How realistic is India's $500 billion electronics dream?

Masaru Ibuka, co-founder of Sony, said that ‘creativity comes from looking for the unexpected and stepping outside your own experience’.

After World War II, Japan was in ruins, and Sony’s future seemed uncertain. But Ibuka saw an opportunity in transistor technology — one that others had overlooked. Instead of using transistors for hearing aids, he envisioned creating compact, portable radios. This led to the Sony TR-55, Japan’s first transistor radio, and later the globally popular TR-63, which revolutionised the radio market. Japan didn’t just replicate technology; it innovated, dominating global markets for decades.

India’s electronics manufacturing sector, much like Japan, has the potential to make a similar leap. Looking at other success stories from Asia, particularly Taiwan and China, offers valuable lessons.

Taiwan’s rise in the 1980s was fuelled by heavy investment in semiconductors and innovation. Companies like the Taiwan Semiconductor Manufacturing Company (TSMC) turned the country into the world’s semiconductor hub. China, with its large labour force and State-driven investments, scaled its electronics manufacturing rapidly. Their focus on infrastructure, trade policies, and skill development made them central players in global value chains (GVCs).

As India looks to expand its electronics manufacturing sector to $500 billion by the end of this decade, the question is: Should India emulate Japan’s innovation, Taiwan’s foundry model, or China’s economics of scale? Or, should India chart its own path?

India’s current standing in global electronics manufacturing

India’s electronics manufacturing sector, valued at $155 billion in FY23, has witnessed impressive growth, with a compound annual growth rate (CAGR) of 13% since FY17. Mobile phones contribute significantly, accounting for 43% of the production value. From importing 80% of its smartphones in 2014, India now manufactures 99% of the smartphones sold domestically.

However, when gauged on a global stage, India’s performance looks modest. China, for instance, accounts for 28.4% of global manufacturing output, while India’s share is just 3.3%. In electronics exports, India’s contribution is under 1%, a far cry from Vietnam’s 4%, and China’s 30%. This limited participation in GVCs highlights the need for strategic interventions and innovation to bridge the gap.

Cost disadvantages

India faces several bottlenecks and challenges that must be addressed for sustained growth. Manufacturing in India incurs a cost disadvantage of 10-14% for assembly and 14-18% for components compared to global leaders like China and Vietnam. This is due to high import duties, expensive raw materials, and logistical inefficiencies. Finance costs alone adds 2-4% to production expenses, while tax complexities, such as inverted duty structures, further increase costs, deterring foreign investments.

This was the possible reason why IT hardware PLI 1.0 faced limited participation due to inadequate incentives and high operational costs. However, PLI 2.0 has been more attractive, with 27 companies, including global OEMs like Dell, HP, Foxconn, and Lenovo, applying to enhance domestic manufacturing. This is a significant step forward, but there is still much work to be done.

While PLI 2.0 has seen relatively good success as compared to its predecessor, the government needs to walk the talk on IT hardware PLI 2.0 and make it not only more attractive but also make companies more accountable. The government, for instance could reward the performers and weed out non-performers who may be blocking the crucial capital for more deserving ones.

Component shortages

Another major bottleneck is India’s underdeveloped ecosystem for high-value components like semiconductors and advanced printed circuit boards (PCBs). While the assembly of electronic goods has grown, India lacks the necessary design and R&D capabilities to compete globally. The country continues to import around 70% of its electronic components, which is a major concern.

Current data shows that 60-70% of electronics imports are components and sub-assemblies, with domestic value addition stuck at roughly 20%. By 2030, India’s dependency on such imports could touch $250 billion. To meet the sector’s ambitions, the government will have to ensure that the component manufacturing industry grows at an annual rate of 53%.

Seized of this problem, the Government of India has announced plans to offer up to $5 billion in incentives to companies for manufacturing electronic components locally. This initiative, to be rolled out shortly, aims to reduce reliance on imports and strengthen the domestic electronics industry.

Are import restrictions a good idea?

The government has also put in an Import Monitoring System (IMS) aimed to protect India’s domestic industries by tracking imports and preventing dumping through mandatory pre-registration of selected goods. It promotes transparency, supports policy-making, and aligns with the Atmanirbhar Bharat theme.

The IMS, however, is fraught with challenges such as limited product coverage, increased compliance costs, and potential supply chain disruptions. This over-reliance on regulation without addressing domestic manufacturing gaps may further hinder competitiveness. Besides, it could also invite criticism for being ‘protectionist’.

In this regard India will be keenly watching what steps US president-elect Donald Trump takes after he occupies the Oval Office on January 20. Whether Trump 2.0 counter pressures India to withdraw this ‘restriction’ or walks the talk on his China rhetoric by supporting India's import cuts introduced through the IMS is to be seen. Industry experts will also watch how well MeitY balances this restriction on imports with India's burgeoning AI infrastructure demand.

Low PC penetration

Another pressing concern, often overlooked, is India’s low PC penetration, which stands at just 15%, compared to over 70% in developed nations. High prices and limited local manufacturing have constrained market growth. To address this, India must reduce import duties on essential components, incentivise local manufacturing, and introduce subsidies for affordable PCs. Digital literacy programmes can also play a critical role in driving demand, especially among under-served populations.

Tackling e-waste

As India's electronics manufacturing sector grows, e-waste management will become a significant global challenge. It is estimated that by 2030, the global e-waste generation could reach 82 million metric tons and India’s share may surge to 5 million metric tons — reflecting both rising consumption of electronic devices and the growth in local manufacturing. To address this, India must strengthen its e-waste recycling infrastructure.

The government’s E-Waste (Management) Rules aim to ensure proper disposal and recycling of electronic waste, targeting a 50% collection and recycling rate by 2025. Companies are also excepted to adopt the Extended Producer Responsibility (EPR) to ensure they are accountable for the recycling of their products. With these initiatives, India can mitigate the looming e-waste crisis.

Large domestic market, vast talent pool

While India faces several hurdles, it also has distinct advantages. India’s biggest asset lies in its large, growing domestic market, and a vast talent pool. With over 1.4 billion people and rapid digital adoption, India is an attractive destination for electronics manufacturing. The rise in incomes and increasing demand for consumer electronics, such as smartphones and televisions, creates significant opportunities for economies of scale like China.

A strong domestic market not only reduces import dependency but also helps support MSMEs in component manufacturing, leading to job creation across the entire value chain. Spurred by this vast consumer base and incentives like the PLI schemes, India Semiconductor Mission, global players like Apple and Samsung are already ramping up their manufacturing operations in India.

India must seize this opportunity and continue to take bold and targeted actions such as investments in semiconductor fabs, advanced printed circuit board (PCB) manufacturing, and rapidly foster research and innovation.

(Abhishek Patni is a New Delhi-based senior journalist. X: @Abhishek_Patni.)

Disclaimer: The views expressed above are the author's own. They do not necessarily reflect the views of DH.