Modified Special Incentive Package Scheme (M-SIPS) - 2012 - IMPRI Impact And Policy Research Institute

Policy Update
Aditya Sharma

Background

Modified Special Incentive Package Scheme (M-SIPS) started in July 2012 as a three-year scheme addressing India’s growing import dependency. In 2015, it underwent its first major revision, extending the program to 2020, adding 15 verticals, and simplifying approval processes to encourage faster investment. By 2017, strategic amendments further expedited procedures and extended deadlines to the end of 2018. Applications closed in December 2018, but implementation continues. In 2020, the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) was launched as a successor, focusing on incentivizing component manufacturing with 25% capital expenditure support.

Before M-SIPS, India’s electronics sector faced several hurdles. The country relied heavily on imports, sourcing nearly two-thirds of its electronics from abroad. Domestic manufacturing was sparse; only two mobile manufacturing units existed in 2014, and the component ecosystem was weak, contributing just 15–20% of the value chain. These limitations not only created a trade deficit but also led to significant outflows of foreign currency.

Recognizing these challenges, M-SIPS was introduced to create incentives for investment, develop infrastructure, and promote a manufacturing-led growth model. This focus on building a long-term foundation is what ultimately led to the significant impacts detailed in the following section.” This would create a smoother flow between the background and the impact analysis.

Impact

M-SIPS has reshaped the electronics landscape across India. Tamil Nadu, for example, emerged as the country’s leading electronics exporter, contributing 30% of India’s electronic goods exports in FY24. The state’s rapid rise from being behind Karnataka and Uttar Pradesh to the top spot demonstrates the regional impact of the scheme.

Gujarat has become a hotspot for semiconductor manufacturing, highlighted by the Tata Semiconductor Fab project in Dholera, a massive ₹91,000 crore investment. Karnataka and Uttar Pradesh continue to be important players, maintaining their roles in the broader electronics ecosystem.

The scheme also transformed manufacturing capacity nationwide. Mobile production surged from just two units in 2014 to over 300 by 2024. Electronics exports jumped to $29.12 billion in FY 2023–24, representing a 23.6% increase. Beyond numbers, M-SIPS has generated substantial employment, both directly and indirectly, across suppliers and related industries. The total employment potential of the scheme is approximately 6,00,000 (1,50,000 direct jobs and 4,50,000 indirect employment).

M-SIPS provided a clear incentive structure to attract investment. Projects located in Special Economic Zones (SEZs) received a 20% subsidy on capital expenditures, while those outside SEZs were eligible for a 25% subsidy. Investments ranged from ₹1 crore to ₹5,000 crore, depending on project type, with incentives reimbursed over ten years after investment completion.

The scheme’s coverage expanded over time. It began with 29 electronics verticals in 2012 and grew to 44 by 2015, spanning consumer electronics, mobile devices, semiconductors, industrial electronics, medical devices, and even strategic defense applications. The expansion signaled India’s commitment to strengthening the entire electronics ecosystem, from basic assembly to high-tech manufacturing.

Performance

By August 2024, M-SIPS had received 320 applications and approved 318, a 99.4% success rate. The total proposed investment stood at ₹84,442 crore, with ₹82,408 crore approved. Disbursement of incentives has been steady, totaling ₹2,381.52 crore across 141 companies, including a recent allocation of ₹15.66 crore in May 2025. These figures show that the policy has effectively turned government intent into tangible industrial outcomes.

The success of the M-SIPS thrives on its collaborative framework involving multiple stakeholders. The Ministry of Electronics and IT (MeitY) coordinates with state governments, industry bodies, and international partners. Industry advisory committees provide guidance, while state governments facilitate infrastructure development through Electronics Manufacturing Clusters (EMCs).

Global electronics giants such as Apple, Samsung, Foxconn, Wistron, and Pegatron have invested in India, establishing manufacturing units and supply chain networks. For example, Foxconn has been building its Indian empire since 2017, cranking out iPhones from a plant in Sriperumbudur (near Chennai). By late 2023, it announced a $1.54 billion investment in India, plus extra manufacturing facilities under construction across southern India, including component, iPhone, iPad, and other Apple gear, with plans to employ hundreds of thousands by 2024–2025 Meanwhile, the e-MSIPS 2.0 digital portal, developed by C-DAC, has streamlined application processing, making the system transparent, automated, and accessible around the clock.

Emerging issues

M-SIPS (Modified Special Incentive Package Scheme), while ambitious and transformative for India’s electronics and semiconductor sector, is not without its hurdles. One of the key challenges lies in the complex verification and approval processes required for incentive disbursement. Manufacturers often face prolonged procedural timelines, which can significantly slow the release of funds, thereby straining cash flows and affecting the operational efficiency of both large-scale and smaller electronics producers.

Externally, the sector is exposed to global supply chain vulnerabilities, as starkly demonstrated during the COVID-19 pandemic. Disruptions in the supply of critical components such as semiconductors, PCBs, and other specialized electronics can halt production and delay product launches. Furthermore, geopolitical tensions, including trade disputes and export restrictions from countries controlling critical technology, introduce additional uncertainty, making long-term planning more challenging for Indian manufacturers.

India also faces intensifying regional competition. Countries like Vietnam and Bangladesh have emerged as attractive alternatives for electronics manufacturing due to lower labor costs, streamlined regulatory processes, and targeted investment incentives. This external pressure compels Indian manufacturers to continuously innovate and reduce costs while striving to maintain competitiveness.

A deeper structural challenge is India’s continued dependence on imported components. Despite local assembly capacity, high-value inputs and cutting-edge materials are still largely imported, limiting the country’s ability to achieve full value addition domestically. Coupled with relatively low investment in R&D, this dependency constrains the sector from moving up the value chain to produce advanced semiconductors or high-tech electronic products.

The rapid expansion of the electronics and semiconductor industry has also highlighted a critical skills gap. While basic manufacturing skills are available, there is a shortage of expertise in advanced semiconductor design, embedded systems, automation technologies, and high-precision electronics manufacturing. Bridging this gap requires focused training programs, industry-academia collaboration, and incentives to retain skilled talent within India.

Way Forward

SPECS and Production Linked Incentive (PLI) schemes

The future looks promising. SPECS and Production Linked Incentive (PLI) schemes complement M-SIPS by targeting component and semiconductor production. The India Semiconductor Mission, with a ₹76,000 crore budget, aims to develop the entire semiconductor ecosystem, encompassing fabrication, assembly, testing, and design.

Design-linked incentives

Design-linked incentives encourage indigenous intellectual property creation, while skill development initiatives like C2S, FutureSkills PRIME, and specialized VLSI programs aim to fill the talent gap. Advanced Electronics Manufacturing Clusters 2.0, improved infrastructure, and integrated supply chains will enhance efficiency and export competitiveness, targeting $300 billion in electronics production by 2026. M-SIPS has not only strengthened India’s manufacturing base but also advanced self-reliance in strategic sectors and supported the country’s broader digital transformation. With continued investment and innovation, India is poised to become a global electronics powerhouse.

References

Business Standard. (2023). India’s electronics market report. https://www.business-standard.com
Department of Electronics and Information Technology (DeitY). (2012–2024). M-SIPS annual reports. https://www.meity.gov.in
Ministry of Electronics and Information Technology (MeitY). (2020). Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS). https://www.meity.gov.in
Press Information Bureau. (2023). India’s electronics manufacturing sector: Current status and policy interventions. https://pib.gov.in
World Bank. (2022). Global electronics industry trends and outlook. https://www.worldbank.org
Foxconn Technology Group. (2023). India operations and manufacturing expansion. https://www.foxconn.com
C-DAC. (2023). e-MSIPS portal development and digital infrastructure. https://www.cdac.in

About The Contributor

Aditya Sharma is a Research Intern at the Impact and Policy Research Institute (IMPRI) and is in the first year of his Master’s degree in Environmental Economics from the Madras School of Economics. His interest lies in analysing various programs and policies that are centered around sustainability and development.

Acknowledgement: I sincerely thank Aasthaba Jadeja and Bhaktiba Jadeja for assigning this work and providing consistent support throughout.

Disclaimer: All views expressed in the article belong solely to the author and not necessarily to the organisation.