Last month, Prime Minister Narendra Modi set a $500 billion (Rs 4.20 lakh crore) target for electronics manufacturing in India by 2030. This ambitious goal could be a game-changer for job creation in the country. For example, Apple’s manufacturing ecosystem in India already exports $14 billion (Rs 1.17 lakh crore) and employs 1.6 lakh people.
However, achieving this target won’t be easy. India’s total manufacturing output for 2023-24 stands at $660 billion (Rs 55.4 lakh crore). Reaching the $500 billion electronics goal means India will need to maintain growth rates that few countries have achieved, along with bold reforms.
The government recognizes that most of this growth must come from exports. However, building export competitiveness on a large scale is challenging, particularly given India’s legacy ecosystem, which has resisted reforms.
Learning from Global Success Stories
History shows that manufacturing growth is driven by regional clusters. The electronics industry, like many others, has thrived in specific regions. From Silicon Valley in the U.S. to Taiwan, Japan, South Korea, and more recently, Shenzhen in China and Vietnam’s Northern Key Economic Region (NKER), these clusters have fueled the rise of electronics manufacturing.
In India, regions like Sriperumbudur (Tamil Nadu) and Noida (Uttar Pradesh) have become fast-growing hubs, accounting for nearly 50% of the country’s electronics exports. To accelerate growth, India needs region-focused reforms to develop large, globally competitive electronics manufacturing zones.
Three Pillars of Success for Manufacturing Clusters
Successful global manufacturing regions share three critical features:
- Large Size with Anchor Investors: Global hubs like Shenzhen cover vast areas—Shenzhen itself spans 2,000 sq km and exports $350 billion worth of goods. India’s largest electronics cluster under the Electronics Manufacturing Cluster (EMC) scheme covers just 2.5 sq km. Expanding these regions to a larger scale is essential to co-locate suppliers, buyers, and shared infrastructure like testing facilities and worker housing. This makes the ecosystem more competitive and cost-effective.
- Customised Regulations for Exports: For India to succeed, regulations within these clusters must support exports. This includes pro-employment labor laws, allowing longer shifts, flexible overtime rules, and easing restrictions on hiring women. Taxation and tariffs should also be streamlined to allow seamless cross-border movement of components, similar to what countries like Vietnam and China have implemented.
- Devolution of Administrative Power: Efficient governance is key to making these clusters thrive. Devolving administrative powers to local EMC authorities will enable faster approvals and customized regulations within these zones. Private sector participation through public-private partnership (PPP) models can also ensure high-quality execution of infrastructure projects, as seen globally.
Overcoming India’s Challenges
Developing large manufacturing zones is politically and financially difficult, especially when it comes to acquiring large tracts of land. Instead, the focus should be on expanding around existing electronics hubs. Declaring special zones of about 300 sq km, incorporating current factories and new industrial parks, can help achieve the required scale.
Attracting anchor investors, such as major brands and their partners, is also crucial. For instance, the Foxconn factory in Sriperumbudur employs 21,000 workers. Creating large zones with social infrastructure—housing, schools, hospitals—near these factories can support this growth.
India also needs to relax restrictive tax and labor laws that make electronics manufacturing more complex. For example, India’s tax laws hinder foreign vendors from managing component inventories across borders. Reforms similar to those granted to the Oil & Gas sector could be extended to electronics.
Finally, to be competitive on the global stage, India’s tax rates, including corporate tax and GST, need to be benchmarked against those of countries like Vietnam and China.
Time for Bold Reform
India has already introduced region-specific regulatory reforms for financial services in GIFT City. Similar reforms are needed for electronics manufacturing regions. While reforming the entire country’s regulatory environment is a long-term challenge, creating special zones with business-friendly regulations can be a realistic and effective starting point.
Without these large, thriving manufacturing hubs, India’s $500 billion electronics manufacturing target may remain out of reach.
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