India already has a production-linked incentive in place for tech companies. Now, a report from Bloomberg says that the Indian government may be planning to offer an additional Rs 4,500 crore (about $550 million) per manufacturer.
It would depend on local procurement of components and could go as high as the equivalent of about 6 percent of the sales of finished products, the report said.
The proposal, which is still due for consultation with the industry, may require foreign companies to invest Rs 700 crore in India over five years, over and above the money already invested till March 2021.
India’s aspiration to be a significant player in electronics manufacturing – an estimated size of $300 billion by 2026, of which $120 billion will be exported – is hamstrung by many challenges.
To develop the necessary environment and resources to boost the manufacturing of laptops, tablets, all-in-one personal computers and servers in India, the government launched an incentive of 4 percent to 2 percent/1 percent on net incremental sales (over the base year) of goods manufactured in India and covered under the target segment, to eligible companies, for four years.
However, much of the electronics manufacturing would still depend on imported inputs.
A recent study by Indian Council for Research on International Relations (ICRIER) showed that India “is pursuing two inter-related goals simultaneously.” First, to get global manufacturers like Apple and Samsung to make their products in India and, at the same time, push for input procurement within India.
This is a key difference between the strategy followed by countries like China and Vietnam. “In the short-run, they have adopted policies that encourage companies to achieve global scale, even if it means using fewer local contents,” the ICRIER report released in June said, along with a recommendation to “first globalise, then localise”.
In 2008, Vietnam eliminated the need to procure local inputs, inducing Samsung to make its first investment. The study found that it took Samsung 10 years to increase the involvement of domestic manufacturers in Vietnam in sourcing inputs. In the meantime, Vietnam has become the world’s seventh largest exporter of electronics products.