Centre nod to incentive scheme of Rs 40,995 cr for electronics firms

Decision to help electronics manufacturers make India a global hub; Apple, Samsung may gain

In a move that may encourage global mobile device manufacturers such as the US-based Apple  and South Korean major Samsung to make India one of their global hubs for exports, the Centre has announced a production-linked incentive (PLI) scheme with a budgetary allocation of Rs 40,995 crore. Under the scheme, which was approved by the Union Cabinet on Saturday, electronics manufacturers will be offered incentives ranging from 4 to 6 per cent on their incremental sales of goods manufactured in India for a period of five years. 

Together with the PLI, the government also announced a scheme for Promotion of Manufacturing of Electronics Components and Semiconductors (SPECS) with an outlay of Rs 3,285 crore over eight years, and Electronics Manufacturing Clusters (EMC) 2.0 with a budget of of Rs 3,762.25 crore spread over eight years. 

Addressing the media on Saturday, IT and Telecom Minister Ravi Shankar Prasad said, “Because of these schemes, we hope to generate manufacturing revenue potential of Rs 10 lakh crore (Rs 10 trillion) by 2025.”    

The PLI scheme will replace the current Merchant Export from India Scheme (MEIS), which was challenged at the World Trade Organization (WTO) and declared void in October 2019. The new scheme is WTO-compliant as it targets production of phones made by or for foreign players which have a manufacturing value of at least $200, according to device manufacturers. 

Under the MEIS scheme, the incentive was reduced to only 2 per cent for all sectors and to 4 per cent for a three-month period ending March 31 for mobile devices. Under the new scheme, foreign companies have to invest at least Rs 1,000 crore in the next four years to set up their manufacturing units and will be offered 6 per cent incentive in the first two years, followed by 5 per cent in the next two years and then 4 per cent in the fifth year, according to industry sources. 

The Indian Cellular and Electronics Association, welcoming the move, said, “PLI will be a mid-term stimulus to correct the manufacturing disability that India faces in manufacturing mobile devices in relation to China and Vietnam”. The higher incentive will help mobile players narrow down the large manufacturing disability in the manufacturing cost which ranges from 9 to 23 per cent in these countries.  

Mobile manufacturers point out that the move will give a push to Apple, which has been scouting for an alternative manufacturing hub beyond China. Currently, as much as $220 billion worth of phones in value terms or 95 per cent of its devices and components are manufactured in China. However, the Chinese domestic market constitutes makes up for 20 per cent in terms of its total sales share. 

Apple already manufactures devices and components from India through its two vendors Foxconn and Wistron but the value is minimal at about $500 million. Among others, the Cupertino-based firm has been pushing for implementation of the PLI scheme to expand its export capacity from India. 

Even Samsung, which has moved its manufacturing hub from China and has invested multi- billion dollars to set up mega plants in Vietnam, is likely to gain from the latest Cabinet decision. A large foreign investor for India, Samsung has made a beginning in the country as far as manufacturing is concerned. The company has invested Rs 5,000 crore in a new plant near Delhi with a peak capacity to manufacture 120 million phones per annum. It has also committed that 30 per cent of the capacity can be used for exports as long as the country’s polices are conducive. 

The move to offer incentives will also help domestic players including Lava, Micromax and Karbonn, which invest in manufacturing mobile handsets. Experts say that many of them could become white label suppliers to global companies and even export on their own.   

Currently, India exports only $1.6 billion-worth of mobile devices. That works out to less than 0.5 per cent share of the global exports of devices. According to ICEA, the new move could push India up in the top three league for mobile handset exports. The government also expects the new incentive scheme to help increase domestic value addition for mobile phones to 35-40 per cent by 2025 from the current level of 20-25 per cent. It’s also expected to result in a total employment (direct and indirect) of over 800,000 jobs. 

The manufacturing of mobile handsets, which has been a top priority of the government, is a focus area of the National Policy on Electronics 2019 with a target of 1 billion mobile handsets by 2025, valued at $190 billion, including 600 million mobile handsets for export.

Under SPECS, the government will provide financial incentive of 25 per cent on capital expenditure for machinery, research and development, electronic components, semiconductor/ display fabrication units, telecom equipment, specialised sub-assemblies and capital goods for manufacturing of such products. The scheme will be applicable to investments in new units and expansion of capacity/ modernisation and diversification of existing units. It is expected to create around 600,000 direct and indirect jobs in the country. 

PRODUCTION PUSH

• The production-linked incentive (PLI) scheme replaces the Merchandise Exports from India Scheme (MEIS)
• Incentives will be linked to incremental sales and capital investment of companies
• Rs 10 trillion Revenue potential in production of mobile phones and components by 2025
• Rs 50,000 crore New investments in electronics manufacturing likely 
• 500,000 direct jobs, and 1,500,000 indirect ones, expected
• 35-40%: Rise in domestic value addition for mobile phones by 2025

EMC 2.0 will provide infrastructure with minimum area of 200 acres along with industry specific facilities like common facility centres, ready built factory sheds/ plug and play facilities. It will offer financial assistance up to 50 per cent of the project cost subject to an upper limit of Rs 70 crore per 100 acres of land for setting up of Electronics Manufacturing Cluster projects.

For common facility centres (CFC), financial assistance of 75 per cent of the project cost, subject to a ceiling of Rs 75 crore will be provided This scheme expects to create 800,000 direct and indirect jobs. 

According to the Manufacturers Association for Information Technology, the steps taken by the government, beginning with reducing corporate income tax to 15 per cent followed by the production-linked incentive scheme, are significant towards having an export-led electronic manufacturing strategy at a global scale and making India manufacturing globally competitive.

“India should now see large-scale manufacturing happening in the country, translating into progressive increase in value addition from 20 per cent to 35-40 per cent. Major EMS (electronics manufacturing services) companies like Flex, Wistron, Foxcon, Dixon will lead the manufacturing thrust,” said Nitin Kunkolienker, president, MAIT.