Assembly hub to value chain anchor: Can TN’s electronics dream take off?

Tamil Nadu, which now accounts for 41.23 per cent of India’s electronics exports, is laying claim to a new role in the global supply chain — not just as a mass assembler of electronics, but as a hub for advanced component manufacturing.

With the launch of India’s first state-level matching grant scheme for electronics components, Tamil Nadu is making a calculated play to scale the value ladder.

Making the announcement on Wednesday (April 30), Tamil Nadu Industries Minister TRB Rajaa told reporters the Tamil Nadu Electronics Components Manufacturing Scheme is a “strategic leap forward” in the state’s electronics growth story.

“With the scheme, Tamil Nadu becomes the first state in India to put skin in the game by matching Union government incentives,” he said. “We are backing ambition with policy.”

Drawing investments

The scheme mirrors the Centre’s incentive programme and is designed to attract Rs 30,000 crore in investments and generate over 60,000 new jobs. But more importantly, it targets historically underdeveloped and import-dependent subsectors like lithium-ion cells, HDI/MSAP circuit boards, SMD passive components, and camera modules — areas India has long struggled to localise despite the "Make in India" push.

Between FY21 and FY225, Tamil Nadu’s electronics exports rose nearly eightfold, from $1.66 billion to $14.6 billion. Much of this growth, however, came from low- to mid-value assembly operations.

The question now is whether Tamil Nadu can translate volume into value.

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Shifting landscape

The development comes when the world is still trying to adjust to the now-paused reciprocal tariffs imposed by US President Donald Trump.

Chinese electronics exports to the US are currently facing sharply escalated tariffs: up to 50 per cent on semiconductors and 100–145 per cent on electric vehicles, with lithium-ion batteries and other core components also hit by steep hikes. These tariffs are part of Washington’s broader attempt to curb dependence on Chinese tech.

In this shifting trade landscape, India — Tamil Nadu in particular — may stand to gain. “With China facing increasing global scrutiny, this is an opportune time for India to expand its manufacturing capabilities — but it will require sustained effort and investment,” Madan Sabnavis, Chief Economist, Bank of Baroda, told The Federal.

US tariffs on Indian electronics

The US, a major destination for Indian electronics, also announced in April new tariffs of up to 26 per cent on electronics imports, including those from India. These duties, currently suspended for 90 days following diplomatic talks, are set to kick in on July 9 if no trade deal is reached.

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Still, Indian exporters appear to be responding swiftly. India’s Index of Industrial Production (IIP) data for March shows a sharp surge in the computers and electronic products segment — up 21.5 per cent, nearly double the earlier month's, as companies frontload shipments to avoid potential tariff hits.

Apple reportedly airlifted over 600 tonnes of iPhones from Chennai last month via 30 freighters, racing against the tariff clock. The tech giant is also expected to shift its entire US-bound iPhone production to India by 2026.

“Coming at this juncture, this is certainly a step in the right direction,” said Sabnavis. “The transition from low-value assembly to component manufacturing will take time, but it’s a positive push toward deeper capabilities.”

He added that the nature of employment in the sector is also set to evolve. “We’ll see more demand for engineers and core technical skills. It won’t be an overnight shift, but over time, it will create higher-quality employment opportunities,” he said.

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Import dependence

Still, India remains heavily dependent on imports for critical electronics inputs — especially from China. Whether the Tamil Nadu scheme can reverse that trend will depend on execution.

“Beyond announcing incentives, the state will need to ensure speedy clearances, ease of doing business, and whether private players have the technical know-how and scale to manufacture these complex components domestically,” Sabnavis cautioned.

Minister Rajaa acknowledged the execution challenge but stressed the state’s intent. “By offering a matching grant, we are ensuring that Tamil Nadu remains competitive in attracting these high-value, capital-intensive projects,” he said. “This approach creates predictability and scalability for investors.”

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Hardware hangover

Economists warn that while policy momentum is on Tamil Nadu’s side, macroeconomic and geopolitical headwinds remain. Gaura Sengupta, Chief Economist at IDFC First, pointed out: “There are some potential tailwinds for India. With high US tariffs on Chinese goods and recent positive commentary from the US side, there’s a window of opportunity for India to step up in electronics manufacturing.

"We’re already seeing some phone production shifting from China to India. If the two countries (India and the US) can align further on trade and manufacturing priorities, this could translate into meaningful export gains for us.”

That said, Sengupta also flagged limits to how far this momentum can go. “In certain high-tech segments like electric vehicles, China has a clear competitive edge — both in scale and pricing. It will be extremely difficult to dislodge them from these areas, even with tariff support. And there’s a risk that aggressive tariffs globally could have unintended consequences for India's own electronics sector, especially if input costs go up.”

On the broader economic context, she added, “On the macro front, the bigger concern is that global demand is expected to remain weak over the near term. A slowing global economy will put pressure on export performance across countries, including India. So even if we build capacity, the timing of when that translates into robust exports will depend heavily on external conditions.”