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The recently announced PLI scheme for electronic components in India is anticipated to deliver a sharp jolt to the manufacturing market, writes Aditya Rangroo

The government, on 28 March 2025, introduced a USD2.7 billion production-linked incentive (PLI) scheme focused on electronic components. India can call itself a smartphone manufacturing hub, but electronic components are also integral to consumer electronics, telecoms, automobiles, medical devices, defence equipment and other areas. Interestingly, according to Reuters, a larger USD23 billion PLI scheme for the overall manufacturing sector would likely be allowed to run its course, signalling a shift in gears.

In recent years, India has been making inroads in the electronics manufacturing sector, with a major focus on assembling consumer electronics and smartphones. As per a December 2023 report by Ernst & Young (EY), India is set to become a hub for electronics manufacturing in the next decade. This is driven by rising domestic demand and improving export competitiveness. Domestic production is expected to grow at a compound annual growth rate of 24% between fiscal years 2022 and 2027.

The PLI scheme for the electronic components segment aims to cut down the dependency on foreign imports and enhance domestic production across the country. This scheme will be valid for six years, with a one-year gestation period.

One of the key factors aiding the growth of º¬Ðß²ÝÉçÇø electronics manufacturing industry is electronics manufacturing services (EMS). EMS provides original equipment manufacturers services such as electronic component and assembly design, production, testing, distribution and maintenance.

The Indian EMS market is projected to grow to a value of USD80 billion in the next five years. A significant portion of this growth will be seen in mobiles, consumer electronics and appliances, lighting, auto and others.

In addition to growing domestic demand, many multinational electronics manufacturers are shifting their outsourced manufacturing operations from countries such as China to India to maintain their supply chains.

PLI scheme overview

The PLI scheme provides monetary incentives to eligible companies, usually in the range of 4% to 6% of the incremental sales of goods that are manufactured in India over a particular base year, for five years. These incentives are typically targeted to balance the manufacturing cost of goods in India, with an aim to turn the country more competitive in the electronics industry.

The scheme is not only concentrated on providing incentives, but is also a strategic move by the Indian government to push the country upwards in the global electronics value chain. It provides three incentive structures: (1) turnover-linked, based mainly on revenue; (2) capital-intensive corporations, focused on investment in machinery and plants; and (3) hybrid, a combination of both turnover-linked and capital-intensive corporations.

While announcing the scheme, Union Electronics and IT Minister Ashwini Vaishnaw stated that this would meet the specifications of various industries such as power, consumer electronics, communications, automotive and medical devices.

Indian companies have started manufacturing machines and capital goods used to make electronic products. Vaishnaw noted that the main hubs are in Bengaluru, Pune, Rajkot and Coimbatore. Notably, Apple has about 64 suppliers in India.

The PLI scheme uniquely combines job-linked incentives and industrial growth, while attracting manufacturers from various sectors, including both high-volume and investment-driven companies.

As a result of the 2020 scheme, mobile phone exports rose from INR228 billion (USD2.6 billion) in 2020-2021 to INR1.2 trillion in 2023-2024. This translates to a compound annual growth rate of 78%. Although the 2020 PLI scheme drove mobile phone assembly, it kept India dependent on imports for key components, with a significant portion still imported predominantly from China. In light of this, the new PLI scheme has been announced to strike a balance and reduce import dependency.

New scheme shows potential

The recently announced PLI scheme ¨C which focuses on vital components such as camera modules, batteries, printed circuit boards (PCBs) and displays to boost the country¡¯s electronics supply chain and cut import reliance ¨C appears promising. The scheme aims to attract investment of INR593 billion and generate additional direct employment of 91,600 people, according to the Press Information Bureau. It is also expected to boost value addition in the country¡¯s electronics manufacturing segment.

Sidharrth Shankar, a partner at JSA in Gurugram with a private equity, M&A and investments focus, says the announcement is strategically timed. ¡°This scheme will be successful in not only reinforcing º¬Ðß²ÝÉçÇø competitiveness, but also positions it as a viable alternative for global manufacturers seeking to diversify their operations and mitigate risks in an evolving trade landscape,¡± Shankar tells India Business Law Journal.

India finds itself in a beneficial space amid the US-China tariff tensions that flared up after US President Donald Trump imposed 125% tariffs on Chinese goods in April. Troubled by these developments, Chinese electronic components producers are offering a 5% price reduction to Indian companies.

New Delhi can be better placed to trade with the US if it lowers the import duties on US electronics. At present, the US only charges a 0.4% basic customs duty (BCD) on Indian exports, whereas India charges a 16.5% BCD on electronics imported from the US.

Shivam Nagpal, an advocate at the Supreme Court of India in New Delhi, says the PLI scheme represents a significant evolution in º¬Ðß²ÝÉçÇø industrial policy. ¡°Legally, it moves away from retrospective, ad hoc subsidies and adopts a performance-linked model that aligns with º¬Ðß²ÝÉçÇø international obligations, including World Trade Organisation [WTO] norms.¡±

Nagpal adds that the PLI scheme offers an outcome-driven approach that does not breach the country¡¯s commitments under the WTO agreement on subsidies and countervailing measures.