Is a policy vacuum paralysing local LED component makers?

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Indian LED bulb manufacturers are getting a solid subsidy from the government to stimulate consumer purchases. But the local capabilities of component manufacturing are not being promoted very actively by the government. Let’s dig deeper and understand the factors that are paralysing the local LED components industry.

-By Shruti Mishra

The demand for LEDs for general lighting purposes is getting stronger across India. These lights ensure low power consumption and are environment-friendly.  In India, LED manufacturing has seen a growth of almost 200 per cent in 2016 over 2015, according to the Electric Lamp and Component Manufacturers’ Association (ELCOMA). This growth has further spiked in 2017 due to a large number of government tenders and procurements. Currently,  the total LED market in India is valued at around Rs 100 billion, but only marginal growth has been registered at the LED component manufacturing level.

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Almost zero high-end LED chip manufacturing is happening in India currently. What is really going on is just packaging, assembly and testing of LED components, with very low value addition. Proper government involvement is lacking, which is critical in chip manufacturing. While talking to some players in this segment, it appears that the development of the components industry has been left completely in the hands of private players who are receiving zero encouragement from the government. And that is why to fulfil the growing demand, our LED industry is relying heavily on China and Taiwan for most of the LED components.

Problems faced by local component manufacturers

At present, India is producing all the mechanical housings, PCBs, and the drivers needed for LED lighting. It is only the LED components that are not being manufactured locally, hence preventing a local manufacturer’s bill of materials (BOM) from being 100 per cent Indian. D. Christopher, general manager, ELCOMA, says that to make India self-reliant in LED manufacturing, we need state-of-art manufacturing units for at least three vital components, namely, control gear, optics and plastics. “Presently, we have fully developed indigenous manufacturing capabilities in optics and plastics, but we are still dependent on imports mostly for control gear, which includes the chips and electronics,” he says. He adds that for both these inputs, the entire industry is dependent on imports mainly from China and Taiwan as there are no LED chip manufacturing facilities in India.

One factor that made the setting up of a chip manufacturing industry unviable was India’s signing of the Information Technology Agreement (ITA) 1996 with the World Trade Organisation (WTO). “That agreement added a cost handicap of almost 12-15 per cent to manufacturing in India,” says Vijay Kumar Gupta, CEO, Kwality Photonics Pvt Ltd. The LED light manufacturers started sourcing their raw material from China and Taiwan due to zero import duty.

Commenting on the present scenario, Gupta states that the Indian government is showing almost no enthusiasm for ‘Make in India’ in the LED sector. He adds that many applications for incentives from local manufacturers have been held up for months, pending approval from the government. Additionally, there is no effort being made to proactively approach the entrepreneur or to fast track the applications through some degree of handholding.

It’s not that companies don’t want to set up chip making facilities here; the real problem lies in India’s inherent issues. Land acquisition and stable power sources present challenges for companies that want to establish foundries and factories here. It is difficult to find suitable locations to build LED factories as there are still issues of power shortages and unavailability of clean water. Recruiting skilled people is another challenge for manufacturers, as there are very few people working in the Indian semiconductor sector. LED chip fabrication in India is subject to the fluctuations and changing trends in the world market. Such disruptions can change the entire demand-supply balance and disturb a fledgling firm’s financial structure.

Government support: The need of the hour

There is no doubt that LED technology is the future of lighting in India, with the domestic market expected to grow to Rs 216 billion by 2020. This leap will result in the LED market accounting for about 60 per cent of India’s total lighting industry in 2020, an ELCOMA report suggests. This ever-increasing demand is putting pressure on the components front. As this industry is entirely dependent on imports for the components, supply disruption always remains a threat. Considering the high consumption rate of LED lights, Gupta points out that India cannot afford such disruptions, and the government must take some concrete steps to encourage local production of LED components. “MeitY should form a task force to make this happen,” he suggests.

 

According to Christopher, “The government needs to look into this and attract investments in this area by incentivising the entrepreneurs. It needs to offer support to bring LED chip making technology to India in order to strengthen indigenous manufacturing.”

Local manufacture of LED components will create the impetus for indigenous investments in the manufacture of lead frames, silicone materials and phosphor. This will also attract Taiwanese and Korean chip makers to shift their LED chip production to India to take advantage of the huge captive demand with the lowest engineer-manpower costs.

Local product companies make loyal customers, ensure a steady source of revenue and are more profitable than global MNC customers. With government aid and favourable policies, India can create an  environment that’s attractive to investors, infrastructure firms and technology partners who want to support the indigenous LED components business.

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