The next stage of developing India's manufacturing potential requires a shift from simply assembling finished products to producing components, materials, and equipment. The question arises whether government policy support can form a globally competitive ecosystem.
India's first initiative—the Production Linked Incentive (PLI) program—has helped the country increase output of finished electronics, especially mobile phone assembly. Now, the focus is shifting to deeper penetration into the value chain. Through the Electronic Component Manufacturing Scheme (ECMS), the government aims to develop the suppliers, components, and raw materials underlying end products.
At the beginning of this month, the Ministry of Electronics and Information Technology (Meit) approved 31 new electronics manufacturing projects worth a total of ₹6,844 crore, covering 10 states and 20 product categories, including filters, coils, speakers, and battery materials, under ECMS. Thus, the total number of approvals reached 106. These projects include initial proposals for domestic production of several critical components and are expected to generate ₹82,243 crore in production and create 9,588 direct jobs.
However, attracting companies to build factories is only the initial step. Can schemes like PLI 2.0 and ECMS help India create a sufficiently competitive supplier network to reduce imports and counter China's advantages in scale and cost?
Fewer Investment Attraction Hurdles
Sujay Shetty, a partner at PwC India specializing in electronic system design and semiconductor manufacturing, told Business Standard that the scheme represents a well-thought-out intervention because it does not offer uniform incentives for all types of components. He noted that 'its architecture reflects a nuanced understanding of the sector: instead of a flat subsidy, incentives are tied to turnover, capital expenditure, and hybrid models calibrated to the economy of each segment. For instance, it recognizes that a Printed Circuit Board (PCB) fab and a camera module line have very different capital, scale, and implementation timelines.'
According to him, the company response has been strong. Shetty added that 'ECMS is delivering results in a segment where India could not channel investment for two decades.'
Nevertheless, Chinese manufacturers maintain a significant advantage. In Shetty's view, what cannot be created through an incentive scheme overnight is scale. Indian component manufacturing still suffers from a price disadvantage of 14–18 percent compared to mature global manufacturing clusters. This gap is due to import tariffs, cost of capital, and logistics, as well as the advantages of established clusters with legacy assets and dense supply networks.
He emphasized: 'Scale is a limitation that no policy can eliminate.' Large manufacturing clusters can spread their fixed costs over much larger production volumes. They are also able to secure better prices from suppliers and improve yield through years of experience. Indian manufacturers do not yet possess this scale. This means ECMS can make factory investments viable, but it cannot immediately make operation cheaper than in China. Shetty concluded: 'Returns come in cycles, not in a quarter.'
Saurabh Agarwal, Tax Partner at EY India, believes that China's advantage stems from decades of ecosystem development, deep supplier networks, integrated material supply chains, and manufacturing scale. He argues that the true strength of ECMS lies in its ability to bridge the initial viability gap and encourage suppliers to establish manufacturing capacity in India. Over time, as supplier clusters emerge and volumes increase, competitiveness should improve regardless of incentives.
The Problem Is Deeper Than Cost
Industry analysts suggest that the technological aspect is another complex issue, as many high-value components require years of research, specialized processes, patents, and knowledge of advanced materials. Therefore, simply building a factory is insufficient.
Agarwal pointed out that access to technology and dependence on imported raw materials are among India's most serious current challenges. He stated that Indian companies often rely on technology licenses, joint ventures, or imported know-how to obtain high-value components. Simultaneously, critical inputs such as specialty chemicals, laminates, battery materials, metallized films, and rare earth element-based products are still procured from abroad. This means a product might be manufactured in India but still depend on imported components at several stages of production.
Agarwal stressed: 'The next phase of India's manufacturing journey must be R&D-oriented.' Incentives can attract factories, but sustainable investment in research, engineering, product development, and intellectual property is necessary to create globally competitive Indian component companies.
He mentioned that the government is beginning to address this by including upstream materials in ECMS, such as copper-clad laminates, metallized films, anode materials, and rare earth permanent magnets.
The Ecosystem Is Beginning to Form
Rahul Sharma, co-founder of Bhagwati Products, an electronics manufacturer, stated that the next phase of Indian manufacturing should focus on increasing the value created domestically, rather than just increasing production volumes. In his view, ECMS can foster component production growth alongside India's existing finished electronics industry. As more components are localized, supplier networks can deepen, manufacturing capabilities can improve, and the local manufacturing economy can become more attractive. He described this as a potential 'virtuous cycle,' where domestic demand drives scale, scale supports localization, and localization strengthens India's position in global electronics supply chains.
According to Shetty from PwC, localization is gaining momentum in electromechanical components and simpler products such as casings, wire harnesses, sensors, coils, speakers, filters, and standard PCBs. However, more complex segments remain a challenge. Advanced multilayer and high-density interconnect PCBs, passive surface-mount components, and display components have not yet reached the required scale, as they demand a significantly higher level of capital, technology, and manufacturing expertise.
What Can Electronics Learn From Automotive Components?
India's automotive components industry offers a useful comparison, as it has developed internal supplier networks around major vehicle manufacturers for decades. Ajay Agarwal, CFO and President of Minda Corporation, an auto component manufacturer, noted that India is already competitive in several categories of auto components, especially where internal manufacturing capabilities and volumes are well-established. Nevertheless, China retains an edge because its supplier base is deeper, housing numerous components, materials, and processes within an integrated ecosystem. He stated: 'For India, the problem is not just labor or production costs. It is the total cost of the supply chain.'
This cost includes imported raw materials and electronics, logistics, and the difficulty of achieving scale in new component categories. A similar problem arises as vehicles become increasingly electrified. India remains heavily reliant on imports of semiconductors, advanced sensors, rare earth minerals, specialized materials, and certain electronic modules. For a supplier, investing in these areas can be risky because initial investments are high, and volumes take time to ramp up. Ajay Agarwal noted: 'If suppliers are confident in the volumes and the long-term program, they are more willing to invest in localization.' Furthermore, domestic suppliers need access to technologies, raw materials, and second and third-tier supporting suppliers to achieve scale.
Can Incentives Create a Self-Sufficient Supplier Base?
Industry experience shows that incentives can help companies decide on initial investments, especially in technology-intensive components where the entry barrier is high. However, they cannot create a sustainable business on their own. Manufacturers also require access to raw materials, electronics, tooling, and testing facilities, as well as greater R&D investment and close collaboration between Original Equipment Manufacturers (OEMs) and suppliers so that components are designed for local production from the outset. Agarwal concluded: 'Ultimately, the component must be competitive without incentives.' Productivity, quality, technology, and cost will determine if the business survives in the long run.
India is making progress on the first part of the task: convincing companies to invest in component manufacturing. Localization is also starting to spread to simpler components and moving up the chain towards materials. But this is not yet enough to form a globally competitive supplier ecosystem. The more serious test is whether these investments can transform into dense networks of component manufacturers, material suppliers, and second and third-tier suppliers with sufficient scale and technological capability to compete with established Asian manufacturing hubs.