Improving Competitiveness in Electronic Sector

Source: The post on improving competitiveness has been created based on the article ‘’ Improving competitiveness: The electronics sector would benefit from global integration’ published in ‘’ Business Standard’’ on 18th January 2024. 

UPSC Syllabus Topic: GS Paper 3 – Indian economy-changes in industrial policy 

News: The article discusses issues associated with the electronic sector and the need to benefit from global integration. 

Current Status of electronics Industry

There has been an increase in production and export of electronics, particularly mobile phones which indicates the fact that the current government policies are working. For example, Electronics production for export grew from 15% in 2021-22 to 25% the next year, with expectation to exceed 30% in 2023-24. The government has set a target of $52-58 billion worth of exports by 2025-26.  

However, ICEA (Indian Cellular and Electronics Association) does not seem to be too optimistic as it predicts that there would be decline in demand for domestic mobile phones from 21% to under 4%. 

Government Policy For The Electronic Industry

The government imposes high tariff barriers for imported and final goods to boost domestic manufacturing. Further, the government tries to capitalize on high domestic demand to attract multinational companies. Additionally, the PLI scheme (production-linked incentive) offers incentives to companies based on incremental sales in domestic facilities to boost domestic manufacturing. 

Issues Associated with The Current Policy

1) There is bureaucratic control and wide discretionary power to authorities which hamper the functioning of businesses. 

2) As per ICEA (the Indian Cellular and Electronics Association), the high import tariffs on components and sub-assemblies for production of mobile phone leads to additional 5-7% to cost of a locally manufactured device. This renders PLI unremunerative. 

What are the Steps that can be taken to make policies more effective? 

1) policies should be designed to encourage India’s entry into global value chains.  

2) A stable and low-tariff regime should be adopted. 

3)There is a need to focus on business-friendly environment as opposed to giving production subsidies.