• Malaysia’s economic rise in the 1970s and 1980s was driven by electronics manufacturing, leveraging cheap labor and government incentives, but growth stalled due to the middle-income trap.
• India’s electronics manufacturing sector is growing rapidly, with the India semiconductor market and PCB manufacturing India projected to reach $14.09 billion and $24.7 billion by 2032 and 2033, respectively.
• Research suggests Malaysia’s stagnation stemmed from over-reliance on low-cost labor, insufficient innovation, and failure to climb the value chain, lessons critical for India.
• The Production Linked Incentive India scheme is boosting India electronics exports, but India must prioritize R&D and skill development to avoid Malaysia’s fate.
• South Korea’s model of investment, technology infusion, and innovation offers a roadmap for India to achieve sustainable growth in electronics manufacturing.

Malaysia’s Economic Journey

Malaysia’s transformation from a poor, agriculture-based economy in the 1960s to a manufacturing hub by the 1990s was remarkable. The country capitalized on its strategic location, skilled workforce, and government policies like free trade zones to attract global electronics giants such as Intel and Sony. By 2011, Malaysia’s per capita GDP reached $10,000, driven by electronics manufacturing, which accounted for 40.4% of exports in 2023 (Vohrum Group). However, growth stalled as wages rose, and Malaysia failed to transition from assembly to high-value activities like design and innovation, trapping it in the middle-income bracket.

Why Malaysia Stalled

The middle-income trap, where economies stagnate after reaching middle-income status, ensnared Malaysia due to several factors. Rising wages made it less competitive against cheaper labor markets like Vietnam ($310 monthly manufacturing wages vs. Malaysia’s $458 in 2020). The education system, despite producing graduates, did not foster innovation, leading to 36% underemployment among university graduates by 2023. Limited R&D investment (1.6% of GDP compared to South Korea’s 5.21%) and a lack of indigenous tech innovation meant Malaysia remained a low-value assembly hub, unable to compete with high-income economies.

Lessons for India

India, with its $4 trillion economy, risks a similar fate if it relies solely on cheap labor for electronics manufacturing in India. The country must invest heavily in STEM education to address the 45% employability gap among graduates and increase R&D spending (currently 0.7% of GDP) to foster innovation. Emulating South Korea’s three-stage model—investment, technology infusion, and innovation—can help India climb the value chain. The Production Linked Incentive India scheme is a positive step, but India must ensure it develops domestic design capabilities and reduces reliance on imported components.

India’s Electronics Manufacturing Opportunity

India’s electronics manufacturing sector is poised for growth, with the India semiconductor market expected to grow from $6.67 billion in 2024 to $14.09 billion by 2032 (Custom Market Insights). PCB manufacturing India is projected to reach $24.7 billion by 2033 (IMARC Group). India electronics exports reached $29.12 billion in FY23–24, driven by mobile phone production. By learning from Malaysia’s mistakes and investing in innovation, India can avoid the middle-income trap and build a sustainable, inclusive economy.

Malaysia’s Economic Stall: A Cautionary Tale for India

Introduction

India’s recent milestone of achieving a $4 trillion GDP, surpassing Japan to become the world’s fourth-largest economy, is a moment of pride. However, as India aims to solidify its position through electronics manufacturing in India, it must heed the cautionary tale of Malaysia’s economic journey. In the 1970s and 1980s, Malaysia transformed into a global manufacturing hub, particularly in electronics, earning the title “factory of Asia.” Yet, its growth stalled due to the middle-income trap—a phenomenon where economies stagnate after reaching middle-income status, unable to transition to high-income levels. Malaysia’s experience offers critical lessons for India to avoid similar pitfalls, especially in leveraging electronics manufacturing in India to drive sustainable growth. By examining Malaysia’s rise, stall, and the path forward for India, this article highlights how strategic investments in innovation and education can prevent India from repeating Malaysia’s mistakes.

Malaysia’s Economic Rise: The Factory of Asia

In the 1960s, Malaysia was a poor, agriculture-based economy with a per capita GDP of just $240, and nearly half its population lived below the poverty line (World Bank). By the 1970s, Malaysia embarked on an ambitious industrialization drive, focusing on electronics manufacturing. The establishment of the Bayan Lepas Free Industrial Zone in Penang in 1972 attracted global giants like Intel, AMD, and Sony, drawn by cheap labor, strategic location, and government incentives such as tax breaks and free trade zones (Vohrum Group). Infrastructure spending surged from 1.9% to 9.4% of GDP, and literacy rates climbed to 96% through heavy investment in education.

This export-driven model propelled Malaysia’s economy, with electronics manufacturing becoming a cornerstone. By 1980, Malaysia’s GDP reached $25 billion, and by 2011, its per capita GDP crossed $10,000, marking its transition to upper-middle-income status (World Bank). In 2023, electrical and electronics (E&E) products accounted for 40.4% of Malaysia’s total exports, underscoring the sector’s dominance (Vohrum Group). Malaysia’s strategic location in Southeast Asia, with access to major markets like China and India, further enhanced its appeal (AMC CINCARIA).

The Stall: Falling into the Middle-Income Trap

Despite its early success, Malaysia’s growth began to stagnate in the early 2000s, trapping it in the middle-income bracket. The middle-income trap occurs when economies fail to transition from low-cost, labor-intensive industries to high-value, innovation-driven ones, stalling at per capita incomes between $1,136 and $13,845 (World Bank). Several factors contributed to Malaysia’s stall:

• Over-Reliance on Cheap Labor: Malaysia’s competitive edge in electronics manufacturing was built on low-cost labor. However, as wages rose to $458 per month for manufacturing workers by 2020, companies like Intel and Motorola shifted to cheaper markets like Vietnam ($310) and Indonesia ($228) ([Transcript]). This mirrors the broader trend of the “flying geese” model, where labor-intensive industries move to lower-cost countries (Springer).
• Lack of Innovation: Malaysia’s education system produced graduates, but it failed to foster innovation. By 2023, 36% of university graduates were underemployed, with engineers working as customer service representatives ([Transcript]). R&D spending remained low at 1.6% of GDP, compared to South Korea’s 5.21% ([Transcript]), limiting Malaysia’s ability to develop proprietary technologies or global brands.
• Failure to Climb the Value Chain: Malaysia excelled in assembly but lagged in design and innovation. Unlike South Korea, which transitioned from assembling TVs to designing chipsets, Malaysia remained stuck in low-value activities like PCB manufacturing and component assembly (MIDA). This “middle technology trap” hindered its competitiveness (Springer).
• Political and Structural Challenges: Populist policies and political pressures, similar to those in Latin America, inhibited economic development. For instance, the removal of the Goods and Services Tax (GST) weakened fiscal buoyancy, limiting funds for innovation (CEBR).

As a result, Malaysia’s per capita GDP plateaued around $15,000, far below high-income economies like South Korea ($33,000) ([Transcript]). The lack of progress in creating high-value industries left Malaysia vulnerable to global economic shifts and unable to sustain its earlier growth trajectory.

Lessons for India: Avoiding the Middle-Income Trap

India, with its burgeoning electronics manufacturing in India sector, risks repeating Malaysia’s mistakes if it focuses solely on low-cost assembly. The country’s per capita income of $2,400 places it in the lower-middle-income bracket, and the World Bank estimates it could take 75 years to reach high-income status without strategic reforms ([Transcript]). To avoid Malaysia’s fate, India must adopt a multi-pronged approach inspired by South Korea’s success:

• Invest in Education and Skills: India produces millions of graduates annually, but only 45% are job-ready, with many lacking skills for high-tech industries ([Transcript]). Malaysia’s underemployment crisis highlights the need for India to prioritize STEM education and vocational training to create a workforce capable of innovation, not just assembly. For instance, training 10,000–13,000 semiconductor engineers by 2027 could address the skill gap in the India semiconductor market (Economic Times).
• Boost R&D and Innovation: India’s R&D spending of 0.7% of GDP pales in comparison to South Korea’s 5.21% and China’s 2.56% ([Transcript]). Increasing R&D investment is critical to developing proprietary technologies and global brands. In 2023, India filed 82,811 patents, significantly fewer than South Korea’s 156,972, despite having a population 100 times larger ([Transcript]). Fostering innovation in PCB manufacturing India and semiconductors can help India climb the value chain.
• Climb the Value Chain: Malaysia’s failure to transition from assembly to design left it vulnerable to cheaper competitors. India must focus on high-value activities like chip design and advanced manufacturing. The Production Linked Incentive India scheme, which has attracted INR 2.45 lakh crore in investments and created 44,000 jobs, is a step forward (PwC Report). However, India must reduce its 65–70% reliance on imported components to increase value addition, particularly in displays and batteries (Wikipedia).
• Leverage Strategic Partnerships: Malaysia’s collaboration with global firms like Intel was initially successful but lacked long-term innovation focus. India can learn from this by fostering partnerships that transfer technology and build domestic capacity. For example, Malaysia’s interest in collaborating with India’s semiconductor market highlights opportunities for trilateral partnerships (India Briefing).

South Korea’s three-stage model—investment in infrastructure and education, infusion of foreign technology, and innovation through R&D—offers a roadmap. South Korea’s Samsung evolved from assembling TVs to designing iPhone displays, a shift India must emulate to avoid Malaysia’s stagnation.

Electronics Manufacturing in India: Opportunities and Challenges

India’s electronics manufacturing sector is a bright spot in its economic landscape, with significant potential to drive inclusive growth. The India semiconductor market was valued at $6.67 billion in 2024 and is projected to reach $14.09 billion by 2032, growing at a CAGR of 10.1% (Custom Market Insights). Similarly, PCB manufacturing India is expected to grow from $6.3 billion in 2024 to $24.7 billion by 2033, with a CAGR of 15.58% (IMARC Group). India electronics exports reached $29.12 billion in FY23–24, with mobile phones contributing $10.5 billion, and value addition in mobile phone production rising from 2% in 2014 to 15% in 2022, with projections to hit 90% by FY27 (Economic Times).

Government initiatives are fueling this growth:

• Production Linked Incentive India (PLI): Offers 4–6% incentives on incremental sales, attracting significant investments (PwC Report).
• India Semiconductor Mission: Aims to establish India as a global hub for chip production, with recent approvals for six semiconductor units, including an HCL-Foxconn joint venture (India Briefing).
• Make in India: Encourages global firms to manufacture in India, leveraging its 1.4 billion consumer base.
• Skill Development: The Electronics Sector Skill Council plans to train 10,000–13,000 semiconductor engineers by 2027.

Recent developments, such as Assam’s Rs 25,000-crore semiconductor plant and Foxconn’s Rs 1,200 crore investment in Karnataka, underscore India’s ambitions (PIB). Companies like Apple (producing AirPods from 2025) and Google (Pixel production from Q2 2024) are expanding operations in India (Wikipedia).

However, challenges remain:

• Skill Gap: Only 45% of graduates are job-ready, with a shortage of semiconductor engineers (Economic Times).
• Import Dependence: 65–70% of components are imported, limiting value addition (Wikipedia).
• Low R&D Investment: India’s 0.7% GDP spending on R&D hampers innovation ([Transcript]).

To overcome these, India must localize high-value activities like PCB manufacturing India and chip design, expand manufacturing to tier-2 and tier-3 cities, and foster a culture of innovation.

Conclusion

Malaysia’s economic stall serves as a stark warning for India. While electronics manufacturing in India holds immense potential, with the India semiconductor market and PCB manufacturing India poised for significant growth, India must avoid Malaysia’s reliance on low-cost labor and lack of innovation. By investing in education, increasing R&D spending, and climbing the value chain, India can emulate South Korea’s success rather than Malaysia’s stagnation. The Production Linked Incentive India scheme and strategic partnerships are steps in the right direction, but inclusive policies targeting the bottom 70% of India’s population are crucial to ensure equitable growth. India’s $4 trillion economy is a milestone, but its true success lies in creating opportunities for all its citizens.

Call to Action

What steps do you think India should prioritize to avoid Malaysia’s middle-income trap? Share your thoughts on how electronics manufacturing in India can drive sustainable growth. Advocate for policies that promote innovation, skill development, and inclusive opportunities to build a future where India thrives as a global leader in high-value manufacturing.

Key Citations

• World Bank: Malaysia Economic Overview
• Vohrum Group: History of EMS Companies in Malaysia
• AMC CINCARIA: Electronic Manufacturing and Sourcing in Malaysia
• Springer: ASEAN Four’s Middle-Income Trap Dilemma
• CEBR: Can Malaysia Break Out of the Middle-Income Trap?
• MIDA: Adapting for the Future: EMS Industry in Malaysia
• India Briefing: Semiconductor Industry in India
• IMARC Group: Indian PCB Market Report
• Custom Market Insights: India Semiconductor Market
• Wikipedia: Electronics and Semiconductor Manufacturing in India
• PIB: Assam’s Semiconductor Plant
• Economic Times: Value Addition in India’s Electronics Sector
• Economic Times: India Lacks Talent for Chip Manufacturing
• PwC Report: India as a Global Manufacturing Hub