Electronic components mfg: Hybrid incentive structure to support various sectors in scaling up, says S Krishnan

Time of India

14-05-2025

With an eye on strategic autonomy and technological leadership, the
Ministry of Electronics & Information Technology
(
MeitY
) is spearheading India's transformation into a global hub for electronics manufacturing and artificial intelligence.
At the heart of this effort lies a series of bold policy interventions—from deepening the domestic electronics value chain through targeted incentive schemes, to nurturing homegrown AI capabilities that reflect India's linguistic and socio-economic diversity. These initiatives are not only designed to boost industrial capacity but also to secure the country's digital infrastructure in an increasingly volatile global landscape.
In this exclusive interview,
S. Krishnan
, Secretary, Ministry of Electronics & Information Technology, Government of India, speaks to
Anoop Verma
, Editor-News, ETGovernment, about the launch of the
Electronics Component Manufacturing Scheme
, the strategic rationale behind building an indigenous
AI foundational model
, the heightened vigilance against cyber threats, and the government's broader roadmap for strengthening India's digital economy and technological resilience.
From launching a targeted Electronics Component Manufacturing Scheme to supporting India's first homegrown AI foundational model, and reinforcing national cybersecurity amid evolving threats, the government is crafting a comprehensive blueprint for resilient and future-ready technological growth.
Edited Excerpts:
With the launch of the Electronics Component Manufacturing Scheme, how does MeitY envision India's growing role in the global electronics supply chain?
This scheme is a strategic intervention aimed at addressing two major objectives. First, we want to firmly embed India into the global value chain for electronics manufacturing. Second, we are determined to enhance the level of value addition happening within India itself.
Today, India's average value addition in electronics is about 18–20%. Our goal is to at least double this figure to 35–40%. To understand why this matters, we must consider how global value chains operate—especially for complex goods like smartphones, automobiles, and electronic devices. A mobile phone, for instance, may cross up to 70 national borders in the course of its production. Components are sourced globally, assembled in multiple stages, and only then does the product reach the consumer.
Even in China, which dominates global electronics manufacturing, the value addition per product is about 40–45%. So, while 100% value addition is neither practical nor necessary, India must significantly deepen its manufacturing footprint. That's precisely what this scheme seeks to accomplish.
Why is it important for India to move up the electronics value chain now?
Moving up the value chain is essential for four reasons.
First, we can't rely solely on assembly work. While it's labor-intensive and has rightly been our entry point, real economic and technological gains come from producing modules and components. As we grow economically, wages will rise, and the cost advantage for basic assembly will diminish. Without deeper manufacturing capabilities, industries may shift to cheaper destinations—just as they once moved from China to Vietnam or Bangladesh. We want to avoid a premature exit of this industry from India.
Second, deepening the value chain enables higher quality job creation. Manufacturing components and capital goods requires skilled labour, fosters technical know-how, and nurtures ancillary industries. This creates a more sustainable and robust industrial base.
Third, electronics is the world's largest manufacturing sector and a significant part of India's import bill. We are one of the largest consumers of electronics. Depending entirely on imports makes us vulnerable to supply chain shocks—especially in strategic areas such as defence, medical devices, or telecom. Building domestic capacity will make India more resilient.
Finally, as we become a hub for electronics exports, we must also ensure that our domestic ecosystem—design, components, tooling, capital goods—is mature enough to support scale, quality, and innovation.
How has the scheme been designed to focus on these strategic goals?
We've deliberately focused on components that have high cost share in the final product—say, camera modules or printed circuit boards (PCBs)—as they offer the greatest scope for value capture. If a component accounts for 4–5% of the bill of materials in a smartphone, manufacturing it domestically significantly enhances value addition.
We're also targeting components where Indian firms already have a foothold and can scale quickly. That's a more efficient use of capital and helps existing players grow faster.
A third pillar of our strategy is the development of capital goods—machinery and tooling used in electronics manufacturing. This is a long-neglected sector in India. Historically, we have imported most of this machinery from Japan, China, Europe, or the U.S. Now, with electronics becoming India's largest manufacturing sector, we see a strong case for building domestic capacity in capital goods tailored to this domain. This creates a multiplier effect by strengthening upstream industries as well.
The scheme has a sizable outlay—around ₹22,944 crore. How will this fund be strategically deployed to maximize outcomes?
Typically, we prefer
production-linked incentives (PLIs)
because they reward actual output. You only get the incentive if you produce and sell. This ensures that taxpayer money translates into real economic activity. However, PLIs work best when the investment-to-turnover ratio is high—as in mobile phone assembly, where investment is modest, but turnover is large. In such cases, even a small PLI payout is impactful.
But components and capital goods have a different profile. They often require large upfront capital investments, and annual turnover can be relatively low—perhaps even less than the capital invested. So a pure PLI model is inadequate.
To solve this, we've introduced a hybrid incentive structure—a mix of capital subsidies and production-based incentives. This allows us to support sectors where either model alone would fall short. For example, a capital-intensive project may get upfront support for machinery, and additional benefits as it scales production. This is the first time we're taking such a hybrid approach, and we believe it aligns incentives effectively across sectors.
Is employment creation a condition for availing benefits under the scheme?
Employment is a central objective. Participating companies must create and report high-quality jobs in order to unlock the full value of their incentives. This ensures that the scheme contributes not only to industrial growth but also to inclusive development and workforce upskilling.
India has selected Sarvam AI to develop its first indigenous AI foundational model. What prompted this decision?
Within our
IndiaAI Mission
, we've made consistent progress across seven verticals—including compute infrastructure, datasets, applications, skilling, and trusted AI.
However, the decision to build a foundational model sparked considerable debate. Some experts argued that we should leverage existing global open-source models and focus instead on applications. While this is a valid point, most global models are trained on English-dominant internet data. That makes them inherently limited—and sometimes biased—when applied to Indian languages and contexts.
Given our country's linguistic and cultural diversity, we felt that a truly effective AI system must be trained on Indian datasets, covering not only text but also audio, image, and video formats. This is crucial to eliminate bias and ensure inclusivity. Also, the cost of developing models is dropping rapidly, making it economically viable to build domestic alternatives.
Moreover, our real need is not just for large general-purpose models, but for smaller, domain-specific models—say, in agriculture, healthcare, or education. These models are more manageable, targeted, and impactful. That's why we decided to move ahead with domestic development. Sarvam AI was selected in the first round, but more selections are expected soon from the over 450 proposals received so far.
India is also investing in public datasets and AI skilling. How do you see these efforts shaping the future of AI in India?
We've launched over 350 public datasets under the AI Cores initiative and partnered with IITs to offer AI courses. These steps are foundational.
You can't build high-quality AI models without relevant training data. And in India's case, that means datasets that reflect our languages, dialects, user behavior, and social contexts. We're encouraging the private sector, state governments, and academia to contribute anonymized data, with proper privacy safeguards.
We're also expanding the definition of training data beyond just text. Audio clips, medical images, videos from fieldwork—all of this data is immensely valuable for real-world AI applications. These resources will democratize AI development and enable startups and researchers to build models tailored to India's needs.
In light of the recent terror attack in Pahalgam, have cyber threats also escalated? How is MeitY responding?
The cyber threat environment has intensified significantly since April 22. We've seen a surge in attempted attacks across multiple sectors.
But we've been extremely vigilant. Agencies like CERT-In, NCIIPC, NIC, CDAC, and sectoral regulators like RBI and IRDAI have been working in close coordination. Thanks to this concerted effort, we've been able to neutralize several attempts aimed at disrupting India's cyber infrastructure. We remain on high alert, and cyber defence is now an integral pillar of our national security.
Electronics exports have surged recently, and India is now the second-largest mobile manufacturing hub. What is MeitY's next big policy focus?
We've certainly made significant progress in electronics exports, especially in mobile phones. But this is only the beginning.
Going forward, our two big policy interventions are: the Electronics Component Manufacturing Scheme—which, as I explained, will deepen domestic capabilities—and the revised PLI scheme for IT hardware, which will gain momentum this year.
These efforts, combined with deregulation and ease-of-doing-business reforms, will ensure that more electronics units are set up not only in metro cities but also in Tier 2 and Tier 3 towns. The global rebalancing of supply chains—especially amid U.S.-China tensions—gives India a rare opportunity. We're working to ensure that we seize it.