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Budget 2021 to Boost Electronic Manufacturing in India

By Spotlight - 28-01-2021

In line with its Atmanirbhar Bharat (self-reliant India) campaign, the Indian government has put manufacturing at the heart of its reform initiatives. It is expected to put manufacturing at the forefront in Budget 2021 as well. While the intent is there, industry experts believe more needs to be done, and the government needs to get the execution right.

Production linked incentive (PLI) schemes remain vital to boost manufacturing. A Credit Suisse report dated December 11 states that PLI schemes could contribute up to 1.7% to the gross domestic product (GDP) by FY27.

Incentives under PLI schemes are offered based on the production, not investment. This incentivizes manufacturing units to produce more to be eligible for higher incentives.

Electronics remain one of the leading imports in India, accounting for almost $50 billion of India’s import bill in FY 2019-20. Electronic imports were in the top three, accounting for over 10% of India’s total imports in the year.

Of the $50 billion import bill, China and Hong Kong accounted for nearly $28 billion, or around 57% of India’s total electronic imports. This shows just how dependent India is on its neighbour and more recently, its rival.

Supply chain clusters help optimize end-to-end operations as various components are close to each other. This will bring down costs, improve operational efficiencies, and help establish ancillary businesses, thereby creating an entire ecosystem.

Other major concerns for industries remain labour and tax reforms. While the labour law remains complex with over 150 legislations, India’s tax laws need to be reformed to further bring down the burden on manufacturing activities.

While the PLI scheme was initially aimed at attracting the top five mobile manufacturers, the Indian government is reportedly looking to expand it to include wearables, artificial intelligence and the internet of things devices.

Looking beyond just profits is also important, noting the risks associated with unsustainable development. With the effects of climate change already visible across the world, sustainable development should be a part of every country’s development goals.

While this might increase manufacturing costs as companies will need to devise ways to reduce industrial waste, the industries and the country would come out ahead in the long term.