In the span of April to June, 2023 India saw a jump in electronics goods imports from $4.73 billion to $6.96 billion compared to the same period last year. Laptops and palmtops were the largest portion of this increase with about 70-80% of the total imports coming from China.
Domestic production of laptops from scratch, despite the production-linked incentive (PLI) scheme, has been rather limited.
Speaking to The Core on the current technological capacity, Akshara Bassi, senior research analyst at Counterpoint Research said, “The Electronics Manufacturing Services (EMS) are coming into the forefront to take the demand of the expanding manufacturing capacity in India. So we have seen that Dixon and now the Bharat Foxconn FIH are primarily pushing as the lead EMS place. Of course, the Flex is already there. But these companies are also pushing up to take the extra demand of manufacturing that will probably rise once the licence system properly comes into effect and the moratorium period kind of expires.”
To promote domestic manufacturing the Indian government announced curbs on the import of laptops, tablets and certain computers to India. The Director General of Foreign Trade (DGFT) is to soon hold consultations with hardware makers, while reports say that there was a pushback from the industry and the government may defer it to next year.
This comes at a time when laptops in India are still mostly assembled rather than manufactured here. According to Counterpoint Research, Lenovo, HP, Dell, Apple and Acer were the top five companies in the personal computer segment in the June 2023 quarter. Research Director of Counterpoint Research Tarun Pathak said that the annual market size for laptops and PCs in India is about $8 billion. Around 65% of these devices are imported, while 30% to 35% of the total units sold in India were typically assembled and manufactured within the country.
“Laptop manufacturing is a bit different from desktop manufacturing as it requires more advanced surface-mount technology (SMT) capabilities because a laptop has more moving parts, the motherboard, laptop motherboard, etc. The PCB also has more moving parts than the desktop, which is fairly simple and there are not many changes in desktop SKUs also, they remain more or less the same. Overall, for laptops, 30-35% are being assembled in India right now. The manufacturing is very low. So, if we are talking about true manufacturing - it means at the SMT level. What companies are doing currently is they may source one particular component locally for SMT assembly, but this case is very minimal as of now,” Bassi said.
Industry experts highlighted a list of factors that hinder the manufacturing of laptops from scratch. The lack of a comprehensive manufacturing ecosystem, India’s price-sensitive market, as laptop manufacturers face pressure on margins, the necessity for a skilled workforce, and efficient supply chains, among others as reasons or challenges in laptop manufacturing in India.
Need For A Manufacturing Ecosystem
The efforts to establish a robust laptop manufacturing industry in India appear to be an uphill task. According to Bassi, what India needed was a manufacturing ecosystem as companies are still importing components out of India and require supply chain players within the country as well so that ground-up manufacturing can happen. “Every component which goes in a Printed Circuit Board(PCB). is typically imported, which means it's the PMIC chips, the power connectors, CPU/GPU memory, storage, everything is imported. And since typically companies don't have advanced SMT capabilities as of now, they import the whole motherboard itself, and then they just assemble in India.”
At present, Dell, HP, and Lenovo are among the big players who are involved in manufacturing in India primarily. They partner with EMS players like Flex to manufacture on their behalf. Dell and Lenovo have their manufacturing plant where they manufacture PCs in India. Apple does not have any manufacturing facility for Macbooks in India as of now.
“The companies specifically need to have a whole ecosystem in India to actually start manufacturing from a complete or CKD (Complete Knock-Down) and SKD (Semi Knock Down) level that we have seen in the mobile phones,” Bassi added.
Indian smartphone manufacturer Lava, one of the few Indian smartphone manufacturing companies, has its manufacturing facility in Noida, Uttar Pradesh where PCBs are manufactured. Speaking to The Core, Sanjiv Agarwal, chief manufacturing officer, of Lava, said that things have changed a lot in the last 5-6 years and the focus now has to be on components and local manufacturing as for mobile phones, it is almost 100% CKD because there is a huge duty. “If I import a PCB from China or any other country, there is a 20-25% customs duty. So everybody is doing it here only. I think more than 95% of phones which are sold here are manufactured in India.”
Printed Circuit Board Assembly Unit- Lava
Skilled Labour, Reliable Supply Chain & More
Highlighting the complexities involved in laptop manufacturing, Surendar Singh, Associate Professor of International Business at FORE School of Management said that a lot of things go into building capabilities in the domestic market. “You have to find out component manufacturers, you have to find players who can actually deploy capital. There are certain specific segments for which you require research development and you require design.”
Singh said that India needed to look at the availability of the raw material, the price competitiveness of the raw material, the quality of the raw material, and the quality of parts and components that will decide what type of product we manufacture in our country.
According to local sellers, all computer parts are being imported and are being assembled in India. These laptop parts are developed by OEM (Original Equipment Manufacturers) companies like Compel, Foxconn, Western Digital, and TCL, among others. “A skilled research and development (R&D) team is very important and if not given enough importance, would lead to brands compromising on quality,” Manindra Singh of Bitfinal Computers, a laptop servicing centre in Meerut said.
Speaking to The Core, Sudhir Goel, chief business officer at Acer India said that India's laptop manufacturing landscape had undergone a significant transformation, with a shift towards assembly-focused manufacturing. “To fully unlock the potential of local manufacturing, a holistic approach is imperative. This encompasses the development of robust infrastructure, the enhancement of workforce skills, the promotion of research and development (R&D) for innovation, the streamlining of regulatory processes to improve business efficiency, and a focus on sustainable manufacturing practices”
Cost is another factor that impacts laptop manufacturing. As India is a price-sensitive market, laptop manufacturers have pressure on margins and cannot afford to increase the cost of production despite the margins being low. “The PC market is not a margin-driven market anyway. So there is a risk that the margins get more compromised if they don't get a cost-benefit analysis when they are trying to manufacture in India or elsewhere. So they go to the place where they have the best possible margins while manufacturing.”
While China dominates India’s laptop imports, the percentage has been on the decline since India started importing from other countries including Vietnam, Taiwan, and Hong Kong.
One of the reasons for the cost differential, according to Bassi is that in the case of India, everything that is imported is assembled back again, adding another layer of complexity in the value chain itself “because let's say if the companies were to use any other EMS player which is based out of Taiwan or China where the chips have been manufactured. They don't have that much logistical costs and operational costs. I would say it limited the expansion of laptop manufacturing. The reasons are more from an ecosystem front, the components just are a part of an ecosystem.”
Key Requirements For Setting Up Laptop Manufacturing Facility
On key factors to consider when establishing laptop manufacturing plants in India, Goel said, “It is vital to consider ensuring access to robust transportation, logistics, and utility infrastructure. Moreover, it is crucial to guarantee the presence of a proficient workforce for assembly and quality assurance. Establishing a reliable supply chain for procuring components and materials is essential for maintaining production effectiveness.”
Goel pointed out that it was important to cooperate with the government for incentives and regulatory support. “Forging alliances with indigenous suppliers, distributors, and service providers can greatly improve the effectiveness and sustainability of manufacturing activities.”
While there is not much of a difference in labour cost in India as compared to Taiwan, Vietnam or China, finding skilled labour is a problem. “What good is a workforce that does not know what is a semiconductor or what is a chip like? I know the OEMs are upskilling their current workforce specifically, from the manufacturing perspective. But I believe that as the newer workforce also enters, they need to take up a more active role so that the companies don't have to hunt for balance which can become time-consuming for them and can delay certain processes.”
Will The PLI Scheme Change The Scenario?
The Indian government introduced the PLI for IT Hardware scheme in March 2021, acknowledging all the problems the industry faces. Aimed at boosting domestic manufacturing and attracting large investments, the scheme offered incentives ranging from 1% to 4% on the increase in net sales (compared to the base year) of products made in India within four years to eligible companies.
The scheme reportedly did not receive the expected response due to low incentives. The total investments stood at approximately Rs 123 crore as of June 2021, as opposed to the projected investments of Rs 2,500 crore. The scheme was, therefore, reworked and The PLI Scheme 2.0 for IT Hardware was introduced in May 2023. According to the press release, “The Scheme shall extend an average incentive of around 5% on net incremental sales (over base year) of goods manufactured in India and covered under the target segment, to eligible companies, for a period of six (6) years. The Target Segment under PLI shall include (i) Laptops (ii) Tablets (iii) All-in-One PCs (iv) Servers and Ultra Small Form Factor (USFF).”
Several global and domestic players have shown interest in the updated scheme and according to Alkesh Sharma, secretary of the Ministry of Electronics and Information Technology, around 58 registrations have taken place.
HP Inc., an American multinational information technology company is among the companies that have applied for incentives under the scheme. In a statement to The Core, the company said that India is a dynamic growth market and we are excited about the possibilities ahead. "HP is a longstanding partner of India’s digital transformation journey and one of the pioneers of the country's IT manufacturing sector. We welcome the PLI scheme for IT hardware manufacturing and look forward to exploring new opportunities to meet the growing demand for PCs.”
Calling the scheme a start towards the creation of a manufacturing ecosystem, Bassi said, “If we read about how PLI1 and PLI 2 even if I compare the two, we see how the PLI is giving over and above additional incentive. The moment the government is talking about that component level and giving additional incentives over and top of the existing ones, it is definitely a very big indicator that the government is working on creating the whole ecosystem and strengthening the value chain.”
Taiwanese multinational hardware and electronics company Acer is also among the leading brands that have given positive responses to the PLI scheme. Goel said that this initiative represents a significant step in fortifying domestic manufacturing. “These incentives have the potential to strengthen production by providing financial advantages, rendering domestic manufacturing more cost-efficient and competitive. Acer wholeheartedly supports this effort and regards it as an opportunity to reiterate our dedication to the Indian market.”
Adding that Acer is committed to expanding its local manufacturing presence in India, Goel said, “Acer is concentrating on innovative product development, and fostering close collaboration with local partners and the Indian government. By addressing these factors comprehensively, we believe that India can not only achieve immediate production growth but also emerge as a global hub for cutting-edge technology manufacturing.”
In August, the centre announced restrictions on the import of laptops, tablets, and certain types of computers to boost domestic production from November 1. After several laptop companies sought an extension for the licensing period, the government is now reportedly eliminating the mandatory licensing requirement for tech importers and will now only require these companies to register under its import management system. According to The Indian Express, from November 1, companies will need to register and share information about their imported electronic hardware, such as laptops and personal computers, including the countries they import them from and their domestic sales value.
Singh, who was not in favour of the licensing decision at the time of its announcement said, “If you look at our PLI schemes and the nature of instruments which we are using around our PLI schemes, they are primarily trade policy instruments. In some cases, we have used import restrictions or we have increased import duty. In some cases, we have introduced quality standards. In some cases, we have introduced certain kinds of licensing requirements which you can also see in the case of a laptop. So I think that when you introduce licensing requirements, when you place restrictions on the import of certain products from the international market, and you give the wrong signal to the international community that we are becoming an inward-oriented economy, those who want to invest in India because you need to have policy stability.”
With regard to the PLI scheme and other policies, Bassi suggested that it only starts with the central government but state governments also will need to play an active role when the companies expand and open their facilities.
Although the government has temporarily shifted away from imposing the previously announced import restrictions, the push to reduce import dependence by ensuring the import of trusted hardware and systems, and increasing domestic manufacturing of laptops remains steadfast. As major global players, have enrolled in the Rs 17,000-crore IT hardware production-linked incentive scheme, this will be further emphasised as companies initiate local production and shift focus to SMT manufacturing in the coming years.