India has, in the past six months, softened its stance on fresh Chinese investment to improve the value addition of the electronics industry in the country, according to research firm Ambit Capital.

Although India's electronics assembly exports have increased, the value addition of components has remained low. As a result, the Indian government is now considering allowing key component suppliers to enter the market through joint ventures with domestic companies holding at least 51 percent of the shares.

In December 2022, CNBC-TV18 reported that the government is planning to soon consider allowing Chinese investments and joint ventures for intermediate-stage products where India does not currently have technological expertise.

The government has recently requested a list of their Chinese suppliers who would like to shift some capacity to India in response to persistent demands from global and domestic manufacturers of mobile devices and IT products.

Chinese investments were restricted as Sino-Indian border tensions escalated in 2020, foreign direct investment (FDI) rules tightened, and prospective investors were told to not even apply.

This move is expected to create significant opportunities for larger domestic electronic manufacturing services (EMS) players like Dixon and Amber to expand their total addressable market by entering the components segment.

Recently 13 to 14 JVs with Chinese companies were considered for mobile phone and electronics manufacturing. This comes against the backdrop of Vietnam emerging as a top alternative to China in high-tech electronics.

Further, Finance Minister Nirmala Sitharam last month announced that the Indian government has received about 54 foreign direct investment proposals from China since last year that are pending for approval.

"54 FDI proposals received during the past year and current year with investor/ beneficial owners from China/Hong Kong are pending for decision with the government as on March 21, 2023," Sitharaman informed the Parliament.

According to Ambit, the government has already announced a project with Chinese firm Sunny Opotech to form camera modules in India and three other firms have been granted approvals.

FDI policies for countries sharing land borders were amended by the finance ministry on April 17, 2020, to limit inflows to the government route and require approval. Sino-Indo tensions were at an all-time high at the time, and the move was widely believed to be aimed at discouraging foreign investment.

In addition, India's PLI schemes on electronics manufacturing, including smartphones and IT hardware, were designed to attract Chinese manufacturers. In order for that to happen, component makers, who are mainly from China, need to move to India.

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