Industrial Spectrum • August 2012
The Path Taken
India embarked on its Electronics journey around 1965 with an orientation towards space and defence technologies. This was rigidly controlled and initiated by the government. This was followed by developments in consumer electronics mainly with transistor radios, Black & White TV, Calculators and other audio products. Colour Televisions soon followed. In 1982, a significant year in the history of television in India, the government allowed thousands of colour TV sets to be imported into the country to coincide with the broadcast of Asian Games in New Delhi. 1985 saw the advent of Computers and Telephone exchanges, which were succeeded by Digital Exchanges in 1988. The period between 1984 and 1990 was the golden period for electronics during which the industry witnessed continuous and rapid growth.
After the software boom in mid 1990s India's focus shifted to software. Moreover the steep fall in custom tariffs made the hardware sector suddenly vulnerable to international competition. In 1997 the ITA agreement was signed at the WTO where India committed itself to total elimination of all customs duties on IT hardware by 2005.
In recent years the electronic industry is growing rapidly. It is currently worth $75 Billion but according to estimates, has the potential to reach $ 400 billion by 2020. The largest segment is the consumer electronics segment and the largest export segment is of components.
Industrial Spectrum brings an overview of the industry, which is dominated by MSMEs.
The Road Ahead
The Indian Electronics industry constitutes less than 1% of the global market. The industry is however poised to grow. In December 2011, The Economic Times had projected that the electronics market in India will cross $400 billion (Rs 20.41 lakh crore) by 2020 and industry experts and observers seem to agree with the seemingly exaggerated forecast.
With the new National Electronics Policy that aims to provide a competitive and low cost environment to the electronics industry, the industry expects to see rapid growth and value addition. “This will result in the industry achieving the target of $400 billion. It requires a growth of 22-25% per annum till 2020 to reach a production level of $400 billion from about $75 billion at present,” according to Mr T Vasu, President of Electronic Industries Association of India (ELCINA). Currently, the largest segment of the Indian electronics industry is the consumer electronics segment while the largest export segment is components.
Key Growth Drivers
Policy and regulations: The Indian electronics industry is believed to be on the threshold of a revolution as the concept of electronics clusters is becoming a reality
Electronics clusters are believed to give this key sector the desired growth direction and also lead to the creation of millions of jobs.
The new Electronics Policy is expected to bring a significant amount of investment in to this sector as well along with other industries. The policy is also expected to bring respite for SMEs, which form a large chunk of the industry.
According to estimates, India’s electronics import bill has the potential to cross that of oil by 2020, which mandates an ecosystem that pushes domestic manufacturing. As a fillip to this comes the Union Cabinet’s green signal to the Modified Special Incentive Package Scheme (MSIPS) under which the Central government will be offering up to Rs 10,000 crore in benefits to the electronics sector in the next five years. The funding will be used for the promotion of production of electronics products and components in India.
An official statement from the Centre says, “The policy is expected to create an indigenous manufacturing eco-system for electronics in the country. It will foster the manufacturing of indigenously designed and manufactured chips creating a more cyber-secure ecosystem in the country. The projects with incentives of Rs 10,000 crore have the potential to create employment for nearly 0.5 million people.”
The Centre’s approval for the development of electronics manufacturing clusters to support the establishment of both greenfield and brownfield clusters is slated to enhance the growth of the hardware sector. The production of computers and mobile handsets has the potential to benefit from this scheme. Booming domestic demand: As India is the world’s second-most populous nation, it will continue to rule as one of the largest consumers of electronic products internationally. A burgeoning middle class with higher dispensable incomes augurs well for the industry as it ensures a booming demand for consumer electronics.
R&D: Analysts opine that strengthening of the core areas of design and application development will prove beneficial for the Indian electronics and manufacturing industry. Moreover, it will also lead to improvement in innovation both in the domestic and international markets.
Quality manpower at lower costs has made India an attractive destination for global companies to make the country their R&D hub. It is hoped that once the required policies and regulatory environment are in place, these same companies would see the benefits of establishing their manufacturing hubs in India and grow the country’s competence and capability in this regard.
MSMEs in Electronics Industry
The industry is dominated by the SMEs who manufacture electronic components, parts and also engage in EMS activity in niche markets. However, this sector has been unable to compete with other Asian suppliers where manufacturing costs are lower. “Being a zero duty sector, our SME manufacturers face unfair disadvantage and are heavily losing the market share,” according to Mr T Vasu of ELCINA.
Exports of electronics from India are about $3 billion but growth is not encouraging due to lack of competitive ecosystem for manufacturers in India. A few MSME companies, which are in niche markets, have succeeded in retaining or growing their exports. Alternatively, selected large global branded equipment manufacturers are able to export with limited value addition.
MSMEs in electronics industry face the same challenges which are typically similar to those in other industries across sectors. These challenges are largely related to lack of resources and absence of a supportive ecosystem. They need low cost finance, high quality human resources and the most crucial are funding and technology for R&D and growth.
What is specific and throws a bigger challenge for MSMEs in electronics sector is the rapid rate of technological change and obsolescence in this industry which requires continuous R&D as well as investments in new technology, product design to keep up with the market.
Manpower is another issue wherein the core of the problem is lack of trained manpower. As manufacturing and demand grows, manpower crunch will only become severe. The industry is hoping for a respite from the Electronics Sector Skill Council (ESSC) which is being established now. ESSC is expected to assist in formally training people from across the country.
The electronics industry in India is small, but growing rapidly. India offers several advantages that can be leveraged to achieve higher growth:
1. Availability of manpower: India produces over 500 PhDs, 200,000 engineers, 300,000 non-engineering postgraduates and 2,100,000 other graduates each year. It is home to world-class educational institutions like IITs and IIMs that produce graduates with best-in-class skills and capabilities in technical and management fields.
2. Market demand: India has a huge domestic market. The market is characterized by booming businesses across consumer electronics, computer industry, control, instrumentation and industrial sector, communication and broadcasting sector, strategic electronics, and electronic components.
3. Policy and regulatory support: India has taken positive measures to ensure growth of Internet, Communication and Entertainment sector. Its foreign investment and trade policies are being fine-tuned to enable the industry to grow. Businesses can exploit the opportunities under Special Economic Zone scheme while special schemes are also available for setting up Export-Oriented Units for the Electronics /IT sector.