The ministry of electronics and IT (MeitY) is clear that approval to some Chinese investments is critical for manufacturing to shift to India, as well as for the success of the upcoming component incentive scheme, they told ET.The ministry is, hence, backing easing of norms for investments from the neighbouring country, they said.
The views are aligned with those of the industry, which has been seeking government agreement for tie-ups with Chinese players, as well as those of government think tank Niti Aayog, which proposed allowing Chinese entities to buy up to 24% stake in Indian firms without additional checks.
MeitY Back JVs
The backing for Chinese investments in electronics manufacturing comes close on the heels of external affairs minister S Jaishankar’s meeting with his Chinese counterpart Wang Yi in Beijing. Government officials, however, emphasised that Chinese investments should be permitted only in joint ventures with Indian partners and only if there is clarity on the way technology and know-how would be transferred.
“If some player just wants to add assembly lines in partnership with a Chinese firm, it won’t be supported,” an official privy to the details said, on condition of anonymity. Another official said domestic players need to learn technology processes, and that if they have to scale up, Chinese support is needed. This is because many of the components and other manufacturers come from there.Investments from China are also key to increasing local value addition in electronics products, a stated aim of the government. Local value addition in electronics has crossed 20% within six to seven years, with a major thrust coming from the production linked incentives scheme. The government has set a target of crossing 30% in the next two to three years and reaching 38% within five years. China has a local value addition of 38%, the highest in any country.A third official said MeitY will abide by the broader stance of the government, but has fundamentally been supportive of joint ventures where there’s been technology transfer. An industry executive pointed out that most of the cases that were cleared earlier through Press Note 3 – under which prior government approval is mandatory for investments from countries sharing aland border with India – were from MeitY because of the requirements of the domestic electronics sector.
“What is fundamentally important for the government is that an electronics ecosystem needs to develop in India and if some joint venture proposals enable this, then support will be provided,” said a senior electronics executive, who did not wish to be identified.
Turbulent Relations
Indian companies have been pushing for a review of trade ties with China, particularly concerning Press Note 3. The Department for Promotion of Industry and Internal Trade, in 2020, tightened the foreign direct investment policy through Press Note 3 in the backdrop of the India-China border clashes earlier that year.
With local manufacturing of smartphones and their exports increasing sharply since 2020 at the cost of China, the latter has hit back with informal trade barriers since last year. Over the past eight months, it has extended the curbs to electronics manufacturing.
Further adding to the woes of the domestic industry, China’s latest restrictions on exports of rare earth materials spell potential input shortages for smartphone makers in India. China recently asked some of its companies to shutter their Indian operations and withdraw trained Indian personnel, in an effort to restrict technology transfers.
India is seeking to deepen and expand the supply chain by launching a Rs 22,919-crore electronics component manufacturing scheme to incentivise local production. To push this, Indian companies need expertise from Chinese entities that currently make the bulk of the components supplied globally. Quite a few Indian contract manufacturers, such as Dixon Technologies and Bhagwati (Micromax), have signed joint venture agreements with Chinese partners that are awaiting approval from the government.
India’s electronics industry recently raised alarm over informal trade restrictions by China, saying they could dent its competitiveness and threaten the $32-billion smartphone exports target for this financial year.
“These disruptions are leading to operational inefficiencies, impacting scale and above all raising costs of production, since producing this equipment locally or in collaboration with Japan or Korea costs three to four times more than Chinese imports,” the industry said in a recent letter to the government, seeking help to resolve the matter at the earliest.
Since 2020, smartphone manufacturing in India has surged, with production of devices worth $64 billion in FY25, of which exports accounted for over $24 billion. In contrast, domestic mobile phone production was worth $26 billion in FY19. From the 167th rank in India’s exports basket in FY15, smartphones have climbed to become the country’s principal export.
