The launch of the Indian government’s production-linked incentives (PLI) for the electronics manufacturing services (EMS) sector, inviting applications from 1 May, could not have come at a better time, with the disruption caused by the US-China tariff war. While the US has exempted essential electronics from reciprocal tariffs applicable to Chinese imports, they would still attract a 20% tariff against nil from other countries.
Further, uncertainty surrounding the overall trade dynamics is pushing companies to consider building alternative supply chains. Here, India emerges as a strong supply base.
The PLI scheme would provide incentives to the sector for six years, focusing on component manufacturing and increasing domestic value addition. The total targeted investment is ₹59,300 crore and the estimated incremental production is ₹4.6 trillion.
The products covered include camera and display modules, receiving incentives at 1-5% of on-year incremental revenue, SMD (surface mount devices) and multilayer PCBs (printed circuit boards) at 4-10%, and flexible PCBs at 4-8%, along with a 25% capital subsidy. Flexible PCBs receive capital subsidy as well.
Companies that are expected to gain from the scheme include Amber Enterprises India Ltd and Kaynes Technology India Ltd.
Dixon Technologies (India) Ltd has tied up with China’s HKC Corp in a 74:26 joint venture to manufacture display modules. The company plans to commission the first line of display modules by November at an investment of ₹250 crore and build two additional lines in the next two years.
For camera modules, it is exploring a partnership and expects to start production with a one-year lag. The two backward integration projects plus smaller ones such as enclosures and precision components would increase domestic value addition by 27%.
Amber has formed a 70:30 joint venture with a Korean company for the manufacture of PCBs, entailing an investment of over ₹1,000 crore, 25% of which would be provided by the government as subsidy.
The expected margin is about 18%, according to Kotak Institutional Equities, in line with its Ascent Circuits business acquired in early 2024. A buyback arrangement for two years with the JV partner would help it stabilize production and build a customer base.
Manufacturing alternatives
Apart from PCBs, Kaynes is setting up an OSAT (outsourced semiconductor assembly and test) manufacturing facility, expected to start production in Q2 of FY26.
Domestic EMS companies are also expected to get a boost with global companies expanding their manufacturing bases outside China to mitigate the US tariff impact.
“We see limited scope of smartphone assembly shifting to the US given the low value-added nature of the product, significant disparity in labour costs (average hourly wage in India is $1.5 versus about $2.5 in Mexico and $15 in the US) and the strengthening US dollar versus other currencies, making manufacturing in the USA expensive,” Nomura Global Markets Research said in a 14 April report.
The report projects Apple’s iPhone India production share will rise to 21-25% in 2025 from 12-16% in 2024, benefitting domestic companies in the supply chain, and Dixon, which manufactures smartphones for Motorola and Google, will export its devices to the US.
Amid improving prospects and anticipation of strong March quarter (Q4FY25) results, the shares of Dixon, Kaynes and Amber have risen by 33%, 43% and 13%, respectively, from their intra-day lows on 7 April. The potential gains from the PLI scheme and the supply chain shift would keep investor interest alive in these stocks.
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