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India’s Local Content Push Faces a Crossroads
India is now at a turning point in its electronics and telecom manufacturing strategy. The central government has proposed a major shift: a dilution of the local content norms required under its Make in India framework. This potential policy change has sparked intense debate. On one hand, it aims to accommodate India’s limited domestic supply chain. On the other, it raises fears that the country may end up as little more than a low-cost assembly base for global tech giants, rather than a true hub for innovation and intellectual property (IP) creation.
Government Proposes Relaxation in Local Content Norms
In its latest move, the Indian government has opened consultations on revising its local content (LC) requirements, acknowledging a persistent bottleneck — India’s underdeveloped component ecosystem. Current rules expect manufacturers to ensure 50–60% of product content is sourced locally. However, agencies such as NITI Aayog, TRAI, MAIT, and even Production Linked Incentive (PLI) scheme beneficiaries have flagged that such targets are increasingly difficult to meet, especially in high-tech telecom and electronics manufacturing.
India’s value addition in electronics remains extremely low — less than 18% — largely because critical components like semiconductor chips, memory modules, and printed circuit boards (PCBs) are still imported. The Indian Electronics and Semiconductor Association has voiced concern that the planned changes could erode domestic value further. If this happens, India risks becoming a passive participant in the global tech value chain, reliant on foreign suppliers for critical inputs.
Multinational corporations (MNCs) like Cisco and Ericsson are lobbying for more relaxed norms. They argue that design and software contributions made in India should count more toward LC, even if core intellectual property rights stay abroad. They’re also pushing for hardware imports to be excluded from LC calculations altogether — particularly for components that aren’t available locally.
These companies are pressing for flexibility in how ‘local supplier’ status is defined under the PPP-MII (Public Procurement Preference to Make in India) Order. Their proposal? If sufficient software development or system integration is done in India, the product should still qualify as locally made, even if major hardware parts are imported. Such changes could let foreign players meet procurement norms with minimal physical production on Indian soil.
Indian firms that have invested heavily in local manufacturing and R\&D — including Tejas Networks, HFCL, CDOT, and Lekha — fear a significant setback. If the government waters down the requirements, these companies risk being edged out by MNCs that can undercut them through cheaper, partly assembled imports dressed up with domestic software work. The Global Trade Research Initiative (GTRI) warns that such a shift would not only discourage real IP creation but also reduce India’s ambition of becoming a global manufacturing powerhouse to just assembling other nations’ innovations.
What Undercode Say:
The Thin Line Between Assembly and Innovation
The government’s suggestion to ease local content norms stems from a genuine problem: India’s inability to manufacture complex components domestically. However, the proposed solution is fraught with risk. If India lets software wrapping or system integration count as “local value addition” without securing control over core IP or hardware production, the long-term industrial strategy could backfire.
A Potential Blow to IP Creation in India
India has spent the last decade trying to evolve from being a back-office service provider to a tech manufacturing and innovation hub. Relaxing LC norms may seem like a shortcut to increase production numbers, but it undercuts the very foundation needed for sustainable growth — innovation. IP creation cannot flourish in an environment where assembling imported parts qualifies a product as locally made.
Multinational Lobbying and Market Skew
Cisco, Ericsson, and other multinational players aren’t just looking to make business easier — they’re actively shaping Indian procurement rules to align with their global supply strategies. By excluding imported components from LC calculations, they aim to keep using foreign supply chains while gaining access to India’s lucrative government contracts. This favors well-capitalized MNCs over homegrown firms, further tilting the competitive balance.
Indian Startups and Manufacturers at Risk
Companies like Tejas Networks, HFCL, and CDOT have invested heavily in local R\&D, chip design, and optical networks. Their survival depends on policies that reward real local creation, not just assembly. If the policy tilt goes in favor of imported content, it will disincentivize future investments in domestic manufacturing. That’s a slippery slope for a country trying to build self-reliance in critical sectors.
PPP-MII Order: Core vs Cosmetic Compliance
The current PPP-MII Order is meant to give preference to firms that offer real local content. Redefining “Class-I supplier” to include foreign-assembled goods with minor Indian integration risks turning the policy into a checkbox exercise. It opens the door to what some call “cosmetic compliance” — where a few lines of code or product testing done in India get labeled as value addition.
Strategic Consequences for National Security
Telecom and electronics
A Call for Balanced Reform
Instead of a blanket dilution, the government could adopt a tiered approach. For example, products could be rated on a matrix that weighs both hardware origin and software/IP ownership. This would give credit to Indian innovation while still acknowledging present-day constraints in component manufacturing.
Rethink the Metrics of Value Addition
The current LC metric, which focuses primarily on physical assembly, needs a more nuanced definition. But simply replacing that with software services is shortsighted. Value addition must be rooted in ownership of technology, control over design, and the ability to scale production with Indian inputs. That’s what transforms a service economy into an innovation economy.
🔍 Fact Checker Results:
✅ Reports from NITI Aayog, TRAI, and MAIT confirm India’s weak component ecosystem
❌ India’s value addition in electronics still lingers below 18% despite PLI efforts
✅ MNC lobbying for LC relaxation is officially acknowledged in GTRI findings
📊 Prediction:
If local content rules are relaxed without safeguarding core IP development and hardware production, India may see a short-term boost in manufacturing numbers. However, long-term damage to domestic R\&D, IP creation, and true self-reliance is almost certain. Expect domestic companies to lobby harder in the coming months, and for the final decision to spark a fresh round of policy battles in Parliament and industry forums.
References:
Reported By: www.deccanchronicle.com
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