India's electronics sector requires significant investment in component manufacturing to propel its growth, according to a report by Motilal Oswal

New Delhi [India], August 20 : India's electronic manufacturing sector needs substantial investment in the component ecosystem to drive overall industry growth, according to a report by Motilal Oswal, a financial services company.

The report highlights that although India has made significant strides in establishing a presence among assemblers and Original Equipment Manufacturers (OEMs) within the electronics value chain, the country remains heavily dependent on imported components.

"India currently boasts a strong presence and capabilities in assemblers and OEMs within the electronics value chain but continues to rely heavily on imports for components and design capabilities across various sectors. While some companies have initiated progress in component manufacturing, further evolution is expected in the coming years," the report noted.

It also emphasized the need for more government initiatives to bolster component manufacturing, which has not kept pace with other areas due to the high initial capital expenditure required, lower asset turnover ratios, and a gestation period of 1-2 years from investment to production.

"Component manufacturing has not shown the same growth due to the upfront initial capex required and the longer gestation period. Consequently, the industry is seeking more initiatives from the government to stimulate component manufacturing in India," the report added.

Niti Aayog, India's policy think tank, has also suggested several measures to enhance component manufacturing and improve India's standing in the global electronics manufacturing sector. These recommendations include fiscal incentives for component manufacturing, R&D investment incentives, tariff simplification, soft infrastructure initiatives, technology transfer enablement, and the establishment of industrial infrastructure zones.

While India has made notable progress in sectors like mobile phones and consumer electronics, the report suggests that the next critical objective is to increase value addition within these industries.

The report also acknowledged the importance of various government initiatives, including the Production Linked Incentive (PLI) schemes and the Semicon India program, which have played a crucial role in promoting electronic manufacturing in India. These measures are expected to help the domestic Electronics Manufacturing Services (EMS) industry grow from Rs 1.46 trillion in FY22 to Rs 6 trillion by FY27.

"These measures are anticipated to propel the domestic EMS industry to Rs 6.0 trillion in FY27 from Rs 1.46 trillion in FY22," the report stated.

The government has reopened the PLI Scheme for White Goods to attract further investments, but the report emphasizes that additional efforts will be necessary to further enhance localization and value addition.

"To further boost localization and value addition in India, additional initiatives will be needed to stimulate component manufacturing, an area where the government is already engaged in developing various schemes," the report explained.

Looking ahead, experts predict that India's electronic manufacturing capacity could reach USD 500 billion by FY2030, with USD 350 billion coming from finished goods and USD 150 billion from components. Achieving this growth will require significant investments in strengthening the component ecosystem as well.