The rising demand for network connectivity, coupled with vulnerabilities in supply chains amid geopolitical challenges, has underscored the need for a robust manufacturing ecosystem for networking and telecom equipment in India. For several decades, the Indian telecom industry has relied heavily on imports for critical components and finished products. However, recent years have witnessed a positive shift, driven by government initiatives such as Make in India and production-linked incentives (PLIs), aimed at enhancing domestic manufacturing capabilities in the country. India is now the second-largest producer of mobile phones in the world and the sixth-largest exporter. Despite this progress, the overall value addition in the Indian electronics industry remains around 18-20 per cent as compared to 40 per cent in countries such as China. The government plans to increase domestic value addition to 35-40 per cent while positioning India as a competitive manufacturing hub for finished goods and components.
A look at key government initiatives to encourage domestic manufacturing, progress made under these initiatives, key challenges and the way forward…
Key government initiatives to increase domestic manufacturing
A cornerstone of the government’s strategy to increase domestic production of telecom and networking equipment is the National Digital Communications Policy, 2018. The policy promotes local manufacturing by streamlining taxes, implementing phased manufacturing programmes and encouraging global original equipment manufacturers to set up production facilities in the country. Furthermore, it prioritises domestically produced products and services in government procurement through the preferential market access initiative, which requires government agencies and public sector entities to source a certain percentage of their telecom and networking equipment requirement from Indian manufacturers.
The PLI scheme for the telecom and networking sector, launched in 2021, marked a significant step towards enhancing India’s domestic manufacturing capabilities. The scheme offers financial incentives ranging from 4 per cent to 7 per cent for the production of core transmission equipment, 4G/5G RAN and wireless equipment, IoT access devices, and enterprise products. It includes special provisions such as an additional 1 per cent incentive for design-led manufacturing and higher incentives for micro, small and medium enterprises during the first three years. The scheme has a financial outlay of Rs 121.95 billion over five years.
Under the PLI scheme for smartphone manufacturing, manufacturers based in India, regardless of their ownership status (Indian or foreign-owned), receive graded financial incentives based on incremental sales. These incentives amount to 6 per cent of a phone’s invoice price for the first two years, 5 per cent for the third and fourth years and 4 per cent for the fifth year. The state governments offer additional support, such as tax incentives, power concessions and subsidies for land acquisition, to encourage manufacturers to set up operations in the respective states.
To establish itself as a key player in the global semiconductor supply chain, the Indian government is offering 50 per cent financial support for chip production and has launched the Critical Mineral Mission to secure essential resources. Additionally, it is setting up a semiconductor research centre in collaboration with leading IITs and implementing a workforce development plan to train 85,000 technicians and engineers. The recently launched Anusandhan National Research Foundation, backed by a Rs 1 trillion fund announced in the Union Budget 2024–25, aims to strengthen India’s research ecosystem and drive innovation in advanced semiconductor technologies. States such as Gujarat, Karnataka, Tamil Nadu, Odisha, Assam and Uttar Pradesh have introduced their own semiconductor policies, with more states expected to follow in the coming years.
Progress made on the back of government initiatives
Government initiatives have started showing positive outcomes. According to the India Cellular and Electronics Association (ICEA), the value of mobile phone production in India surged significantly, from $3 billion in 2014-15 to $44 billion in 2022-23. The value of India’s mobile phone exports also increased, from $0.22 billion in 2014-15 to $11.1 billion in 2022-23. With regard to telecom equipment, the PLI scheme for the domestic manufacturing of transmission equipment, 4G/5G RAN, wireless equipment, etc., has attracted investments worth Rs 39.98 billion, with sales amounting to Rs 687.08 billion as of October 2024.
India has attracted significant investments for semiconductor manufacturing from both global and domestic players in the past three years. Key commitments include investments from the US-based computer and memory chip major, Micron for setting up a back-end assembly, testing, marking and packaging facility, and Tata Electronics for establishing a semiconductor fab and a testing and packaging plant in partnership with Taiwan-based Powerchip Semiconductor Manufacturing Corporation.
Key challenges
Despite the progress made, India’s efforts to establish itself as a global manufacturing hub for telecom equipment, mobile phones and semiconductor chips are hindered by several structural and systemic challenges. One of the primary issues lies in the limited scope of domestic manufacturing, which often focuses more on assembly than on complete production processes. While the PLI scheme has increased the export of finished mobile phones, it places limited emphasis on value addition during intermediate manufacturing stages. Thus, despite the growth in mobile phone exports, reliance on imported components such as semiconductors, displays, cameras and batteries has continued to increase.
High production costs also present a significant barrier. The manufacturing of telecom equipment and semiconductor chips involves complex, multi-step processes, with substantial investments in raw materials, machinery and technology. In India, these costs are further inflated by customs duties, freight expenses and inadequate access to affordable capital. The lack of advanced infrastructure for high-precision operations, coupled with unreliable utilities and logistics, exacerbates this cost disadvantage, making Indian manufacturers less competitive compared to global players in countries with stronger incentive programmes.
Supply chain vulnerabilities pose another significant challenge. The production of telecom and networking equipment relies on globally dispersed clusters, where disruptions in one segment create cascading delays across the supply chain. Export controls imposed by key supplier nations add to these challenges, extending lead times for critical components like microcontrollers, thereby increasing production costs. Additionally, trade policies such as the Information Technology Agreement (1996) and certain free trade agreements allow reduced or zero customs duties on imported finished products, thereby limiting the domestic industry’s market opportunities.
In addition, India’s indigenous research and development (R&D) ecosystem for telecom equipment, semiconductors and advanced components remains underdeveloped, restricting innovation and the local design of critical technologies. Furthermore, domestic manufacturers often struggle to compete with global firms that benefit from economies of scale, extensive supply chains and superior technology. For instance, private telecom operators often favour international vendors due to their established quality standards and access to home-country financing.
In the semiconductor sector, India faces even more complex obstacles, including the need for massive capital investments, cutting-edge technology and a sophisticated ecosystem. The country also requires a skilled workforce of around 1.2 million in this sector by 2032, as per industry estimates. Further, government subsidies for semiconductor manufacturing are capital-intensive and provided upfront, unlike the PLIs prevalent in other sectors. Critics argue that this approach, along with a focus on producing legacy 28nm chips instead of cutting-edge 3nm chips, limits India’s ability to compete in the global semiconductor market.
Outlook
In recent years, the government has launched several initiatives to improve the indigenous manufacturing of telecom and networking products, and the industry has responded positively, significantly enhancing India’s manufacturing capabilities. The future growth trajectory will depend on continued policy support from the government, particularly in mitigating the costs associated with domestic manufacturing.
The industry has called for extending the PLI schemes by five years beyond their current tenure, which will end in 2026. So, the sector must focus on promoting the development of domestic vendors. The emergence of large-scale domestic corporations in the sector will be crucial for achieving economies of scale, which is a critical factor for reducing costs and competing globally.
In conclusion, a comprehensive strategy involving both government initiatives and industry efforts, is essential to strengthen India’s manufacturing capabilities. This will reduce reliance on imports, and lay the foundation for sustainable growth in these critical industries.
