The ESDM sector growth story: India’s Electronics System Design & Manufacturing sector is undergoing rapid expansion, emerging as one of the fastest-growing segments of the economy. This dynamic industry spans a broad spectrum of electronic hardware products and components across various sectors, including IT, office automation, telecom, consumer electronics, aviation, aerospace, defence, solar photovoltaics, nanoelectronics, and medical electronics. Beyond manufacturing, the sector plays a crucial role in design activities such as product design, chip design, VLSI, board design, and embedded systems, making it a key driver of technological innovation.
The ESDM sector’s growth is fuelled by the Fourth Industrial Revolution (Industry 4.0), which brings transformative technologies like the Internet of Things (IoT), Artificial Intelligence (AI), robotics, blockchain, and automation. Recognising the sector’s potential, the Government of India has prioritised its development through robust policy frameworks, aiming to establish India as a global ESDM hub. The National Policy on Electronics (2019) reflects this commitment by promoting domestic manufacturing, boosting exports, and incentivising the production of core electronic components and high-tech projects, including semiconductor manufacturing.
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The policy sets an ambitious target of achieving a USD 400 billion turnover in the ESDM sector by 2025. Complementing this initiative, the Digital India program has accelerated digitalisation and e-governance, further driving demand for ESDM products.
Growth drivers of ESDM sector
Several factors contribute to the sector’s rapid growth. India’s large and rapidly growing consumer base provides a strong demand for electronics. A deep talent pool supports innovation and manufacturing, benefiting from a skilled workforce and competitive labour costs.
To attract investment and enhance exports, the government has introduced key initiatives such as the Production Linked Incentive (PLI) Scheme for large-scale electronics manufacturing, the PLI IT Hardware scheme to promote domestic production of IT products, the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), and the Modified Electronics Manufacturing Clusters (EMC 2.0) initiative to develop industrial hubs.
Additionally, a Rs 76,000 crore (over USD 10 billion) package has been approved to strengthen India’s semiconductor and display manufacturing ecosystem, as highlighted in the MeitY Annual Report 2023-24.
Trends in production, imports, and exports
Despite positive growth trends, the ESDM sector faces structural challenges. Indian manufacturers remain heavily dependent on imported electronic components, which raises input costs and reduces competitiveness in global markets. Additionally, India’s complex tariff structure, characterised by multiple slabs, creates compliance difficulties, leading to misinterpretation, disputes, and higher operational costs, as noted in the NITI Aayog Report 2024. While higher duties have encouraged domestic manufacturing of finished goods, sub-assemblies and core components still require stronger local production ecosystems.
The effectiveness of policy interventions can be evaluated by analysing trends in ESDM production, imports, and exports. A steady increase in domestic production suggests that industry players are responding positively to government incentives. Similarly, a decline in imports indicates progress toward self-reliance. However, despite strong export growth, imports remain significantly higher, leading to a persistent trade deficit. This gap widened from Rs 1,91,352 crore in 2014-15 to Rs 4,30,818 crore in 2022-23. Nevertheless, the export growth rate, with a CAGR of approximately 19.5%, has outpaced import growth at around 11.7%, signalling efforts to reduce import dependency.
Budget 2025-26 provisions
The Union Budget 2025-26 builds on existing schemes while addressing key industry challenges. The key budgetary provisions are as follows:
Reducing input costs: To enhance export competitiveness and encourage value addition within India, the budget proposes customs duty reductions on key electronic components. Lowering these duties is expected to decrease input costs for domestic manufacturers, making intermediate goods more affordable and encouraging higher-value production. By improving price competitiveness in global markets, these changes aim to boost industrial activity, attract investment, and create jobs. The budget also seeks to address inverted duty structures, where raw materials face higher import tariffs than finished goods. While short-term revenue losses may occur, these measures are designed to stimulate long-term economic growth and strengthen the manufacturing ecosystem.
Tax incentives: To attract Non-Resident Indian (NRI) investments, the budget introduces tax simplifications. A presumptive taxation regime is proposed for NRIs providing services to Indian electronics manufacturers, allowing them to pay taxes on a predetermined percentage of their revenue rather than through complex income calculations. This simplification reduces the compliance burden and enhances investment appeal. Additionally, a ‘safe harbour’ provision is proposed for NRIs storing components in India for supply to domestic electronics units, offering tax certainty and reducing regulatory risks. These measures are expected to make India a more attractive destination for NRI-backed ventures in electronics manufacturing.
Increased allocation: The Ministry of Electronics and Information Technology (MeitY) has been allocated Rs26,026.25 crore for 2025-26, marking a 48% increase from the previous year. A significant portion of this allocation is directed toward the PLI scheme, with Rs 9,000 crore dedicated to electronics manufacturing. Of this, Rs 8,885 crore is earmarked for large-scale electronics manufacturing, while IT hardware manufacturing receives Rs 115 crore. This represents a 45% increase in funding compared to the previous fiscal year.
The budget also more than doubles the semiconductor funding, allocating Rs 2,499.96 crore to semiconductor projects under the Semicon India Programme, which has already attracted private investments of Rs 1.52 lakh crore. Further support for compound semiconductors and chip packaging has been emphasised through a Rs 3,900 crore allocation, marking a 56% funding increase. Additionally, the Design Linked Incentive (DLI) scheme sees a near doubling of its budget to Rs 200 crore, reflecting the government’s push for indigenous semiconductor innovation.
India’s ESDM sector stands at a critical inflection point, driven by Industry 4.0 advancements, robust policy support, and targeted budgetary measures. While progress has been made in boosting domestic manufacturing, challenges related to supply chains, tariff structures, and import dependency remain. The government’s ambitious goal of achieving a USD 400 billion ESDM turnover by 2025 requires continuous policy refinement, infrastructure development, and strategic supply chain enhancements.
Initiatives such as PLI, import tariff rationalisation, semiconductor investment, and R&D incentives are helping create a dynamic ecosystem for innovation and global competitiveness. The Budget 2025-26 reinforces this commitment through increased funding, targeted incentives, and structural reforms. By strategically addressing existing challenges while capitalising on emerging opportunities, India’s ESDM sector is poised to play a pivotal role in shaping the country’s economic future and establishing itself as a global leader in electronics manufacturing.
Dr Sweety Supriya is Assistant Professor, Department of Electronics, LS College, Muzaffarpur.