From Assembly Lines to Innovation Hubs: India's Electronics Gambit

Crack open any smartphone rolling off an Indian assembly line today, and you'll encounter a curious paradox. The device bears the country's stamp, yet its soul is imported—the chips from Taiwan, the displays from South Korea, the circuit boards from China. India has mastered the art of putting things together; what it hasn't yet cracked is creating the things that matter most.

This distinction—between assembling and truly making—lies at the heart of the country's electronics ambitions. And it suggests that success shouldn't be measured by the millions of devices shipped from Indian ports each year, but by something far more telling: how much of each device's DNA was actually conceived and created on Indian soil.

By that yardstick, considerable ground remains to be covered.

For decades, India was content being a massive consumer base for the global digital economy. Today, it harbours fiercer ambitions—a seat at the high table of global manufacturing. The government's Production Linked Incentive schemes and Electronic Manufacturing Clusters have laid the groundwork. Yet trade data tells an uncomfortable story: India has become a giant in assembly, but remains a nation hungry for components.

The assembly paradox

The numbers look impressive at first glance. Mobile phone production has surged from 5.8 crore units in 2014-15 to an estimated 33 crore units in 2023-24—a triumph of the Atmanirbhar Bharat vision, by any measure. But dig deeper, and the picture grows more complicated.

While final assembly operations are localising rapidly, the core value remains offshore. Domestic value addition in Indian-made smartphones hovers between 18 and 25 percent. China, by comparison, captures roughly 45 percent, and even Vietnam manages 35 percent. For every dollar's worth of smartphone that India exports, a substantial share flows right back to China, Taiwan, or South Korea—payment for the semiconductors, printed circuit board assemblies, and display modules that constitute nearly 60 percent of a device's total bill of materials.

There is another vulnerability that pure assembly creates. Putting components together is not a particularly sophisticated process—it requires neither rare expertise nor years of institutional learning. What can be set up quickly can be dismantled just as fast. Should another country offer more generous incentives, or should India's rising living standards push labour costs higher (as they inevitably will if development proceeds apace), manufacturers face few barriers to relocating their assembly lines elsewhere. The very ease that made India an attractive destination could, paradoxically, make it a dispensable one.

This is the assembly paradox: volume without commensurate value, scale without stickiness.

The pivot to depth

The government has recognised that assembly is a low-margin, non-sticky game—typically yielding returns of just two to five percent, while remaining perpetually vulnerable to relocation at the first sign of better terms elsewhere. The strategic response has been a pivot toward what policymakers call "deep manufacturing." The second iteration of the PLI scheme for IT hardware, along with the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors, represents this new thinking.

Unlike its predecessor, PLI 2.0 offers higher incentives for firms that indigenise sub-assemblies such as memory modules and display panels. A Rs 23,000 crore outlay targets passive components and power electronics—an explicit attempt to bridge the component gap. The underlying logic is sound: moving from screwing parts together to actually fabricating them is the only way to insulate the Indian economy from global supply chain disruptions and currency volatility.

What stickiness really requires

But incentives alone will not create the kind of manufacturing ecosystem that resists offshoring. What makes a country indispensable to global supply chains is not any single factory or facility—it is the dense web of interdependencies that forms around them. China did not become the world's factory merely because it offered cheap labour. Over decades, it cultivated an entire ecosystem: semiconductor fabs, display manufacturers, precision tooling shops, chemical suppliers, packaging specialists, and logistics networks, all clustered within trucking distance of one another. When a product designer in Shenzhen needs a custom component, a supplier down the road can deliver a prototype by evening. That kind of responsiveness cannot be replicated overnight, and it is what makes relocation so costly even when wages rise.

India's challenge is to nurture a similar ecosystem—one where fabs, component makers, testing laboratories, and design houses feed into and reinforce each other. This requires more than attracting marquee investments; it demands cultivating the dense undergrowth of small and medium enterprises that supply the giants. Equally important is building a workforce whose skills are not easily found elsewhere: not just assembly line workers, but process engineers, chip designers, quality specialists, and R&D talent capable of solving problems that have no manual.

The optimistic view holds that ecosystems develop organically. China, after all, started with basic assembly in the 1980s, and the rest followed as volumes grew and suppliers clustered around factories. Perhaps India is simply earlier on the same curve. The pessimistic counterargument is that history may not repeat itself so conveniently. Multinationals already have China; why would they invest the time, capital, and patience required to build a second China in India when the first one still works? The answer, if there is one, lies in geopolitics—the growing appetite among global corporations to de-risk their supply chains and reduce dependence on any single country. India's window of opportunity is real, but it will not stay open indefinitely.

The social dividend

While the component deficit persists, the social impact of these initiatives is difficult to dispute. Electronics assembly remains a labour-intensive gateway for semi-skilled workers, and by late 2024, PLI schemes across 14 sectors had created over 11.5 lakh direct jobs.

The electronics sector has been the primary engine of this employment surge, with a particularly striking demographic dimension. At facilities run by Foxconn, Tata Electronics, and Dixon Technologies, women comprise nearly 70 percent of the assembly line workforce. Beyond the factory floor, each direct manufacturing job generates roughly three indirect positions in logistics, specialised packaging, and local services—the ecosystem multiplier that transforms industrial clusters into engines of regional prosperity.

Building the bedrock

Competing with China Plus One alternatives like Vietnam demands more than incentives; it requires tackling India's persistent "disability costs." Logistics expenses in India run at roughly 14 percent of GDP, compared to eight percent in rival manufacturing destinations.

The 19 sanctioned greenfield Electronic Manufacturing Clusters, supported by the Gati Shakti initiative, aim to provide plug-and-play environments that compress time to market. But for India to truly scale, these clusters must evolve beyond offering land and power. The introduction of Common Facility Centres is critical—shared spaces where small and medium enterprises can access sophisticated R&D and testing equipment that would otherwise remain beyond their reach.

Beyond physical infrastructure, deliberate investment is needed in the softer sinews of an ecosystem. This means programmes that help domestic suppliers meet the exacting quality standards of global manufacturers, financing mechanisms that allow smaller firms to scale up without being crushed by working capital constraints, and sustained commitment to building specialised skills. Engineering colleges and polytechnics must be drawn into closer partnership with industry, not merely to supply warm bodies for assembly lines, but to produce the process engineers, materials scientists, and design specialists who can solve problems on the fly. These investments are less glamorous than a new fab announcement, but without them, the clusters risk remaining islands of foreign manufacturing surrounded by a sea of imports.

The chapter ahead

India's electronics story is entering its second chapter. The first was about size—scaling up production, attracting global manufacturers, creating jobs. The next must be about depth. Policy must shift from volume-based incentives to innovation-based ones. The metrics that matter should evolve from units shipped to local content percentage, from final assembly to components and semiconductors, from semi-skilled assembly lines to high-skilled R&D and engineering teams.

To reach the ambitious target of $300 billion in electronics production by 2026, India cannot simply assemble its way forward. It must learn to fabricate, design, and innovate. The "Assembled in India" label was a necessary starting point. "Made in India"—in the truest sense—remains the destination. 

The author is a former chairman of the Bombay Stock Exchange (BSE) and the founder of Ravi Rajan & Company.

(Disclaimer: This is an authored article, and the views expressed are solely those of the contributors and do not reflect the opinions of Outlook Business.)