Evaluating the Impact of the Electronics Manufacturing Scheme 2.0 in India

On February 6, 2020, the Minister of Electronics and Information Technology, Ravi Shankar Prasad, launched the Electronics Manufacturing Scheme 2.0 (EMS 2.0) as a trilogy of schemes aimed at promoting electronics manufacturing in India. With a combined outlay of approximately Rs 50,000 crore (7 billion USD), these initiatives are intended to boost the electronic manufacturing sector, contributing to a USD 1 trillion digital economy and a USD 5 trillion GDP by 2025.

Overview of the Schemes

EMS 2.0 consists of three primary sub-schemes:

Linked Incentive Scheme (PLI): Focused on large-scale electronics manufacturing. Electronics Components Semiconductors Promotion Scheme (SPECS): Aims to promote the manufacturing of electronic components and semiconductors. Modified Electronics Manufacturing Clusters (EMC 2.0): Designed to support the development of e-clusters.

Critique of the Electronics Manufacturing Scheme 2.0

Despite the substantial financial outlay, many within the manufacturing sector express concerns that the scheme may not significantly boost the electronics manufacturing sector in India. They argue that several critical factors may undermine the success of these initiatives. Here are some key points of critique:

Relaxed Labour Laws

The manufacturing sector has long advocated for more relaxed labour laws to attract and retain skilled workers. Currently, stringent labour regulations often result in higher costs and lower productivity for companies. Streamlining labour laws could enhance worker productivity and attract foreign and domestic investment.

Reduction in GST Burden

Goods and Services Tax (GST) has been a contentious issue, particularly for manufacturers. While GST simplifies the tax structure, the burden can be significant and often outweighs the benefits. For instance, consider a hypothetical firm manufacturing goods worth 10 crore (100 million INR) in a financial year:

Purchase of raw material: 50.00 Power bill: 10.00 Labour: 25.00 Travelling and marketing: 5.00 Sundry expenses: 10.00 Total Expenses: 100.00 Sales: 110.00 Profit: 10.00

According to the current GST regulations, the firm would have to pay:

CGST SGST at 9% on the sale: 19.80 Credit of CGST SGST at 9% on purchase: 9.00 Net GST Liability: 10.80 (19.80 - 9.00)

Given that the company's profit is only 10.00, this results in a negative profit. This predicament illustrates how GST can eat into the profits of manufacturers, making them unsustainable in the long term. Rationalization of GST rates and simplification of the tax structure could be key to the success of this scheme.

Secure Payment Environment for Exporters

One of the critical aspects for manufacturers aiming to export is ensuring a secure payment environment. Export bottlenecks, including delays and factors related to foreign currency fluctuations, can significantly impact a company's revenue and profitability. Streamlining payment processes and providing incentives for exporters can help enhance their competitive edge in the global market.

Less Regulatory Burden

The presence of factory inspectors, electricity inspectors, and labour inspectors often contributes to extra costs and delays in production processes. Relaxing these regulations can lead to a more efficient and cost-effective production environment, allowing manufacturers to focus on growth and innovation.

Rationalized Power Expenses

Access to affordable and reliable power is crucial for manufacturing operations. High power expenses can be a significant cost for manufacturers. Initiatives to reduce power costs and improve the power supply infrastructure can be beneficial for the sector.

Outlook and Conclusion

While the Rs 50,000 crore outlay is significant, the success of the Electronics Manufacturing Scheme 2.0 depends on addressing the aforementioned critical areas. Without addressing these challenges, the scheme may not achieve its intended goals of promoting production and exports. To ensure success, the government must focus on creating a more conducive environment for manufacturers.

Overall, the Electronics Manufacturing Scheme 2.0 presents an opportunity to significantly boost India's electronics manufacturing sector. However, careful consideration of the existing challenges and a comprehensive approach are imperative for realizing the full potential of these initiatives.