• Research & Analysis Services I Academic I Market & Industry I Government Policy I
Financial Aspect: Manufacturing Electronics & IT Hardware in India

Financial Aspect: Manufacturing Electronics & IT Hardware in India

Government of India’s goal is to broaden and deepen the country’s electronic manufacturing ecosystem. At this juncture, National Policy on Electronics 2019 (NPE 2019) envisions positioning India as a global hub for Electronics System Design and Manufacturing (ESDM) by encouraging and driving capabilities in the country for developing core components, including chipsets, and creating an enabling environment for the industry to compete globally.

The electronics will usually be the most complex and expensive part of your product to develop. It will usually consist of two major parts: PCB design and programming since most products require some level of programming.

Cost of production  

It is estimated that in the next four years, the approved companies under the PLI scheme for IT hardware are expected to clock a total production of more than Rs 1.61 lakh crore.

Out this, the players under ‘IT hardware companies’ category have proposed production of Rs 84,746 crore.

Domestic production of electronic goods has increased substantially from Rs 2,43,263 crore ($37 billion) in 2015-16 to Rs 5,54,461 crore ($74.7 billion) in 2020-21, growing at a Compound Annual Growth Rate (CAGR) of 17.9%.

The government wants to increase domestic value addition in electronics manufacturing to make the industry globally competitive. For that, it is pushing for the development of a robust components manufacturing base, which is directly benefitting contract manufacturers like us. Also, due to the recent geopolitical situation due to the US-China trade war, and supply chain disruptions, an increasing number of companies are adopting a China Plus One sourcing strategy to hedge their risks.


As per Reserve Bank of India (RBI) statistics, software services exports to USA and Canada combined grew by 15.7% from US$ 75.1 billion in 2020-21 to US$ 86.9 billion in 2021-22, accounting the largest share at 55.5% of the overall exports.

This is followed by Europe, with exports valued at US$ 48.6 billion in 2021-22. UK is the largest importer of Indian software services within EU region, accounting for 48% of exports to EU.

Asia region exports of Indian software services were valued at US$ 10.2 billion, with a major share of East Asia exports valued at US$ 9 billion.

Domestic Investments

  • Under the category of domestic companies, proposals from 10 firms have been approved. These include Lava International Ltd, Dixon Technologies (India) Ltd, Infopower Technologies (JV of Sahasra and MiTAC), Bhagwati (Micromax), Neolync, Optiemus, Netweb, Smile Electronics, VVDN and Panache Digilife.
  • The approved companies under ‘Domestic Companies’ category have proposed production of Rs 76,007 crore. The scheme will bring additional investment in IT hardware manufacturing to the tune of Rs 2,517 crore
  • Creation of domestic champion companies in electronics manufacturing under the scheme will give fillip to ‘vocal for local’, while aiming for global scale
  • Promote local manufacturing of mobile phones and specified electronic components. In order to avail of these incentives for specified electronic components, the government has prescribed minimum investment of Rs 1000 million over four years. The government should reduce this investment threshold to Rs 200 million, so that domestic small and medium enterprises can also set up electronic component manufacturing units and avail incentives under the PLI scheme
  • PG operates under many different business models. The two major ones are the OEM and the ODM models. OEM stands for Original Equipment Manufacturing and refers to products that are fully designed by one company and then licensed out to a manufacturer to produce.
  • The environment for manufacturing in India is exciting today. With the Indian government’s focus on an Atmanirbhar Bharat and the Make in India campaign, substantiated with several of the government’s initiatives like Production Linked Incentive (PLI), Phased Manufacturing plan (PMP) etc, the company is seeing good growth opportunities in all its areas of operations.
  • This is all leading to nation, increasingly emerging as a preferred manufacturing destination. With this background, our company’s primary focus is to grow our capabilities and augment our capacities to be able to capitalise on these opportunities.

Foreign Investments

As per extant Foreign Direct Investment (FDI) policy, FDI up-to 100% under the automatic route is permitted for electronics manufacturing (except from countries sharing land border with India), subject to applicable laws / regulations; security and other conditions.

 993 projects in electronics in 2021, up from 859 the year before. This increase was not enough, however, to negate a sharp decrease in FDI projects in 2020. In 2019, FDI projects in electronics reached 1,020. This meant that the overall change between 2019 and 2021 was actually a 2.6% decrease in projects.

Between 2019 and 2021, new project numbers decreased even further at 14.6% while project expansions increased by 42.6%. In 2021, new project numbers increased by 17.4% from 587 in 2020 to 689. Project expansions increased by 11.8% in 2021 from 272 to 304.

Overall, FDI in electronics has remained steady, almost regaining ground from decreasing project numbers during the 2020 Covid-19 crisis. While the world’s growing requirement for semiconductors will drive further cross-border investment, as will the growing batteries sector, the global economy faces multiple challenges from Russia’s invasion of Ukraine, a global cost of living crisis, supply chain disruptions and slow economic growth that will have a knock-on effect on global FDI.

Loans offered by banks

The government is considering credit guarantee for term loans of up to Rs 100 crore as well as interest subsidy on loans up to Rs 1,000 crore for electronic manufacturing companies under the new policy in works.

The Ministry of Electronics and IT has proposed “credit guarantee fund” (CGF) scheme and “interest subvention scheme” (ISS) to boost electronics manufacturing ecosystem in the country under new National Policy on Electronics in works.

There is proposal to provide credit guarantee on term loans for projects up to Rs 100 crore per borrowing unit. This will not require any collateral security and third party guarantee, for setting up a new electronics manufacturing unit or considerable expansion of an existing electronics manufacturing plant. The cover will vary on case to case basis, depending upon investments…

Electronics Industry has been seeking that it should be able to get term loans on par with internationally acceptable rates. Currently, the industry pays around 11-12% interest on the term loans availed in India, which are available at around 5-7% in other countries.

The industry has been demanding an interest subvention of 4-6% from the government on the term loans.

Many other banks are planning to raise capital through some means or other, depending on the market condition like Union Bank, State bank of India etc.

Kaushal Sharma

Kaushal Sharma is a Research Intern at Tatvita-Analysts. He is pursuing Masters in Economics from Symbiosis College.

Leave a Reply

Your email address will not be published.