Overview of Electronics India
By Spotlight - 26-03-2019
Electronics Manufacturing Industry is one of the largest & fastest growing industries in the world with a size of USD 1.75 Trillion and is expected to reach USD 2.4 trillion by 2020. The demand in the Indian Electronics Market alone is expected to reach USD 400 billion by 2020. With the present growth rate, India can manufacture goods required worth USD 100 billion only. To address the gap of supply & demand, Government of India has set a vision to transform India into a global hub for ESDM sector to cater both domestic and global demand.
Pic: Two page graph
Market size – USD100 billion - Growing demand: Demand from households is set to accelerate given rising disposable incomes, changing lifestyles and easier access to credit; Government and corporate spending will also contribute to growth in demand.
2020E Market size – USD400 billion - Attractive opportunities: The electronics market is expected to expand at a CAGR of 41.4 per cent
during 2016–20; Intended reduction in government’s import bill is likely to boost domestic electronics manufacturers.
Higher Investments: Sector has attracted strong investments in the form of M&As and other FDI inflows; Companies are set to augment investments in production, distribution and R&D in the next few years; Government has received investment proposals for USD17.5 million for which they intend to provide incentives under M-SIPS scheme. Applications received before July, 2020 will be considered.
Policy support: 100 per cent FDI allowed in the electronics hardware manufacturing sector under the automatic route; Initiatives like Modified Special Incentive Package Scheme (M-SIPS) will provide a capex subsidy of 20 – 25 per cent; As per Make in India Initiative, Electronic Development Fund Policy has been approved to rationalise an inverted duty structure; Focus on local manufacturing and design LED growth of the ESDM sector, the IESA provided a budgetary support of USD110 million through schemes.
Market Overview and Trends
The Indian electronics sector is split into six product segments:
Electronics production in India has been growing at a rapid pace:
- Total production of electronics hardware goods in India is estimated to reach US$ 47.87 billion in FY17 and is expected to reach US$ 104 billion by 2020
- Production expanded at a CAGR of 12.60 per cent during FY07–17
- High production is majorly contributed by accelerating demand for advanced TVs, mobile phones, computers & defence related electronic equipments during FY07 to FY15
- During FY16, production of industrial electronics, mobile phones & LED was recorded at USD6.89 billion, USD8.25 billion & USD0.55 billion, in value terms, respectively.
- In March 2017, Xiaomi announced its 2nd manufacturing plant along with Taiwan based company Foxconn, in Andhra Pradesh. This will help create employment in 100 nearby villages for at least 5,000 people.
Consumer electronics have the highest share in production:
- According to government estimates, Consumer Electronics has the highest share (29.7 per cent) in the total production of electronic goods in India. The growth in consumer electronics over the years has been accompanied by an increase in imports in respect of certain items like LCD/LED TVs
- The Electronic Components had witnessed a growth of about 23.74 per cent from the previous year which was supported by the rapid growth in domestic manufacturing of electronic components. Industrial electronics contributed 20.9 per cent of the total output of electronics goods industry in FY15. Industrial electronics is expected to grow at a considerable pace with the new plans and schemes by government
- Communication and broadcasting equipment constitutes 10 per cent of total production of electronic goods in India in FY15. Not surprisingly, computers are a key component of total electronics output in India (9.9 per cent in FY15); the segment’s share is likely to go up over this decade, given greater policy focus on encouraging computer hardware manufacturing.
- As of FY16, production of industrial electronics, mobile phones and LEDs, in value terms, stood at around USD6887.11 million, USD8249.31 million and USD548.43 million, respectively.
Comparison of C & B equipment with other equipment:
- Production (by value) of C&B equipment in India has expanded at a CAGR of 5.1 per cent over FY07–15.
- Consumer electronics have grown over the years which has been accompanied by increase in LCD/LED TV imports and accordingly this segment has registered about 16 per cent growth in 2014 – 15.
- Growth in the hardware segment is expected to far outpace the overall growth of electronics goods production in the country (CAGR of 10.1 per cent over the same period).
- The total computer hardware to reach USD31.6 billion in FY15 from USD29.9 billion in FY14.
Comparison of Consumer Electronics with other equipment:
- Production value of all other segments in the electronics sector (other than Consumer Electronics) grew at a rate of 10.9 per cent over FY07-15.
- With growth in Consumer Electronics far outpacing those in other segments till FY15, the former’s share in total electronics production has doubled over FY07–12 to 8.4 per cent.
- The share of consumer electronics in the overall electronics industry in India is likely to reach 28 per cent by FY20 with the value of consumer electronics reaching USD29 billion by FY20.
Electronics exports from India have outpaced total production in the sector:
- Electronic exports from India reached USD5.7 billion in FY16, over FY07–16, exports from the sector (CAGR: 8.22 per cent).
- Consumer Electronics have shown a positive growth over the years with the growth in the production of LCD/LED TVs rising to almost 40 per cent in 2013 – 14 as compared to a mere 11 per cent in 2012 – 13.
- Technological improvements and competitively cost effectiveness are main drivers for demand of Indian electronics products abroad.
- Government of India is coming up with an export-oriented policy for electronic products. The idea behind this policy is to promote greater exports of electronics & drive larger investments by setting up port-based electronic manufacturing clusters.
- As of April 2017, LG Electronics, a South Korea-based company, plans to make India as its export hub, considering the good ties between both the countries. The company has 2 manufacturing units in India already, through which it exports to Middle Eastern & African countries.
Notable trends in the electronics sector:
Consumer electronics: Increased presence of organised retail and affordability due to technological advancement. Under Union Budget FY17, government exempted parts and components, subparts for manufacturing of routers, broadband modems, set-top boxes for internet and TV, CCTV camera/IP camera, lithium-ion battery except mobile handsets from the purview of BCD, CVD, SAD duties.
Industrial electronics: Application of state-of-the-art systems such as Decision Analysis, 3–D coordinate systems, smart image processing, Nanotechnology, Nanoscale assemblies, DCS, etc., across various sections of the industry. Artificial Intelligence has been made available which would help the sector to improve its quality control thereby making it more efficient.
Computers: One of the fastest-growing IT systems and hardware market in Asia Pacific. Expansion of server market into smaller cities and small and medium businesses.
Electronic components: Semiconductors lead segmental growth. High growth in key determinants for electronic components, namely consumer electronics, telecom, defence and IT verticals.
Strategic electronics: The production in strategic electronic segment in India increased from USD2.68 billion in FY15 to USD3.08 billion in FY16. Nuclear power to play a large role in India’s energy security needs. Companies such as Bharat Electronics Ltd, Hindustan Aeronautics Ltd, Electronics Corporation of India Ltd, Bharat Dynamics Ltd dominated this segment.
C&B equipment's: Growing broadband subscriber base. As on 9th January, 2017, the total number of telephone subscribers in the country was 1,102.94 million, covering wireless subscriber base of 1,078.42 million & wireline subscriber base of 24.52 million, respectively.
E – Waste Management: Increasing Adoption of Electronic Waste Management Scheme supported by the regulatory framework has improved the electronics sector to a large extent.
Major Contributors to Employment: Major segments such as Consumer Electronics, Telecom Equipment and IT Hardware can be major contributors to employment.
Increasing Consumption and potential for production: Increasing PFCE on Recreational and Educational services and Home appliances are expected to contribute to the rise in consumption and production of Electronics and IT Hardware. Growth of 17 per cent is expected with major contributors being Consumer Electronics, Telecom and computers.
Competitive Rivalry: Competitive rivalry is quite high in this sector, as players use innovation and product differentiation to beat peers. Each player adopts different strategies to capture market share; for example, one player innovates while another diversifies, thus intensifying the rivalry in the sector.
Threat of New Entrants: Threat is low due to capital intensive nature of the industry. Evolving technology, brand loyalty block entry.
Substitute Products: Threat is low because there is no substitute for electronics, Threat is present within the industry due to product innovation by peers.
Bargaining Power of Suppliers: Low bargaining power of suppliers, as product differentiation is less, Low switching costs for customers.
Bargaining Power of Customers: High as buyers possess considerable product information these days, which helps in comparison, Availability of similar options.
Innovation: BPL Medical Technologies has manufactured a health and fitness monitoring device named as LifePhone+ used to record blood sugar levels. In May 2017, a group of Indian & American scientists have used recycled jute to fabricate high performance, flexible supercapacitors, which have a number of applications in consumer electronics. LG Electronics India is looking to sell around 10,000 units of super premium range of televisions in FY18. The brand is all set to launch 9 variants in OLED 4K TV range with plans to launch 52 new models of televisions in 2017 to grab more market share.
Diversification: Most companies are now diversifying into other profitable segments; for example: Samsung is focussing heavily on mobile phone manufacturing, while earlier it focussed more on consumer electronics. For instance, Videocon is also foraying into other segments such as TV Network and mobile phone manufacturing.
Marketing strategy: Most electronics companies, especially consumer electronics, are shifting towards popular ad campaigns to boost their sales, like embracing aggressive social strategies (e.g. by going online) to target young audience & build brand loyalty among them.
JVs & partnerships: Most companies are forming strategic alliances and JVs for mutual benefits. LG and Sun Microsystems are jointly developing Java platforms to enable LG phones and TVs. LG and Siemens have collaborated to develop standard solutions for air conditioners.
Outsourcing of Technology: Manufacturing technologies are exchanged with other countries for better knowledge of innovations. Being competitive on global platform is key to sustainability and growth for the sector.
Strong demand and policy support are driving investments:
Key growth drivers are rising incomes, credit availability and government spending:
- Increase in discretionary income and credit availability has boosted demand for consumer durables.
- The government is one of the biggest consumers of the sector and leads the corporate spend on electronics; this is not surprising given that electronics facilitates egovernance, developmental schemes and initiatives launched by the government.
- Strong demand and favourable investment climate in the sector are attracting investments in R&D as well as manufacturing.
- Increasing demand for defence equipment has boosted the production of electronics goods up to a considerable level.
- Electronic Manufacturing Services and R&D based exports also drives the market. The increased value – addition would further increase the demand for sales, production, after – sales support and services. This would trigger the demand for skilled human resources in the country
- Rapid urbanisation have unravelled new markets for consumer goods; easy financing options have made consumer goods affordable.
Policy support aiding growth in the sector:
Encouragement to FDI, SEZs: • 100 per cent FDI is allowed under the automatic route in the Electronics Systems Design and Manufacturing sector and is subject to all applicable regulations and laws. In case of electronics items for defence, FDI up to 49 per cent is allowed under the government approval route, whereas anything above 49 per cent is allowed through the approval of the cabinet committee on security.
Customs duty relaxation: No customs duty on 217 tariff lines covered under the Information Technology Agreement (ITA- 1) of the WTO. Peak rate for basic customs duty is 10 per cent.
Reduced central excise: Mean rate of excise duty (CENVAT) is 12.5 per cent; Microprocessors, hard disc drives, CD ROM drives, DVD drives/DVD writers, flash memory sticks and combo-drives are exempt from excise duty payment and SAD. Components and accessories of mobile handsets are exempt from excise duty and SAD.
Electronic Development Fund Policy: Under Union Budget 2017, government has increased the allocation of the Modified Special Initiative Package & the Electronics Development Fund to US$ 110.81 million to create an ecosystem to make India a global manufacturing hub.
Inverted Duty: Inverted Duty has been rationalised for various electronics products including tablets, mobile phones, LED lights, LCD/LED TVs, telecom equipment etc.
EPCG, EHTP schemes: EHTP provides benefits, such as duty waivers and tax incentives, to companies which replace certain imports with local manufacturing; Cabinet approved the Modified Special Incentive Package Scheme (M-SIPS) to boost electronics manufacturing in India, under which the firms achieving a turnover of US$1.48 billion within a timeframe of 5 years from the approval date would be incentivised.
Goods & Services Tax: GST rollout on July 1, 2017 is expected to have a positive impact on small electronic devices market like mobile phones due to a drop in tax to 12 per cent from the current 13.5 per cent.
Intellectual Property: Rights Intellectual Property Rights (IPR) are a key determinant of progress in R&D and innovation in the electronics sector; GOI has amended relevant IPR-related acts (like the Copyright Act, Trademark Act, New Designs Act) from time to time to help spruce up innovation and new technologies in the sector.
MSIPS: The scheme was notified on July 27, 2015 to attract investments in electronics manufacturing.
Incentives would be provided under MSIPS on the investment proposals being received. Till September 2015, investments of USD17.5 billion has been received; In December 2016, the IT and Electronics Ministry is planning to take forward a reworked flagship incentive scheme MSIPS (Modified Special Incentive Package Scheme) for electronics manufacturing, to be presented to the Cabinet, with an objective to fast-forward investments.
Electronic Manufacturing Cluster (EMC): SchemeAs of July 2015, investments of USD13.96 million for 2 EMCs have been approved. Total number of EMCs approved in the last 1 year have become 21; 16 for Greenfield EMCs, 3 for Brownfield EMCs in 7 states; As of December 2015, investments of USD18.67 billion has been allocated in the electronics manufacturing sector.
National electronics policy 2012 – key objectives:
Favourable business: Conditions As of April 2017, Haryana government plans to introduce a new policy on electronics, communication & information sector. With an aim to create an investor friendly environment in the state, the government plans to provide incentives for IT & ITEs/BPO/ electronics manufacturing and develop the reliable infrastructure.
Focus on new technologies: To build on the emerging chip design & embedded software industry for achieving global leadership in Very Large Scale Integration (VLSI), chip design and other frontier technical areas and to achieve a turnover of USD55 billion by 2020, also focus on handling e-waste in an environment friendly policies; The Ministry of Electronics and IT has revised policy to make India a global semiconductor hub to attract private sector companies, the Government will play an active role in it.
Promote exports: To increase export in the electronic system design and manufacturing sector from USD5.5 billion to USD80 billion by 2020.
Improving supply chain: To build a strong supply chain of raw materials, parts and electronic components for raising the indigenous availability of these inputs from the current 20–25 per cent to over 60 per cent by 2020.
Building competencies: To develop core competencies in strategic and core infrastructure sectors like telecommunications, automotive, avionics, industrial, medical, solar, information broadcasting and railways.
Electronic Manufacturing: Clusters (EMCs) Provide incentives for setting up of 200 Electronic Manufacturing Clusters (EMCs) - setting up of greenfield EMCs and up gradation of brownfield EMCs.
The electronics sector in India has attracted strong FDI inflows:
Cumulative FDI inflows into the electronics sector, including computer hardware & software, increased at a CAGR of 14 per cent, with the value increasing from USD9.8 billion in FY10 to USD24.66 billion in FY17 Demand growth, supply advantages & policy support have been instrumental in attracting FDI.
Multiple factors favour investment in electronics:
Growing customer base: Market for electronics is expected to expand at a CAGR of 66.1per cent during 2015–20. The demand for electronics hardware in India is projected to increase to USD139 billion by 2018.
Incentives & concessions under schemes: Export Oriented Unit (EOU) Scheme, Electronics Hardware Technology Park (EHTP) Scheme, Software Technology Park (STP) Scheme & EOU/EHTP/STP Schemes; IESA (India Electronics & Semiconductor Association) announced the launch of new chapters to strengthen & improve the supply chain. Chennai, also known as Electronic Manufacturing Services (EMS), is one of the fastest growing manufacturing cities, with easy accessibility to seaports.
Targeted reduction in import bill: Domestic electronic production accounts for around 45.0 per cent of the total market demand. Therefore, in order to reduce the import bill, the government plans to boost the domestic manufacturing capabilities & is considering a proposal to give preference to Indian electronic products in its purchases.
Increasing penetration in the consumer durables segment: Consumer durables market in India is characterised by low penetration in various product segments, viz. 1 per cent in microwaves, 3 per cent in ACs, 16 per cent in washing machines, 18 per cent in refrigerators, etc. Higher disposable incomes are leading to realisation of penetration potential in various product segments, especially in rural areas.
Policy & investment support: As per the targeted reduction in import bill, the government has proposed an investment of USD555.0 million for semiconductor manufacturing plants & USD222.0 million. In Union Budget 2016–17, inputs, parts, components & subparts for manufacturing of charger/adapter, battery & wired handsets / speakers of mobile phones are fully exempted from Basic Customs Duty (BCD), Counter Veiling Duty (CVD) & Special Additional Duty (SAD).