The Ministry of Finance, Government of India, has sanctioned a substantial incentive scheme worth nearly $3 billion (approximately ₹25,000 crore) to bolster domestic manufacturing of electronics components. Government insiders revealed that the proposal is set to receive cabinet approval later this month, with the scheme's rollout scheduled for April. Over its five-to-six-year duration, the initiative is projected to drive the production of electronics components valued at $50–60 billion.

Ensuring full utilisation of funds

The Ministry of Finance aims to ensure optimal utilisation of the entire fund allocation. This objective stems from past experiences with underutilised outlays in the Production-Linked Incentive (PLI) schemes for smartphones and IT hardware.

Initial budget discussions and potential revisions

Earlier discussions between the Ministry of Electronics and IT (MeitY) and the finance ministry considered a budget allocation of ₹30,000–40,000 crore. However, the final outlay was capped at ₹25,000 crore based on industry estimates of investments, demand, and production. Officials indicated that the amount could be increased if the initial funds are fully utilised.

Incentive structure tailored to components

Unlike the smartphone PLI scheme, which offers uniform incentives of 4–6 percent upon reaching production thresholds, the new scheme will feature a variable incentive structure. The incentives will depend on the type of components and their level of localisation. Products with higher manufacturing challenges compared to China and Vietnam will receive greater support.

The capital-intensive nature of component manufacturing

Officials highlighted that the component manufacturing ecosystem demands significant investments, unlike smartphone manufacturing. In the case of smartphones, the investments are relatively small, while production volumes are large. Components and sub-assemblies, however, require substantial capital outlays.

Industry’s request for duty revisions

Ahead of the scheme’s launch, the domestic electronics industry has sought a reduction in customs duties on specific smartphone parts. Industry representatives argue that duties and incentives cannot coexist, as duties diminish the benefits of incentives and perpetuate manufacturing disadvantages.

Upcoming budget expectations

The industry has also urged the finance ministry to reassess select duties on components in the forthcoming budget, ensuring the scheme’s effectiveness in addressing the sector’s challenges.