Building component ecosystem, the missing link in India’s electronics growth story

On March 28, India’s government cleared ₹22,919 crore in funding for a scheme aimed at encouraging the manufacture of electronic components and deepening the country’s electronics manufacturing ecosystem. The government aims to attract an investment of ₹59,350 crore, which is expected to result in a production of ₹4,56,500 crore over the next six years.

The ‘Make in India’ initiative, launched in 2014, attracted smartphone giants such as Apple and Samsung to establish local assembly units. In 2020, the Production Linked Incentive (PLI) for electronics manufacturing provided cash incentives to companies that decided to manufacture finished products in India.

However, value addition remained a weak link, as most of the parts that go into the whole are still imported. The new scheme offers incentives to companies that decide to make key components in India.

Announcing the scheme, Ashwini Vaishnaw, the Minister of Electronics and Information Technology, said it has been on the anvil for almost a year. Vaishnaw said, “This is a consistent plan, starting with the production-linked incentive a few years ago, the India Semiconductor Mission, and now this.” All these are a part of a clear thought process, which is ‘Make in India’, he said.

From ‘Make in India’ to true value addition

Over the past decade, India has emerged as a major hub for electronics assembly, particularly in smartphones and consumer electronics. However, the local value addition in these products remained low, typically around 15-20%, as critical components such as displays, semiconductors, and camera modules are still imported.

The latest scheme aims at pushing the localisation of key sub-assemblies and components that form the backbone of the electronics industry. It targets sub-assemblies for display and camera modules, bare components (including non-surface mount devices), passive components for electronic applications, electromechanical components for electronic applications, multi-layer printed circuit boards, Li-ion cells for digital applications (excluding storage and mobility), and closures for mobile, IT hardware products, and related devices.

The scheme also covers some bare components, the supply chain ecosystem and capital equipment for electronics manufacturing. The scheme has a tenure of six years, with an initial one-year gestation period for companies to ramp up production and scale operations before the incentives kick in.

Faisal Kawoosa, Chief Analyst and co-founder of Techarc, told Fortune India, “Although in terms of value, passive electronics range anywhere from 15-25% of an electronics circuit, in terms of components, it can go as high as 80% depending on the product and category.”

The latest scheme will help increase domestic contribution in a circuit, making electronics self-reliant inside out, Kawoosa feels. Kawoosa notes that the scheme covers passive, SMD and non-SMD components, which essentially means a lot of electronics. These could include, for instance, camera and display modules for smartphones and other smart devices, multi-layer PCBs, which are also used in sophisticated electronics such as smartphones, electromechanical components, and others.

Shifting the electronics trade balance

From being a pure-play electronics importer, India has evolved into a trusted base for electronics manufacturing, not only for domestic consumption but also for exports. Government initiatives have helped power the growth of domestic production of electronic goods from ₹1.90 lakh crore in FY 2014-15 to ₹9.52 lakh crore in FY 2023-24, a compound annual growth rate (CAGR) of more than 17%. The exports of electronic goods have also increased from ₹0.38 lakh crore in FY 2014-15 to ₹2.41 lakh crore in FY 2023-24, a CAGR of over 20%.

Most of this growth was led by smartphone manufacturing. Yet, despite the rise in production, imports of key components from China, Taiwan, and South Korea remained high, making India vulnerable to supply chain disruptions, according to experts.

The government’s latest scheme is designed to reduce imports and spawn a components ecosystem. Industry estimates suggest that if India can produce even half of these critical components, it could save billions in foreign exchange outflows while creating export opportunities for Indian manufacturers.

Gearing up for component manufacturing

The sector’s contract manufacturers, known as EMS or electronics manufacturing service companies, which partnered with the government’s manufacturing subsidy schemes launched in 2020, are optimistic about the latest initiative. Companies such as Dixon Technologies, Zetwerk, Micromax, and Optiemus Electronics are aligning their strategies to make the best of the incentives.

Dixon Technologies, which manufactures smartphones for various brands, including Apple Inc., as well as hardware such as laptops, tablets, and servers, has secured approvals to manufacture components for air conditioners and LED lighting. Dixon will focus on non-semiconductor component manufacturing. The company will invest in the manufacture of display modules for mobile phones, laptops, tablets, and LED televisions.

Saurabh Gupta, CFO, Dixon Technologies, told Fortune India, “We are also exploring diversification into camera module manufacturing through an inorganic approach and are in discussions with global partners. We will also expand into mechanical parts for electronics, another category covered under the new scheme.”

Gupta said Dixon aims to increase value addition in mobile manufacturing from 17-18% currently to 35% by manufacturing display modules, mechanical components, and camera modules.

Zetwerk, which specialises in industrial manufacturing, focusing on precision engineering, quality systems, and large-scale production, has earmarked ₹1,000 crore for the electronics segment, with a particular focus on component expansion.

Bhagwati Products, which manufactures smartphones, smart TVs, set-top boxes, tablets, and air conditioners at four plants across India, will use the scheme to expand its production capabilities, streamline its supply chain, and invest in advanced technologies.

Bhagwati Products’ co-founder Rahul Sharma told Fortune India, “This will allow us to improve efficiency, reduce costs, and solidify our position as a reliable supplier in the growing electronics sector.”

Bridging the expertise gap

Component manufacturers often specialise in niches, which enables them to deliver highly precise and innovative components, tailored to the unique demands of sectors such as aerospace, automotive, and electronics. As Indian manufacturers lack expertise, partnering with them will be key.

Josh Foulger, President (Electronics), Zetwerk, says technology transfers and strategic acquisitions are crucial to India’s self-reliance in high-end electronics manufacturing. “Partnerships provide access to specialised expertise, streamline supply chains, and facilitate quicker market entry,” says Foulger. The company is keen on partnering with global technology leaders to bring best-in-class processes and intellectual property (IP) to India.

Dixon plans a venture with China-based display firm HKC to manufacture display modules for smartphones, laptops and tablets with an initial investment of ₹250 crore. It has applied to the government for permission under Press Note 3.

“We expect to start manufacturing by October 2025, and we have already onboarded a senior expert who has built a team to execute the project,” says Gupta. Dixon is looking for more such partnerships in components, including camera modules and mechanicals, says Gupta.

Bhagwati Product’s Sharma says he was looking for joint ventures with global value chains, and the March 28 announcement will speed up the process of bringing advanced value chains to India, helping to build an Aatmanirbhar Bharat, or a self-reliant India.

Roadblocks to high-end manufacturing

Creating a base for electronics component manufacturing will be a big step. But there are hurdles. Raw materials such as advanced chemicals are still imported. To compete with China, Taiwan, and South Korea in component exports, India must move beyond cost competitiveness and focus on technological leadership and supply chain efficiency.

Electronics clusters in Noida, Chennai, and Bengaluru are growing but gaps in logistics and testing infrastructure hinder high-end manufacturing.

Zetwerk’s Foulger calls for streamlined regulatory processes, expedited land acquisition, and the development of dedicated manufacturing clusters. The logistics infrastructure, from ports to airport cargo handling, has to be revamped, he says.

“Advanced cargo handling facilities with automated processes, real-time tracking, and dedicated cargo corridors will reduce delays, lower logistics costs, and boost India’s export competitiveness,” says Foulger.

Sharma says the skill gap is another area that needs to be addressed. While the talent pool is expanding, specialised expertise in semiconductor fabrication and high-tech manufacturing remains in short supply. “To accelerate self-reliance, we as a country must prioritise skill development,” he says.

The scheme for electronics components manufacturing represents the next evolution of ‘Make in India’, moving beyond assembly-based growth to deep manufacturing.

Can India become a global hub for electronics components in the coming decade?