Electronics Manufacturing in India: PLI Phase 2, Component Sourcing & FDI

India's Electronics Manufacturing Surge: The Numbers

India's electronics sector has undergone a structural transformation. Electronics production rose from INR 2.13 lakh crore (approximately USD 26 billion) in FY 2021 to INR 5.25 lakh crore (approximately USD 63 billion) in FY 2025 — a 146% increase in four years. The FDI inflows into electronics manufacturing reached USD 4 billion, with 70% flowing to PLI beneficiaries. India now assembles approximately 55 million iPhones annually, representing roughly one-quarter of Apple's global output.

This growth is not accidental. It is the result of three converging policy instruments: the original PLI Scheme for Large Scale Electronics Manufacturing (PLI 1.0), the new Electronics Component Manufacturing Scheme (ECMS), and a 100% FDI policy under the automatic route for manufacturing. For foreign manufacturers evaluating India as a production base, understanding these three pillars — and the regulatory obligations that come with them — is critical to making an informed entry decision.

PLI 1.0: Results and Lessons Learned

The original PLI Scheme for Large Scale Electronics Manufacturing, launched in 2020 with a total outlay of INR 34,193 crore, focused on smartphone and specified electronic components manufacturing. The scheme offered incentive rates of 4-6% on incremental sales over a base year, measured over five years.

Key Outcomes by FY 2025

The bulk of PLI 1.0 payouts went to Apple's contract manufacturers — Foxconn (INR 2,807 crore), Tata Electronics (INR 2,068 crore), and Pegatron — along with Samsung and Dixon Technologies. Further disbursements of INR 19,742 crore are expected during FY 2026.

Lessons for New Entrants

PLI 1.0 demonstrated that incentives alone do not build an ecosystem. The scheme succeeded in scaling smartphone assembly but exposed a critical gap: India imports over 75% of electronic components. PCBs, passive components (resistors, capacitors, inductors), display modules, and camera modules are sourced primarily from China, Taiwan, South Korea, and Japan. This import dependency creates supply chain vulnerabilities and limits domestic value addition to approximately 15-20% for assembled products.

ECMS: The Component Manufacturing Push

Recognising this gap, the Cabinet approved the Electronics Component Manufacturing Scheme (ECMS) in March 2025 with an outlay of INR 22,919 crore (approximately USD 2.75 billion). Unlike PLI 1.0 which focused on finished goods assembly, ECMS targets the upstream component ecosystem.

Target Component Segments

ECMS covers five target segments, each addressing a different node in the supply chain:

Incentive Structure Details

ECMS offers three types of fiscal incentives:

• Turnover-linked incentive: Calculated as 4-8% of incremental sales over a base year for eligible products manufactured in India. Rates decrease by 1% if employment thresholds are not met.
• Capex incentive: 25% of eligible capital expenditure, reduced by 5% if employment criteria are unmet. Disbursed after investment and commencement of commercial production.
• Hybrid incentive: A combination of turnover-linked and capex incentives for specified product segments, providing flexibility based on the nature of investment.

The scheme runs for six years (FY 2025-26 to FY 2031-32), including a one-year gestation period for the turnover-linked incentive and a five-year period for the capex incentive.

Approvals and Applications

As of January 2026, 46 applications have been approved under ECMS across 11 states, with total committed investment of INR 54,567 crore (approximately USD 6.5 billion), estimated production worth INR 2.58 lakh crore, and projected creation of 51,000 direct jobs. Major beneficiaries include Foxconn, Samsung, and several domestic PCB manufacturers. Applications for segments A, B, C, and E closed on September 30, 2025. Segment D (lithium-ion cells) applications remain open until April 30, 2027.

Post-PLI 1.0: What Comes Next for Smartphones

The current PLI scheme for smartphones expires on March 31, 2026. The government is preparing a successor programme starting April 2026, with a significant structural change: incentives will be linked to domestic value-addition targets rather than pure turnover growth. This shift reflects the policy objective of moving India from assembly-led manufacturing to design-led, high-value production.

Manufacturers should expect the next-generation incentive framework to reward companies that source components domestically, invest in R&D facilities in India, and achieve higher levels of local value addition. Early investment in India-based component sourcing and design capability will position manufacturers favourably under the new framework.

FDI Framework for Electronics Manufacturing

India permits 100% FDI in manufacturing under the automatic route — no prior government approval is required. This applies to all electronics manufacturing activities, including semiconductor assembly, PCB fabrication, component manufacturing, and consumer electronics production.

Entity Structure Options

Foreign electronics manufacturers typically enter India through one of three structures:

• Wholly Owned Subsidiary (WOS): A private limited company with 100% foreign shareholding. Most common for manufacturers seeking full operational control. Requires minimum two directors (one must be an Indian resident) and at least INR 1 lakh paid-up capital.
• Joint Venture: Partnership with an Indian company, typically used when local market knowledge or distribution networks are needed. For JV structuring considerations, see our joint venture guide.
• Branch Office: Suitable for companies wanting to establish manufacturing operations without creating a separate legal entity. Branch offices of foreign companies can undertake manufacturing activities with prior RBI approval. See our branch office vs subsidiary comparison for trade-offs.

FDI Compliance Requirements

Once the entity is established and foreign capital is infused, the company must file FC-GPR with the RBI within 30 days of share allotment. Annual filing of the FLA Return is mandatory by July 15 each year. Compliance with FEMA pricing norms requires valuation by a SEBI-registered Category I Merchant Banker or CA for unlisted companies. For detailed FDI reporting requirements, see our FDI reporting compliance guide.

Component Sourcing: Building the India Supply Chain

For foreign manufacturers accustomed to East Asian supply chains, building an India-based component network requires a different approach. The domestic component ecosystem is nascent but growing rapidly.

Current Domestic Availability

Import Duty Considerations

Electronics components attract customs duties that affect total landed cost. Basic Customs Duty (BCD) on most components ranges from 0% to 15%, with fully assembled units attracting higher duties (20% for smartphones). This duty inversion — lower duty on components than finished goods — creates the economic rationale for domestic assembly. However, manufacturers should factor in IGST (Integrated GST at 18%), customs cess, and anti-dumping duties on specific components from China.

Companies with an Import Export Code (IEC) can use bonded warehouse facilities and Special Economic Zones (SEZs) to defer or avoid customs duties on components meant for re-export as finished goods.

Manufacturing Locations: Key Electronics Clusters

India's electronics manufacturing is concentrated in specific clusters, each with distinct advantages:

• Tamil Nadu (Sriperumbudur, Hosur): Home to Foxconn, Pegatron, Salcomp, and Tata Electronics. Established port connectivity, skilled labour pool, and state incentives.
• Karnataka (Bengaluru, Mysuru): Design and R&D hub with growing manufacturing capacity. Strong for semiconductor design and embedded systems.
• Uttar Pradesh (Noida, Greater Noida): Samsung's largest factory, Dixon Technologies, and several Chinese brand factories (Oppo, Vivo). Proximity to Delhi NCR market.
• Telangana (Hyderabad): Growing electronics cluster with state incentives. Focus on defence electronics and aerospace components.
• Gujarat (Dholera SIR, Sanand): Emerging cluster with Tata's semiconductor fab project. Aggressive state incentive packages.

Regulatory Compliance for Electronics Manufacturers

Beyond FDI and PLI/ECMS, electronics manufacturers face several ongoing regulatory obligations:

BIS Certification

Products sold in India must comply with Bureau of Indian Standards (BIS) certification requirements. Over 679 product categories require mandatory BIS certification, including electronic goods, batteries, cables, and components. Foreign manufacturers use the Foreign Manufacturers Certification Scheme (FMCS) to obtain the ISI mark, requiring appointment of an Authorised Indian Representative (AIR) and a Performance Bank Guarantee of USD 10,000.

E-Waste Management

Under the E-Waste Management Rules 2022, electronics manufacturers are required to implement Extended Producer Responsibility (EPR) obligations. Manufacturers must collect and recycle a specified percentage of e-waste equivalent to the products sold in India. EPR certificates must be obtained through authorised recyclers and filed with the Central Pollution Control Board (CPCB).

Factory Licence and Labour Compliance

Manufacturing facilities require a Factory Licence under the Factories Act 1948 (applicable until full implementation of the new Occupational Safety, Health and Working Conditions Code 2020). This involves registration with the state Factory Inspectorate, compliance with safety standards, and periodic inspections. EPF, ESI, and professional tax registrations are mandatory for all employees.

Environmental Clearances

Electronics manufacturing facilities — particularly PCB fabrication plants and battery manufacturing units — may require Environmental Impact Assessment (EIA) clearances and Consent to Establish/Consent to Operate from the State Pollution Control Board. Chemical handling, wastewater treatment, and hazardous waste disposal must comply with the Hazardous and Other Wastes Management Rules 2016.

Government Incentives Beyond PLI and ECMS

Manufacturers can stack multiple incentive schemes to improve project economics:

• Modified Special Incentive Package Scheme (M-SIPS): Capital subsidy of 20-25% for units in SEZs and non-SEZ areas respectively
• State-level incentives: Individual states offer land at concessional rates, stamp duty exemptions, electricity tariff subsidies, and SGST reimbursement. Tamil Nadu, Karnataka, and UP have particularly aggressive electronics manufacturing policies
• SEZ benefits: Duty-free import of capital goods and raw materials, income tax holiday under Section 10AA (for units operational before March 2020), and simplified customs procedures
• Semiconductor Mission: The India Semiconductor Mission offers up to 50% capital support for semiconductor fabs, ATMP (Assembly, Testing, Marking, and Packaging) units, and compound semiconductor facilities

For a comprehensive overview of government incentives available to foreign manufacturers, see our guide to government incentives beyond PLI. For the China+1 strategic perspective, read our analysis of China Plus One manufacturing in India.

Tax Framework for Electronics Manufacturers

The tax structure directly affects manufacturing economics. Understanding the full tax stack is essential for accurate project modelling.

Corporate Tax

New manufacturing companies incorporated after October 1, 2019, and commencing production before March 31, 2024, benefit from a concessional corporate tax rate of 15% (effective rate ~17.16% including surcharge and cess). Companies that missed this window pay the standard rate of 22% (effective ~25.17%) or 30% (effective ~34.94%) depending on turnover. The 15% concessional rate was one of the most powerful incentives for manufacturing — new entrants should verify current eligibility thresholds with the CBDT.

Customs Duty Structure

India uses a phased manufacturing programme (PMP) approach for electronics, progressively increasing customs duties on finished goods while keeping duties on components lower. The current BCD (Basic Customs Duty) structure for key categories:

GST and Input Tax Credit

Most electronic goods attract 18% GST (some items like mobile phones at 12%). Manufacturers can claim Input Tax Credit (ITC) on GST paid on raw materials, components, capital goods, and services — making the effective GST burden only on value addition. However, ITC refund delays can create working capital pressure, particularly for export-oriented units. The monthly GSTR-3B filing and GSTR-2B reconciliation are mandatory compliance requirements.

Workforce and Labour Considerations

Electronics manufacturing is labour-intensive. India's cost advantage in manufacturing labour is significant, but workforce management requires understanding local labour law frameworks.

Labour Cost Benchmarks

Above basic salary costs, employers must budget for EPF at 13% of basic salary, ESI at 3.25% for employees earning up to INR 21,000 gross, Professional Tax (varies by state, capped at INR 2,500 per year per employee), and gratuity provisioning at 4.81% of basic salary. The effective employer cost above gross salary typically runs 20-30%.

Contract Labour and Staffing

Many electronics manufacturers use contract labour (supplied through staffing agencies) for assembly line operations to maintain workforce flexibility. Under the Contract Labour (Regulation and Abolition) Act 1970, establishments employing 20 or more contract workers must register with the relevant state labour department. The principal employer bears liability for wage payments if the contractor defaults. Fixed-term employment contracts — introduced under the Industrial Relations Code 2020 — provide an alternative, offering employers flexibility while giving workers benefits comparable to permanent employees.

Quality Standards and Testing Infrastructure

Electronics manufacturers must comply with product quality standards enforced by BIS, the Standardisation Testing and Quality Certification (STQC) Directorate under MeitY, and the Telecommunications Engineering Centre (TEC) for telecom equipment.

Testing and Certification Requirements

The BIS Compulsory Registration Scheme (CRS) applies to 56 categories of electronic and IT goods. Unlike the ISI Mark scheme which requires factory inspections, CRS is a self-declaration scheme where the manufacturer submits test reports from BIS-recognised labs. Test reports are valid for two years, after which products must be re-tested.

Testing Laboratories

India has a growing network of NABL-accredited testing labs for electronics. Key facilities include ERTL (Electronic Regional Test Laboratories) in Delhi, Mumbai, Kolkata, and Bengaluru operated by STQC, as well as private labs like UL India, TUV SUD, Bureau Veritas, and Intertek. Testing costs range from INR 50,000 to INR 5,00,000 per product depending on the scope of testing required. Manufacturers should factor 8-16 weeks for the complete testing and certification cycle when planning product launch timelines.

Setting Up a Manufacturing Facility: Practical Checklist

For a foreign electronics manufacturer establishing production operations in India, the end-to-end process follows a clear sequence:

1. Incorporate the entity: Register a private limited company via SPICe+ (7-10 days), appoint directors including one resident director, obtain PAN, TAN, and open a bank account
2. Infuse foreign capital: Remit capital from the parent company, file FC-GPR within 30 days, obtain FIRC from the bank
3. Secure the manufacturing site: Lease or purchase industrial land/facility in the chosen cluster, obtain Factory Licence under the Factories Act
4. Obtain environmental clearances: Consent to Establish and Consent to Operate from the State Pollution Control Board; EIA clearance if the project falls under the EIA Notification 2006
5. Apply for PLI/ECMS: Submit application through the relevant MeitY portal during the application window with the required investment commitment
6. Obtain product certifications: BIS CRS or ISI Mark for products to be manufactured; TEC certification for telecom equipment
7. Set up compliance infrastructure: Register for GST, EPF, ESI, Professional Tax; appoint a Company Secretary if paid-up capital exceeds INR 10 crore
8. Commence production: File Consent to Operate, begin commercial manufacturing, and start filing for incentive claims under PLI/ECMS

Total timeline from incorporation to production commencement: 6-12 months, depending on site readiness, product certification timelines, and state-level approval processes.

Intellectual Property Protection for Electronics

Foreign electronics manufacturers bringing proprietary technology into India should implement IP protection strategies from day one:

• Patent filing: File Indian patent applications before disclosing technology to Indian partners or employees. India follows a first-to-file system with 20-year patent terms. Software patents are not granted per se, but software with technical application can be patented under certain conditions
• Design registration: Industrial designs for product aesthetics should be registered with the Indian Design Office (15-year protection)
• Trade secret protection: India has no specific trade secrets statute. Protection relies on contractual NDAs and the Indian Contract Act 1872. Ensure all employees and contractors sign robust confidentiality agreements with clear IP assignment clauses
• Technology transfer agreements: Agreements for technology transfer from the parent company should be structured to comply with transfer pricing norms. Royalty payments typically attract withholding tax at 10% (or lower under applicable DTAA)

Key Takeaways

• 100% FDI under the automatic route makes India's electronics manufacturing sector one of the most accessible for foreign investment — no prior government approval is needed for any manufacturing activity
• ECMS changes the game for components — with INR 22,919 crore in incentives (turnover-linked at 4-8%, capex at 25%), manufacturers investing in upstream component production can achieve significantly better unit economics than pure assembly operations
• PLI successor scheme from April 2026 will link incentives to domestic value addition rather than turnover, rewarding manufacturers who build India-based supply chains and invest in local design capability
• Component import dependency of 75%+ remains the key challenge — strategic manufacturers should invest early in qualifying domestic suppliers and co-locate component production near assembly facilities
• Stack incentives for maximum benefit — combining PLI/ECMS with state incentives, SEZ benefits, and the Semiconductor Mission can reduce effective capital expenditure by 30-40%

For company registration to set up your manufacturing subsidiary, or for FDI advisory on structuring your India investment, our team can guide you through the process.