Pathways for India’s transition into a global electronics manufacturing destination

This article was first published on The Economic Times Manaufacturing.com on April 29 2026. Please click here to read the article.

The Indian Electronics sector shows a strong scoreboard of growth showing sixfold growth in 2024-25 reaching to $125 billion from around $21.4 billion in 2014-15. The Electronics exports have grown from 3 per cent to 10 per cent out of total export basket. It has also attracted around $4 bn of FDI in the sector. This accomplishment has been possible due to the focussed initiatives from Indian government in terms of PLI schemes of Electronics sector, ECMS schemes and Indian semiconductor missions to name a few.

The key subsegments driving growth include Mobile phones, Consumer and Industrial electronics, Auto Electronics and Electronic components. The mobile phone subsegment is the biggest, contributing for around 52.5 per cent and also the fastest growing subsegment (19.3 per cent CAGR) with India securing the position of the 2nd largest exporter for one of the leading Multinational companies. Some of the key demand drivers include Semiconductors, Batteries, Displays, LED Lighting, Wearables and electronics used in Telecom sector.

Key constraints influencing competitiveness of India’s electronics sector

While the growth story is exciting on one side, there a few key constraints which affect Indian competitiveness in the Electronics sector.

They are:

Heavy dependence on imports

India remains heavily dependent on imports from China, South Korea, and Taiwan for PCBs, sensors, and advanced displays, increasing costs and supply-chain vulnerability. As electronics manufacturing scales, this dependence intensifies. While exports have grown multifolds, imports have also grown more

Cost disadvantages

Relatively weaker incentives and limited cost support constrain India’s electronics competitiveness, especially in component-led manufacturing. If India gets an advantage of 3 per cent through subsidies and tax benefits, countries like China gets 20 per cent advantage, making India uncompetitive still in the global marketplace

Lesser investment in R&D

India’s Gross Expenditure on Research and Development is only 0.6–0.7 per cent of GDP vs 2.4 per cent spent by other leading countries. Private-sector participation in electronics R&D significantly lower than in the US, China, and South Korea, where industry leads innovation. Pushing semiconductor nodes from 5 nm toward 3 nm and below increasingly depends on advanced R&D capabilities in EUV lithography, precision etching, and thin-film materials engineering

Tax structure disadvantages

Non-refundable VAT/GST on imported battery raw materials raises effective input costs in India, limiting local manufacturing investment and weakening the competitiveness of domestic battery production. An inverted duty structure taxes inputs and components used in electronics capital equipment, while finished imports remain duty-free, raising domestic production costs and discouraging the localisation of critical sub-assemblies

Strategic ecosystem bottlenecks

India continues to face challenges in manufacturing even labour‑intensive electronic components, despite the availability of low‑cost, skilled manpower. This partly reflects gaps in policy support and the gradual development of the domestic ecosystem

India’s electronics supply base remains thin and fragmented, with limited Tier-2 and Tier-3 suppliers, constraining domestic manufacturers’ ability to achieve cost compression, rapid scaling, and reliable upstream sourcing. India’s electronics sector is fragmented, constrained by the absence of the clustered ecosystems seen in China and Japan that enable scale and cost efficiency. Moreover, a heavy reliance on domestic demand constrains growth, given the market’s price sensitivity and limited high-end demand.

How leading nations engineer electronics leadership

Some of the global nations have traversed the growth path already and India should learn from their journeys, pick the learnings and craft its own progression journey.

The key learnings include:

Focussed policies to drive sector growth

Japan’s progression has been led by the power of coordinated industrial policy, with Ministry of International Trade and Industry (MITI) steering firms into high-tech electronics, later reinforced by subsidies. China has enabled scale and planning discipline through Five-Year Plans that embedded electronics upgrading, with the 13th Plan lifting R&D spending to about 2.4per cent of GDP. South Korea had early direction, combined with timely large-scale semiconductor support with USD23 billion package, which helps sustain global leadership in advanced chips
Participation in higher end Value-chain

Early movement from consumer electronics into semiconductors, and components witnessed in Japan while China led through Policy-backed upgrading from FDI-led assembly to localised components and advanced semiconductors through national funds and tax incentives. South Korea went through stepwise upgrading from assembly to memory, displays, and now chip design, supported by R&D and skills programmes, sustains competitiveness
Presence of Industrial clusters with ecosystem players

Electronics clusters in Tokyo–Yokohama and Kansai integrate suppliers, equipment firms, and research institutions, deepening capabilities while in China large clusters seen in Pearl River Delta, Yangtze River Delta, and Bohai Rim co-locate firms effectively. Similar clusters are seen in South Korea in Gyeonggi and Chungcheong aligns fabs, suppliers, and public research, supported by infrastructure investment
Investments in building capabilities

China, Japan and South Korean firms have maintained high R&D spending of roughly 2–4 per cent of GDP. This commitment has been reinforced by recent public co-financing of advanced fabrication and packaging facilities, lowering capital risk and accelerating next generation capacity. Chinese firms have increasingly combined largescale manufacturing with R&D, backed by state finance and national semiconductor funds

Priority actions to boost India’s electronics competitiveness

Build scale, clusters and cost competitiveness

India must develop a few globally competitive semiconductor and electronics clusters with strong infrastructure and integrated supply ecosystems. This should be backed by aligned subsidies, tax incentives, and lower utility costs, alongside correcting inverted duty structures to ensure true cost competitiveness
Move up the value chain with R&D and components

Scaling R&D investment and strengthening in-house design capabilities will be critical to reducing import dependence. A parallel push to deepen component manufacturing – supported by stronger MSME participation – can significantly enhance domestic value addition
Integrate deeply into global value chains

India should attract global firms to co-locate with their supplier ecosystems while strengthening linkages between multinational companies and domestic players. Strategic partnerships through JVs, technology transfers, and research collaborations will be key to building advanced capabilities and co-developing IP
Leverage AI and build future-ready skills

Investing in AI, robotics, and data-driven manufacturing can improve precision, quality, and efficiency. Large-scale skilling initiatives will be essential to position India as a high-tech, innovation-led manufacturing hub

The Indian electronics growth story presents itself a great opportunity to position India very differently in the global marketplace as a stable, scalable and skilled manufacturing destination as against only known as a labour competitive nation. India should build a strong customised path for its success in this sector that addresses the competitive disadvantages, leveraging the learnings from other nations to emerge a Global manufacturing superpower.