India’s electronics industry is moving from simple assembly to integrated design and manufacturing (IDM) to increase value addition. Supported by a ₹40,000 crore government incentive scheme, companies are deepening local capabilities in semiconductors and engineering. Investors should monitor how this transition impacts profit margins and long-term execution as the sector shifts away from low-margin assembly work.
India's electronics sector is undergoing a structural transformation, moving away from simple assembly toward a more complex model known as Integrated Design and Manufacturing (IDM). The recent approval of 31 new proposals for electronic component manufacturing, representing an investment of ₹7,877 crore, highlights this trend. This shift is designed to reduce dependence on imported components and move Indian manufacturers up the value chain from basic assembly to creating custom, high-value products.
This strategic change is supported by significant policy tailwinds, most notably the government’s Electronics Components Manufacturing Scheme (ECMS). With a budget allocation of ₹40,000 crore, the scheme aims to provide the necessary financial backing for companies to build local capacity in areas like semiconductors, cloud-integrated hardware, and specialized engineering. In the financial year 2025–26, the sector's production reached approximately ₹13.11 lakh crore, marking a 15.8% increase, but the current focus is now shifting from raw volume to depth and innovation.
Moving toward an integrated model allows companies to control more of the product development process, from initial chip design to final software integration. Industry partnerships, such as the recent collaboration between firms like UST and Critical Manufacturing, are pushing this trend forward by integrating AI-driven systems into the factory floor. These smart factories are expected to improve efficiency and allow companies to handle more complex engineering tasks that were previously outsourced or managed abroad.
However, this transition brings specific challenges for investors to track. Traditional Electronics Manufacturing Services (EMS) models often operate on thin profit margins, typically ranging between 4% and 6%. While IDM aims to capture higher value, it also requires significant and sustained spending on research and development. This creates a risk where companies may see increased cost pressure before they realize the benefits of their proprietary designs.
Execution risk also remains a major factor. Developing high-end components requires a specialized talent pool and long-term capital, which is harder to scale than basic assembly lines. Furthermore, many companies in this sector still face high customer concentration, where a large portion of revenue comes from a small number of global brands. If these major contracts are renegotiated or lost, the impact on earnings can be severe.
For investors, the key monitorable will be the actual commissioning of the new projects approved by the government. Tracking whether these firms can successfully manage the shift to high-value manufacturing without eroding their balance sheets through high debt or cost overruns will be essential. Success will depend on the ability to balance the move toward technology-led innovation with the operational realities of the Indian manufacturing environment.