Surge in Smartphone Exports from India Show Incentive Schemes Work

India smartphone exports boom

In the first two months of 2023, smartphone exports from India surpassed the US$2 billion mark, indicating strong government support and the growth of a local industrial ecosystem.

Major technology companies, including Apple and Samsung, have played a crucial role in boosting these mobile exports through their contract manufacturers in India. These two companies account for nearly 90 percent of Indian smartphone exports since April 2022. Apple’s iPhone contract manufacturers in India are Foxconn, Wistron, and Pegatron – who account for approximately 55 percent of the exports, while Samsung makes up the rest at 35 percent. Recently, Samsung established its largest manufacturing plant in Uttar Pradesh, where it produces most of its models sold in India and abroad, including premium foldable phones.

According to data from the India Cellular and Electronics Association (ICEA), the total export value of India’s smartphone shipments exceeded US$9 billion between April 2022 and February 2023, as reported by The Economic Times. This value is almost twice that of the corresponding period last year. Since September 2022, India’s smartphone makers have been exporting devices worth about US$1 billion per month.

As per the ICEA, Indian origin devices are being exported to the UK, Netherlands, Austria, and Italy besides MENA and South American markets. Exports account for 24 percent of the total mobile device production in India in FY 2023, up from 16 percent the previous fiscal.

India is expected to produce smartphones worth US$40 billion in FY 2023, showing a 20 percent growth year-on-year. Out of these, about US$10 billion worth of devices will head to export markets.

Upward tick in India’s overall electronics exports

India’s electronics exports overall is projected to grow 36.8 percent to cross INR 1.6 trillion (US$19.36 billion) end of FY 2023 (ICEA estimate, January 2023).

Between April to December 2022, India electronics exports totaled INR 1.3 trillion (US$16.13 billion), up from INR 817 billion (US$9.89 billion) in 2021.

India’s electronics exports in 2021-22 amounted to INR 1.16 trillion (US$14.15 billion), of which mobile phone exports were INR 450 billion (US$5.44 billion). 

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Over the past decade, India has been working diligently to build a domestics electronics manufacturing ecosystem, leveraging its vast labor market and thriving IT services sector. As of the end of FY 2022-2023, local value addition could reach 25 percent, according to an ICEA-ICRIER report.

The recent surge in export-oriented production can be attributed to the central government’s new production-linked incentive (PLI) schemes. Even Apple’s contract manufacturers and Samsung have applied for PLI scheme benefits.

Foreign companies and investors in this space can expect continued government support – provided they meet clearly stipulated targets, such as in the PLI schemes. These include scope of investment, employment creation, domestic value addition, and sales.

India’s efforts to attract greater foreign investment also align with the ‘China Plus One’ strategy. This is where companies avoid being solely reliant on the Chinese market for production and sourcing.

In light of growing US-China tensions and trends towards decoupling in the technology sector, many companies will increasingly diversify their China manufacturing footprint or spread out their supply chains across multiple locations – to deal with western and non-western market expectations.

This may include efforts at nearshoring, where business gets transferred to a nearby location (Mexico in North America, for example) and friend shoring or allyshoring (manufacturing or sourcing from friendly countries that share similar values). Regardless, India is well poised to reap the rewards by building a stable and cost competitive industrial ecosystem in key states as well constructing connectivity infrastructure to improve last mile linkages. Recent efforts by New Delhi to kick-start semiconductor manufacturing at home is slowly garnering foreign investor interest, including from the US.

India’s incentives for the IT and electronics industries

India is actively working towards expanding its domestic manufacturing capacity in the electronics industry, leveraging its strengths in the information technology domain and the size of its digital market. In line with this goal, the Ministry of Electronics and Information Technology (MeitY) released the National Policy on Electronics 2019 (NPE 2019), which was approved in February of that year to supersede the NPE 2012.

Through NPE 2019, India aims to establish itself as a global hub for electronics system design and manufacturing (ESDM) by bolstering local capabilities to develop core components, such as chipsets and 5G telecom gear. Additionally, the policy measures and schemes implemented under NPE create a conducive investment and business environment that promotes global competitiveness for the industry.

As part of the Indian government’s efforts to boost electronics manufacturing, various schemes and incentives have been introduced. These include incentives for large investments in the electronics value chain, support for the promotion of exports, and measures aimed at promoting semiconductor manufacturing.

Production Linked Incentive (PLI) Scheme for Large Scale Electronics Manufacturing

The PLI scheme for large scale electronics manufacturing was notified April 1, 2020.

The scheme provides eligible companies an incentive of 6 percent to 4 percent on incremental sales (over the base year) of goods manufactured in India under target segments for a period of 5 years after the base year, FY 2019-20. The incentives have applied from August 1, 2020.

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During the tenure of the PLI Scheme, the 16 approved companies are expected to lead to total production of more than INR 10.5 trillion (US$126.77 billion). The government hopes that around 60 percent of the production will be exported, to the tune of INR 6.5 trillion (US$78.47 billion). The companies approved under the scheme are expected to bring in additional investment into electronics manufacturing of about INR 110 billion (US$1.32 billion).

Two rounds of the PLI scheme

Following the success of the first round of the PLI Scheme, which attracted investments in mobile phone and electronic components manufacturing, the second round of the PLI Scheme for Large Scale Electronics Manufacturing was launched on March 11, 2021, targeting electronic components.

Under the second round, incentives of 5 percent to 3 percent were extended on incremental sales (over base year FY 2019-20) of goods manufactured in India and covered under the target segment, to eligible companies, for a period of 4 years.

Sixteen companies have been approved under the second round. During the tenure of this second round, the approved electronic component manufacturers are expected to generate a total production of about INR 124.32 billion (US$1.50 billion). The second round of the PLI scheme is expected to bring in additional investment in electronics manufacturing to the tune of INR 5.73 billion (US$69.18 million).

Status of the PLI Scheme for Large Scale Electronics Manufacturing (as of quarter ending September 2022)

Production Linked Incentive Scheme (PLI) for IT Hardware

This scheme was notified on March 3, 2021. It extends an incentive of 4 percent to 2 percent or 1 percent on net incremental sales (over base year FY 2019-20) of goods under target segments that are manufactured in India to eligible companies, for a period of four years (FY 2021-22 to FY 2024-25). The target IT hardware segments under the PLI scheme include laptops, tablets, all-in-one personal computers (PCs), and servers. Incentives have applied under the scheme from April 1, 2021. 

Fourteen companies have been approved under the PLI Scheme for IT Hardware. Over the tenure of scheme, the approved companies are expected to lead to total production of about INR 1,60,000 crore. Out of the total production of INR 1.6 trillion (US$19.31 billion), more than 37 percent is expected to contribute to exports of the order of INR 600 billion (US$7.24 billion). The scheme is expected to bring an additional investment in electronics manufacturing to the tune of INR 25 billion (US$301.84 million).

Status of the PLI Scheme for IT Hardware (as of quarter ending September 2022)

Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS)

This was notified on April 1, 2020. The SPECS Scheme provides a financial incentive of 25 percent on capital expenditure for an identified list of electronic goods that comprise downstream value chain of electronic products, namely electronic components, semiconductor / display fabrication units, ATMP units, specialized sub-assemblies, and capital goods for the manufacture of aforesaid goods. The SPECS scheme is open for applications till March 31, 2023.

Over the tenure of the scheme, expected new investment in electronic components and sub-assemblies is INR 200 billion. The total employment potential of the scheme is approximately 600,000 (150,000 direct jobs and 450,000 indirect jobs).

As of September 30, 32 applications with total project outlay of INR 111.30 billion and committed incentives of INR 15.19 billion had been approved by the competent authority. The total employment generation potential of the approved applications is 32,457.

Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme

This was notified April 1, 2020. The EMC 2.0 Scheme supports the build-up of world class infrastructure providing common facilities and amenities, including ready built factory (RBF) sheds / plug and play facilities. The scheme hopes to facilitate major global electronics manufacturers to set up their production facility in India along with their supply chain.

EMC 2.0 provides financial assistance to set up both EMC projects as well as common facility centres (CFCs) through a project implementing agency, such as a state government or their agency, central public sector units (CPSUs) / state public sector units (SPSUs), industrial corridor development corporations (ICDCs) or joint venture of such agencies with anchor unit(s) or industrial park developers.

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Under the EMC 2.0 scheme, 3 EMC applications covering an area of 1,337 acres have been approved with project cost of INR 19.02 billion, including financial assistance of INR 8.89 billion from the Indian government.

These electronics manufacturing clusters are poised to attract an investment of about INR 209.10 billion and have the potential to generate 51,520 jobs after becoming operational. An amount of INR 2.05 billion has been released for scheme execution.

Modified Special Incentive Package Scheme (MSIPS)

This package scheme was announced in July 2012 to promote large scale manufacturing in the country. MSIPS was amended twice – in August 2015 and in January 2017 – and provides capital expenditure subsidy of 20-25 percent. Applications were closed on December 31, 2018.

Under this scheme, 320 applications with proposed investment of INR 891.39 billion are under consideration. Out of these, 315 applications with proposed investment of INR 868.49 billion and committed incentives of INR 95.66 billion have been approved. Incentives amounting to INR 19.17 billion have been disbursed. Out of 315 approved units, 271 units have reported invested of INR 335.06 billion and 242 units have started production.

The employment generated so far is 345,571 in direct and indirect jobs. Total sales (domestic and exports) from the units under production are INR 6.63 trillion, which include export of INR 1.06 trillion.

Program for Development of Semiconductors and Display Manufacturing Ecosystem

This program was approved December 15, 2021, with an outlay of INR 760 billion (> US$10 billion) for the development of a semiconductor and display manufacturing ecosystem in the country.

The Program was last modified September 21, 2022 and offers fiscal support of 50 percent of project cost uniformly for semiconductor fabs across the technology nodes as well as for compound semiconductors, packaging, and other semiconductor facilities.

Under the program, the following fiscal incentives are available to eligible applicants.

1. Modified Scheme for setting up of Semiconductor Fabs in India: It provides fiscal support for setting up semiconductor wafer fabrication facilities in the country. Fiscal support of 50 percent of the project cost is available for setting up of silicon-based semiconductor fabs across all technology nodes.
2. Modified Scheme for setting up of Display Fabs in India for attracting large investments for manufacturing TFT LCD or AMOLED based display panels in the country to strengthen the electronics manufacturing ecosystem. The Scheme extends fiscal support of up to 50 percent of project cost on pari-passu (equal footing) basis for setting up display fabs in India.
3. Modified Scheme for setting up of compound semiconductors / silicon photonics / sensors fab/ discrete semiconductor fabs and semiconductor ATMP / OSAT facilities in India: It provides a fiscal support of 50 percent of the capital expenditure to eligible applicants for setting up compound semiconductors / silicon photonics (SiPh) / sensors (including MEMS) fab/ discrete semiconductor fabs and semiconductor ATMP / OSAT facilities in India.
4. Design Linked Incentive (DLI) Scheme: It offers financial incentives and design infrastructure support across various stages of development and deployment of semiconductor design for ICs, chipsets, SoCs, systems & IP cores and semiconductor-linked design. The scheme provides both “Product Design Linked Incentive” and “Deployment Linked Incentive”.

Support for export-oriented electronics manufacturing in India

Several steps have been taken by the Indian government to expand electronics manufacturing exports. These are briefly mentioned below:

• Incentivized areas for export-oriented units: Special Economic Zones (SEZs) are set up across the country to facilitate export-oriented manufacturing and trading. Units for manufacturing and related services set up under the Electronic Hardware Technology Park (EHTP) scheme are major contributors to Indian exports.
• Remission of Duties and Taxes on Exported Products (RoDTEP): The scheme for the re-imbursement of currently un-refunded central, state and local taxes and duties incurred during the process of the manufacture and distribution of exported products came into effect January 1, 2021 through a Central Board of Indirect Taxes and Customs (CBIC) advisory. Major components of such taxes are electricity duty and value-added tax (VAT) on fuels used in transportation / distribution. The Scheme is managed and supervised by CBIC online.
• Electronics Development Fund (EDF): Electronics Development Fund (EDF) has been set up as a “Fund of Funds” to participate in professionally managed “Daughter Funds” which in turn will provide risk capital to start-ups and companies developing new technologies in the area of electronics and Information Technology (IT). This fund is expected to foster R&D and innovation in these technology sectors.
• Liberalization of FDI: As per the existing foreign direct investment (FDI) policy, FDI up to 100 percent under the automatic route is permitted for electronics manufacturing (except from countries sharing land border with India), subject to applicable laws / regulations, national security and other considerations.
• Phased Manufacturing Program (PMP): This program promotes domestic value addition in mobile phones and their sub-assemblies / parts manufacturing. India has been able to recently attract significant investment in this sector and several manufacturing entities have been set up in the country. The manufacturing of mobile phones is steadily moving from the semi knocked down (SKD) to completely knocked down (CKD) level, and progressively increasing the domestic value addition.
• Rationalization of tariff structure: This has been done to promote domestic manufacturing of electronic goods, including among other things – mobile phones, televisions, electronic components, set top boxes for TV, LED products, and medical electronics equipment.
• Capital goods exemption from Basic Customs Duty: Notified capital goods for manufacture of specified electronic goods are permitted for import at “NIL” Basic Customs Duty.
• Simplified import of used plant and machinery: The import of used plant and machinery with a residual life of at least 5 years for use by the electronics manufacturing industry has been simplified through the amendment of Hazardous and Other Wastes (Management and Transboundary Movement) Rules, 2016, by a Ministry of Environment, Forest and Climate Change Notification dated June 11, 2018.
• Relaxing the ageing restriction: The Department of Revenue vide Notification No.60/2018-Customs dated September 11, 2018 amended Notification No.158/95-Customs dated November 14, 1995, relaxing the ageing restriction from 3 years to 7 years for specified electronic goods manufactured in India and re-imported into India for repairs or reconditioning.
• Public Procurement (Preference to Make in India) Order 2017: This order was released to encourage ‘Make in India’, that is, to promote the manufacturing and production of goods and services in India with a view to enhancing income and employment. It was issued by the Department for Promotion of Industry and Internal Trade (DPIIT) in an order dated June 15, 2017. Subsequent revisions were made through orders dated May 28, 2018, May 29,2019, June 4, 2020, and September 16, 2020.
  The MeitY through a notification dated September 7, 2020 notified the mechanism for calculating local content for 13 electronic products so they may be procured by local suppliers: (i) desktop PCs, (ii) thin clients, (iii) computer monitors, (iv) laptop PCs, (v) tablet PCs, (vi) dot matrix printers, (vii) contact and contactless smart cards, (viii) LED products, (ix) biometric access control / authentication devices, (x) biometric finger print sensors, (xi) biometric iris sensors, (xii) servers, and (xiii) cellular mobile phones.
• Compulsory Registration Order (CRO): MeitY notified the “Electronics and Information Technology Goods (Requirement of Compulsory Registration) Order, 2012” for mandatory compliance to ensure the safety of Indian consumers by curbing the import of substandard and unsafe electronic goods into India. Sixty-three product categories have been notified under the CRO and the order is applicable on all product categories.

Support for innovation and IPR in electronics and IT

The MeitY has undertaken a slew of proactive, pre-emptive, and graded measures to spur the technology-led start-up innovation ecosystem in India, which gives impetus to new and emerging technologies. The goal is to strengthen the overall tech start-up development infrastructure by overcoming persistent bottlenecks. Some major initiatives are mentioned below:

1. TIDE 2.0 Scheme: The Technology Incubation and Development of Entrepreneurs (TIDE 2.0) Scheme was launched in 2019 to promote tech entrepreneurship through financial and technical support to incubators engaged in supporting ICT start-ups using emerging technologies, such as IoT, AI, blockchain, robotics, etc. The scheme aims to promote incubation activities at institutes of higher learning and premier R&D organizations and is implemented through 51 incubators in a three-tiered structure. The scheme is expected to provide incubation support to approximately 2000 tech start-ups with an overall outlay of INR 2.64 billion (US$31.87 million) over a 5-year period.
2. MeitY Start-up Hub (MSH): This nodal entity assists incubators and start-ups to improve their scalability and market outreach. MSH has seen a consolidation of over 3360 start-ups, 480 incubators, 424 mentors, and 22 state-of-the-art Centers of Excellence (CoEs). It encourages the development of innovative products and services to address current and pressing challenges through technology.
3. Domain specific Centers of Excellence: MeitY has operationalized 26 CoEs in diverse areas of national interest to create capabilities in new and emerging technology areas. These domain specific CoEs act as enablers to make India an innovation hub through the democratization of innovation and realization of prototypes.
4. SAMRIDH Scheme: The ‘Start-up Accelerator Program of MeitY for Product Innovation, Development and Growth (SAMRIDH)’ was launched in August 2021 to support existing and upcoming accelerators to further select and accelerate potential software product-based start-ups to scale. The total cost of the scheme is INR 990 million (US$11.95 million) over a 3-year period. A total of 300 start-ups are to be supported under this scheme.
5. Next Generation Incubation Scheme (NGIS): NGIS will support the Indian software product ecosystem by addressing a significant portion of the National Policy on Software Product (NPSP) 2019. NGIS will be launched from 12 locations – Agartala, Bhilai, Bhopal, Bhubaneswar, Dehradun, Guwahati, Jaipur, Lucknow, Prayagraj, Mohali/ Chandigarh, Patna, and Vijaywada. The scheme has solution-oriented architecture and aims to handhold 300 technology start-ups in tier-2/3 cities over a 3-year period with the total budget outlay of INR 950.3 million (US$11.47 million).
6. Support for International Patent Protection in E&IT (SIP-EIT) Scheme: MeitY encourages international patent filing by Indian MSMEs and start-ups. Reimbursement provided under the SIP-EIT Scheme is up to a maximum of INR 1.5 million (US$18,110) per invention or 50 percent of the total expenses incurred in filing and processing of patent application up to grant – whichever is lesser.

This article was originally published December 20, 2022. It was last updated March 21, 2023.

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