Electronics manufacturing in India: The current outlook

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Electronics Manufacturing working on engineersAs ‘Make in India’ and Digital India prospects grow, the government targets
increased electronics manufacturing.

By SKP Business Consulting LLP

India is one of the fastest developing economies in the world, but it lacks the edge of a competitive electronics sector. Despite the high reliance on imports, India’s electronics sector has witnessed rapid growth in recent years. Technological innovations like the rollout of 4G/ LTE (long-term evolution) networks and IoT have accelerated the adoption of electronic products in the country. It is even expected that the consumer electronics and appliances market in India will become the fifth largest in the world by 2025.

India is witnessing significant changes in its policies, mainly related to the regulatory and business conditions. The government introduced reforms to improve India’s ‘Ease of Doing Business’ rankings by launching initiatives such as ‘Digital India’ and ‘Make in India’ to bolster domestic manufacturing. An updated National Policy for Electronics (NPE) 2019, was recently released and is likely to bring about further policy changes for the industry. India’s growth story is set for a significant boost in the electronics domain, as the changing policies and new regulatory norms will create a conducive business environment.

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The NPE 2019 predicts that the demand for electronics in India will rise significantly over the coming years. To reduce the foreign exchange outflow caused by the import of electronics, it is critical to promote domestic manufacturing in this industry. Therefore, the government has identified electronics and hardware manufacturing as a focus sector.

A rise in demand has provided an impetus to the electronic system design and manufacturing (ESDM) sector. For example, the production of mobile phones, LCD/LED TVs, and LED products in the country has increased significantly over the last few years. In 2014, India had only two mobile-making units, while by the end of 2017, the number of units reached 123, with many foreign players entering the market. Also, the Phased Manufacturing Programme (PMP) for mobile handsets and related sub-assemblies and components has created a robust manufacturing ecosystem in the country.

The vast demand for communication and broadband equipment (including mobile handsets and their accessories) is expected to further boost the electronic components and products manufacturing industry. It is estimated that Indian mobile phone manufacturing in FY 2018 reached a turnover of US$ 20.4 billion (INR 1,320 billion).

  • The production of consumer electronics which include home appliances such as refrigerators, washing machines, air conditioners, microwaves, etc, was valued at US$ 11.3 billion (INR 735.2 billion) in FY 2018, driven by their increasing affordability due to price reductions, income growth, ease in financing and mandatory digitisation of the broadcast sector.
  • The production of industrial electronics such as UPS systems, supervisory control and data acquisition (SCADA), as well as programmable logic controllers (PLC) exceeded US$ 10.7 billion (INR 690 billion) in 2018. This is due to rising investments in automotive and engineering electrical with modernisation, automation, and robotics driving the demand. The deployment of solar photovoltaics and allied equipment (to achieve the 100 GW target by 2022) also added to the demand for industrial electronics.
  • Electronic component production (including semiconductors, capacitors, resistors, picture-tubes, X-ray tubes, cathode ray tubes, etc) touched US$ 9 billion (INR 583.5 billion) in 2018 driven by the growth in end-user industries like automotive electronics, IT products, solar energy, electronic devices for the healthcare sector, LEDs, telecom, and consumer electronics
  • The production of strategic electronics (which comprises satellite-based communication, navigation and surveillance systems, sonar, under-water electronic systems, radar, and infra-red based detection and ranging systems) is estimated to have grown to US$ 3.6 billion (INR 235.6 billion) in 2018. The increase in the budgetary allocation to the defence sector along with a rise in IT penetration and cyber security concerns are the key growth drivers for this segment. Additionally, the modernisation drive adopted by the government to replace obsolete defence hardware has supported the growth for strategic electronics.

The government of India has prioritised the electronics sector under the ‘Make in India’ programme. Several policy initiatives (like NPE 2019) promote domestic manufacturing to boost job creation and skills enhancement, promote investments, foster innovation and protect intellectual property—all to build a best-in-class manufacturing infrastructure. Thus, various steps are being taken to create a business-friendly financial and economic environment. This is expected to result in growth for both Indian and global manufacturers.

The National Policy on Electronics 2019: Policy features, objectives and scope

The Union Cabinet recently approved the National Electronics Policy 2019 (NPE 2019) to increase the domestic production of electronics and propel the growth of the ESDM industry. The NPE 2019 is in continuation of the National Policy of Electronics 2012 (NPE 2012), an earlier policy that built the foundation for a competitive Indian ESDM value chain.

NPE 2019 aims to encourage domestic manufacturing and exports in the ESDM value-chain to achieve economic development and a turnover of US$ 400 billion by 2025. The policy is expected to generate employment for 10 million people by 2025. It aims to increase the domestic mobile production to one billion units by 2025, and this is valued at US$ 190 billion (approximately INR 13,000 billion). NPE also aims to increase exports to 60 per cent of domestic production (around 600 million units worth US$ 110 billion or INR 7,000 billion) by 2025. The objective of this policy is to develop the manufacturing base for strategic electronics within the country, which is critical to the country’s national security interests, and to support the electronics value-chain.

Key features of the National Policy on Electronics (NPE) 2019

  • To boost domestic manufacturing and exports in the entire Indian ESDM value chain to create a globally competitive ecosystem
  • Provide structured incentives to support the manufacturing of core electronic components
    Create special incentive packages for mega projects which are extremely high-tech and entail huge investments, such as semiconductor manufacturing facilities, display fabrication, etc
  • Offer schemes and incentives for setting up new manufacturing units or to expand existing units
  • Promote increased R&D and innovation across all sub-sectors of electronics, such as 5G, loT, sensors, artificial intelligence (Al), machine learning, virtual reality (VR), drones, robotics, nanotech-based devices, etc.
  • Provide incentives and support to increase the availability of a skilled workforce, including re-skilling
  • Development of the following industries: fabless chip design, medical electronic devices, automotive electronics, power electronics for mobility and strategic electronics
  • Creation of a Special Sovereign Patent Fund (SPF) to promote the development and acquisition of intellectual property rights or patents in the electronics sector to make them available to Indian entrepreneurs at a relatively low cost

The NPE 2019 is likely to provide several opportunities for long-term growth in the ESDM sector in India, once it is implemented. The formulation of several initiatives is expected to stimulate the flow of investments and technology into the sector, leading to higher value addition to domestic electronic products. An increase in electronic hardware production and exports is expected to follow. This would generate significant employment opportunities for students and the unemployed, in electronics manufacturing and service support.

Source: Ministry of Electronics and Information Technology (MeitY). The conversion rate for FY 18 is taken as ₹ 64.8 for US$ 1 (as per RBI).

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