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Government’s proposed boost for electronics exports hinges on luring global value chains

Key suggestions in a vision document reveal what the government could do to bolster India’s share in global value chains.

“The primary focus should be on establishing GVCs through FDI (foreign direct investment) within the first three to five years,” read the vision document on increasing India’s electronics exports and share in global value chains (GVC). The document, authored by IKDHVAJ Advisers LLP on behalf of the India Cellular & Electronics Association, was released by the Ministry of Electronics and Information Technology (MeitY) on November 2. 

The vision document is the first of a two-part series as per a press release by MeitY, and the second part will touch upon product-wise strategies and forecasts. At the launch, Minister of State Rajeev Chandrasekhar said that the industry’s focus should be on expanding product categories that can serve new geographies and new types of consumers.

“We are in a world where hardware plays less of a role in innovation and software plays a more significant role,” Chandrasekhar said.

The document is significant in mapping the priorities of the Centre when it comes to the sectors it intends to support through its schemes.  

Key recommendations made in the document

The report suggested that one of the things that the Union government must keep in mind is that central policies will have a greater impact on GVCs than state governments. Here are some of the key suggestions: 

Co-location in GVCs: The report explains that lead firms of a GVC either relocate their investment from China or add incremental capacity in India, they need their existing suppliers from different tiers in the GVC to move with them to begin production operations within the new location.

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“As most of them are from China, the government has to support the co-location of Chinese firms as contract manufacturers of lead firms. Hence, special co-location policies should be introduced on a priority basis that could be limited for the electronics sector only,” read the report. 

Some of the steps which may be explored are: 

  • Provide administrative clearances through single-window systems at the central and state levels 
  • Build capacities in tandem with the Skill India programme to address the labour turnover 
  • Create a common fund with a public-private partnership for R&D assistance

Reduction in input tariffs: A change in tariffs structure must be explored especially for components and sub-assemblies—with the introduction of lower tariffs and removal of an inverted tariff structure. “The prevailing tariffs would increase costs by 4–5%, significantly negating the positive support provided by the PLI scheme,” warned the report. “RoDTEP (​​Remission of Duties and Taxes on Export Products) rates should reflect the actual indirect taxes charged and the items covered should draw upon the practices of other similar countries,” the report recommended.

Stable policy regime and consultation with stakeholders: The report batted for a stable policy regime followed by timely implementation. The report advised against raising tariffs and introducing policies inconsistent with WTO. It also stressed the need for consultation in decision-making.

Establishment of Scale, GVCs and export momentum: The report said that the country must establish the main operational conditions for production within the next three to five years. “The window of opportunity is short and this time should be used to establish as large a part of the GVC as possible,” they said.

Entice GVCs to relocate: GVCs, including tiers I, II and III manufacturers, must be lured via incentives to move capacities for finished products, sub-assemblies, and components from China, Vietnam, Japan, South Korea, etc. in the next four years. “The path taken could be 100% FDI, or through joint ventures, and encouraging skill building through international manufacturers and domestic skill-building institutions,” the report said. In the long run, the government must carve out incentives for Indian companies to manufacture global sub-assemblies and components to supply to GVCs.

Export promotion:  India should seek additional export markets with the help of export promotion councils. Moreover, there should be an export promotion policy chain with participation from Indian Missions abroad. Some of the products identified as having export potential include:

  • Smartphones
  • Laptops
  • Tablets
  • Wireless Head/Ear Phones 
  • Bluetooth Speakers
  • Battery packs 
  • Camera Module 
  • Cables
  • Coils

Role of Indian Industry and manpower in GVCs: The Indian government needs to invest in supplier development programs to build Indian companies, as per the report. “They could begin by linking and handholding appropriate domestic firms in joint ventures with contract manufacturers to leading GVC companies. In the short run, the Indian public sector firms in the technology space could also help transfer key technologies to local firms,” the report said. It also wrote that domestic firms must be protected from predatory pricing by firms with deep pockets. It made a provision for funds through banks and an interest subvention scheme. 

Monitor implementation of policies and address gaps: Report’s authors batted for a process to monitor gaps in implementation in the policy framework. The Centre must ensure that the implementation process does not introduce cumbersome requirements. The policy implementation should also have a regular review, the report concluded.

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Government schemes meant to facilitate production of electronics

The government announced a production-linked incentive scheme for 10 sectors last year including electronics.  The planned outlay was ₹5,000 crore to support semiconductor fabrication, laptops, and computer equipment such as servers and IoT devices.

These schemes are touted to lead to a minimum incremental production of ₹10.5 lakh crore over the next four financial years, and around ₹6.5 lakh crore’s worth will be exported, Ajay Prakash Sawhney, Secretary, MeitY, had told Rajya Sabha TV in an interview in November last year.

A production-linked incentive scheme was approved for IT Hardware in February this year. The scheme would provide manufacturers who make and export laptops, tablets, All-in-One PCs, and servers an incentive of 4% to 2% / 1% on net incremental sales (over base year i.e. 2019–20) of goods manufactured in India to eligible companies, for a period of four years.

Moreover, the Centre is also planning a broad scheme to support gaming device manufacturers with incentives, MeitY joint secretary Saurabh Gaur had said at an online discussion organised by the Internet and Mobile Association of India (IAMAI) in October. The details are yet to be disclosed. 

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I cover several beats such as Crypto, Telecom, and OTT at MediaNama. I can be found loitering at my local theatre when I am off work consuming movies by the dozen.

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