DANCING WITH THE DRAGON

Can India assimilate Chinese companies in components PLI to become part of the global electronics supply chain?

- SURAJEET DAS GUPTA

In 2020, amid growing tensions on the border, the Indian government tweaked investment (FDI), in effect closing the doors on Chinese companies in electronics manufacturing. However, this did not lead to rapid localisation.

For instance, value addition in mobile devices has been low -12 to 20 per cent in the first three years of the production-linked incentive (PLI) scheme, which is half of the target of 40 per cent to be achieved by the end of FY26. Similarly, 95 per cent of the laptops are imported, mostly from China.

That raises the question, can India build a local electronics supply chain free from Chinese companies? "It is a choice the Indian government must make. With economies of scale and the latest technology, Chinese companies can speed up the building of the local supply chain," says the top executive of a leading mobile phone company.

Nurturing home-grown players will take time and, without Chinese participation, a local supply chain will be costly to build. For many components, the only suppliers are Chinese. Even now, 40-50 per cent of the bill of items in mobile phones assembled in India is sourced and imported from China.

The good news is that the government is now willing to reassess its policy, as it starts discussions with stakeholders for a new PLI scheme specifically for electronic components, covering mobiles, laptops, wearables, and telecom gear. To ensure the PLI succeeds this time, it has also hinted at reviewing the contentious Press Note 3 of the FDI policy and is considering allowing Chinese players in joint ventures.

Press Note 3 requires investments from entities based in a land-bordering country, or when the beneficial owner of the investment is based in a land-bordering nation, to be made under the "approval route" which means only after goverment clearance.

Life without China