14 Dec 2011,
The Indian electronics market, estimated at $65 billion in 2010, has a comparatively smaller size against the global electronics market of $1.8 trillion. Despite its current minnow status, the Indian electronics market has gained global attention for the immense opportunities that remain uncorked.
A burgeoning domestic market as well as the increasing export opportunities places the Indian electronics industry in an enviable position on the global map. Local manufacturing has thus been the focal point attracting the attention of all stakeholders. The government has realized the potential and is working on a policy framework that shall create the most favorable environment for manufacturing. The 2020 guidance is
expected to catapult India’s contribution to the global electronics industry to 15 percent from the current low contribution of around 2.5 percent.
The past decade has been remarkable for the Indian electronics industry from a consumption perspective: 18 million mobile phones in 2003 to 172 million units in 2010; shipment of 3 million PCs in 2003 to over 8.2 million in 2010; from a non-existent market in 2003 to a rapidly growing LCD TV market that witnessed sales of 3.5 million units in 2010.
The tremendous growth in all segments of electronics has given the industry a key position on the global map. The Indian electronics industry has been growing at a CAGR of over 25 percent in the past 5 years and the major reasons that can be attributed tothis growth are:
• GDP growth rates in excess of 8 and 9 percent.
• Revival of the global economy following the 2000-01 dotcom bubble burst.
• A rapidly expanding middle class with increasing disposable income.
• Continual decline in prices of most the electronics goods (a camera mobile that cost over Rs.15,000 five years ago is available for less than Rs. 5,000 today).
• Presence, expansion and/or entry of all major Electronic OEMs and suppliers into the country creating greater visibility for brands and products.
• Steady increase in exports.
• Exemption of custom duty on 217 products that come under the ITA-1 items.
Electronics Manufacturing Status
Indian Electronics industry has been characterized by an acute disparity between supply and demand.
Despite the continuous increase in electronics consumption in the country, indigenous electronics manufacturing has not reached desirable levels. Electronics production accounts for less than two percent of the country’s GDP. Also, locally manufactured electronics contributes less than one percent of the global electronics industry pointing towards the failure of concerted efforts. Electronics manufacturing in the
country currently accounts for less than 60 percent of the consumption.
2011 Frost & Sullivan's Manufacturing Index of 0 for notebooks and sub-60
percent for LCD TVs is an indicator of the huge opportunity loss for the electronics industry as these are some of the key products that are expected to witness high
consumption in the coming years.
Some of the high growth sectors for the future in terms of consumption volumes include:
• Communicationhandsets, communication infrastructure
• IT – desktops, notebooks, servers, and memory
• Consumer electronics – LCD TVs, set top boxes
The current low levels of indigenous manufacturing of these electronic products indicate the vast opportunities ahead for the electronics industry to tap.
Challenges faced by Electronics Manufacturers
Many factors can be attributed to the lack of substantial electronics manufacturing activities in the country. The foremost are:
• An inadequate ecosystem.
• Absence of significance for innovation.
• Hardware industry not being as avidly promoted as its software counterpart.
• Lower customs and import duties on raw materials needed for electronics manufacturing make trading a more attractive business proposition. The additional state level taxes, non-uniform duties and inverted duty structure, all weigh against indigenous manufacturing.
• Physical infrastructure inadequacy and power shortages.
• Complex investment procedure – lack of simplified procedure for investing in the country - tedious documentation, bureaucratic delays and less than friendly attitude towards investors.
Imperatives for Growth in Electronics Manufacturing
The electronics industry in India has grown by leaps and bounds in the last 8 - 10 years, yet the extent of value creation within the country is extremely limited. The growth of the electronics manufacturing has sorely lagged behind consumption.
There is ample indication that high volume manufacturing opportunities are yet to be tapped in certain product segments. Despite efforts facilitated through policy changes and incentives there has been a failure to create an ecosystem for nurturing electronics
manufacturing within the country. The strengths in the form of a healthy electronic components industry and strong design expertise have to be positioned to attract manufacturing investments.
Within electronics manufacturing, the growing segments that can generate higher revenues and generate incremental employment need to receive increased focus. The government is also expected to improve infrastructure facilities thereby paving the way for a faster growth for electronics manufacturing in the country. Some of the imperatives needed for bolstering growth in electronics manufacturing in the
• Promotion of Export subsidies to create an environment for electronics exports
• PPP initiatives to develop clusters for Electronics – ‘design to marketing’ clusters
• Promotion of tax holidays and incentives for EMS companies investing in the country
• Policy to attract investment in setting up of ecosystem companies.
• Identification and promotion of ‘killer application / product’ segments for indigenous manufacturing – telecom equipment, mobile handsets, STB, LCD TV, LED lighting, medical devices and Auto Identification products, to name a few.
Capitalizing on existing strengths to attract investments is a short-term strategy. However, the long-term vision of developing and sustaining a world-class electronics industry needs more concerted efforts and a planned strategy at the national level. As observed in most of the developed and aspiring countries,
identifying and focusing on electronics as a priority sector and coming up with policies and initiatives focused on the industry has been a critical tool for success.
Similarly for the electronics industry to grow in India there is an immediate and pertinent need for the government to introduce a National Electronics Development Plan (NEDP) or a National Electronics Mission. It is heartening to note that
the government is on the anvil of launching such a mission. Whilst the New Manufacturing Policy is expected to encourage the indigenous electronics industry, other government incentives such as infrastructure support and incentives for setting up of greenfield electronics manufacturing clusters as also incentives for indigenous R&D are the expected to grow the industry from an innovation driven platform.
- Deepa Doraiswamy is Industry Manager, Automation & Electronics, Frost & Sullivan
(For feedback/enquiries please contact Caroline Lewis, Assistant Manager - Soth Asia, Corporate Communications, at Caroline.Lewis@frost.com