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    India needs to soften FDI rules, rationalise tariff to become an electronics hub


    The industry has suggested softening rules to allow investment from India’s neighbouring countries amid shifting of the electronics manufacturing ecosystem to the country as many companies adopt the China+1 strategy.

    In 2020, the Department for Promotion of Industry and Internal Trade, in Press Note 3, made prior government approval mandatory for foreign direct investment from countries sharing a land border with India, irrespective of sectoral caps. The aim was to curb opportunistic takeovers of domestic firms after Covid-19.

    “This applied to all sectors, without exception (and) needs to be amended to provide clarity on shifting of the ecosystem to India,” the Confederation of Indian Industry (CII) and National Council of Applied Economic Research (NCAER) said in a study. CII-NCAER said the defensive steps were undertaken to arrest strategically significant acquisitions of pandemic-stricken companies by neighbours, particularly China.

    According to the study, India is an attractive destination among other Asian countries owing to the China+1 strategy being adopted by several companies around the world to diversify the supply chain.

    “The clause needs to be toned down for India to be able to invite investments from neighbouring countries,” an author of the study titled ‘Building India’s Export Competitiveness in Electronics – 2025-26’ told ET.

    India has targeted turnover of the domestic electronics industry at $300 billion and exports of $120 billion by 2026.

    CII and NCAER also said expensive imported inputs on account of tariff increases have an adverse effect on manufacturers’ competitiveness in the international market. “It is important the government has a rational approach toward tariff increases,” they said, insisting on prompt payment of overdue export subsidies.

    To become a large manufacturing hub, India should host the value chain – from mobiles to computers, laptops, hearables and wearables and more advanced electronic items that can cater to important segments such as healthcare, education, logistics and entertainment, according to the study.

    “Invite tier I-III companies, including those leading in global value chains, to manufacture in India in order to create our own manufacturing ecosystem and scale up the volume of production for both domestic and export markets,” CII and NCAER said.

    Additionally, single-window clearance is important for setting up new units and dispute resolution is a “critical component of the ease of doing business,” they said.