;
5. Specific environmental clearances, which may be in addition to the aforementioned;
6. Formulating and submitting a factory plan to the relevant chief inspector;
7. Compliance with applicable labour laws; and
8. Submission of the relevant production linked incentive scheme (“PLI”) forms, in order for the entity to duly avail incentives and schemes provided by the Ministry and government(s).

Government Schemes and Policies

The Indian government in its initiative to boost domestic manufacturing, introduced the ‘Make in India’ and ‘Digital India’ initiatives wherein the Make in India initiative was formulated in order to transform India into a manufacturing hub, thereby, reducing the country’s dependency from foreign imports of goods. Through this initiative, the government aimed at incentivising domestic as well as foreign entities to invest in manufacturing operations in India, by including but not limited to easing the (i) process of setting up a business in India; (ii) process to procure permits and consents; and (iii) enforcement of contracts. Similarly, the Digital India initiative was formulated in order to facilitate growth and investments specifically in the area of electronics and its ancillary products.

In furtherance to the Make in India and Digital India initiative, the government of India provides the manufacturing sector with several incentives and schemes, which may flow either from the central government or through state government(s). Therefore, the manufacturing sector in India is entitled to a two-tier structure of incentives wherein they are entitled to receive benefits provided by the state and the central government. In light of the aforementioned, and to position India to compete on the global stage in electronics system design and manufacturing (ESDM), the Government of India introduced the National Policy on Electronic, 2019, which has been notified to encourage and drive the manufacturing of electronics along with creating an environment that would enable domestic electronics manufacturers to compete globally. In addition to this policy, certain schemes have been formulated, to attract and promote investments in the electronics manufacturing sector, which are as follows:

1. PLI for Largescale Electronics Manufacturing: This scheme offers the electronic manufacturing sector with incentives of 4% to 6% on incremental sales over a base year to eligible companies involved in mobile phone manufacturing and specified electronic components, including assembly, testing, marking, and packaging (ATMP) units. This scheme aims to boost domestic manufacturing through attracting investments, and thereby, creating employment.
2. PLI for IT Hardware: This scheme aims to enhance domestic manufacturing by providing incentives of up to 4% on net incremental sales over a base year for eligible entities manufacturing electronic products including but not limited to laptops and tablets. This scheme has been formulated in order to increase investments in the electronic manufacturing sector. The incentive period of the scheme has been extended to 6 years along with an increase in the average incentive to approximately 5%.
3. Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme: This scheme seeks to strengthen the infrastructure base for the electronics manufacturing sector and deepen the electronics value chain in India. The development of industry-specific facilities like common facility centre, ready built factory, sheds/plug and play facilities will not only strengthen supply chain responsiveness and promote the consolidation of suppliers but also decrease the time-to-market along with lowering logistical costs. This scheme thus, provides financial incentives for creating quality infrastructure as well as common facilities and amenities for electronic manufacturers. Furthermore, electronic manufacturers would be provided with financial incentives of approximately INR 3,762 crores which would be disbursed over a period of 8 years.
4. Modified Programme for Semiconductors and Display Fabs in India: The Government of India has provided the electronics manufacturing industry with a comprehensive plan to aid and facilitate the sector’s growth with an overall investment of INR 76,000 crores. This scheme constitutes within itself several individual schemes essentially aiding electronic manufacturing plants involved in the manufacturing of silicon semiconductor fabs, compound semiconductors and semiconductor packaging among other semiconductor related products.
5. Design Linked Incentive (DLI) Scheme: This scheme intends to provide entities with financial assistance in order to facilitate the development of design infrastructural support specifically pertaining to integrated circuits, systems and IP cores and systems on chip among other products. This scheme shall be valid for a period of 5 years.

In furtherance to the aforementioned schemes and incentives, the Government of India has also permitted 100%foreign direct investment in this sector under the automatic route, which would permit the electronic manufacturing plants in India to seek investments from foreign investors without any governmental intervention and/or approval. Similarly, the tariff structure applicable herein has been rationalised and certain categories of electronic products have been completely exempted from customs duty.

Conclusion

In conclusion, the electronic manufacturing sector in India is currently witnessing unprecedented growth on account of an increase in demand due to the make in India and Digital India initiatives among others, which aim at localisation, self-sufficiency and promoting domestic manufacturing. The analysis undertaken in the article, provides its readers with a detailed overview of the sector, thereby, empowering them with the requisite knowledge regarding the past, current, and future scenario of the electronics manufacturing. Furthermore, readers are made privy of the several schemes and incentives offered by the Ministry and the Government of India, which are essentially the core of such unprecedented growth. Lastly, readers who may be potential investors, are guided with respect to the compliances and mandates that shall be undertaken to duly setup an electronics manufacturing plant and commence operations.