Indian manufacturers in the ACE industry need urgent support from the government

0
2519
Advertisement

The rapid pace of urbanisation, a large emerging middle class and easy digital access have made appliances and consumer electronics (ACE) products in India very popular. Being an emerging economy, the Indian ACE industry will continue to witness robust demand in the coming years as well. The question is: Can Indian consumer appliances makers transform the country into a global manufacturing hub?

By Shruti Mishra

As the Indian economy is growing, the demands of 1.3 billion people are also increasing exponentially. The increased purchasing power and better access to quality products at affordable rates have revolutionised the Indian consumer appliances market. The report ‘Championing change in the Indian appliances and consumer electronics (ACE) industry’, published by the Consumer Electronics and Appliances Manufacturers Association (CEAMA) in collaboration with PwC, forecasts that the Indian ACE market is expected to grow at a CAGR of 9 per cent between 2017 and 2022. According to the report, increasing disposable income, an upwardly mobile middle class and rising Internet penetration will remain the major factors that will support the boom in the Indian ACE industry.

The domestic home appliances industry views the upcoming surge in demand as the next billion dollar opportunity for the manufacturing sector. With the rise in consumer electronics purchases and favourable government initiatives like ‘Make in India’ as well as the National Policy on Electronics, many industry experts think that India can transform itself into a global consumer electronics manufacturing hub. According to Saurabh Kabra, director-business operations India, Truvison, apart from local manufacturing, the Make in India initiative will also attract manufacturers from China, Vietnam and Indonesia who have a strong presence in the global consumer durables market. “Over the next five years, accelerated local manufacturing of electronic products catering to growing domestic demand will drive the market for electronic components in India,” Kabra adds.

Advertisement

Similarly, Gurmeet Singh, managing director, Johnson Controls-Hitachi Air Conditioning India, strongly believes that the National Policy on Electronics (2012) will help in creating a globally competitive ecosystem for all manufacturers in India and in achieving a turnover of approximately US$ 400 billion by 2020. “All one needs to ensure is compliance and to abide by the rules and frameworks set for the industry,” Singh suggests.

Although the industry and government are going all out to encourage local manufacturers, domestic value addition in the ACE industry still remains low. The report points out that currently, the domestic value addition in manufacturing is approximately 40 per cent for ACE products and 5 per cent for smartphones.

Causes of low value addition
There is no doubt that the demand for consumer electronics in India is not going to dip anytime soon, but the supply side is facing low value addition because of the high cost of finance and an ecosystem with limited availability of components. The cost of finance in India is 9.67 per cent, which is quite high compared to countries like China (4.35 per cent) and Vietnam (6.96 per cent), the two economies that are the leading ACE manufacturing destinations globally. This factor, coupled with the high GST rate of 28 per cent, is unnecessarily turning consumer electronics items into luxury products, which will ultimately slow down growth.

What’s more, because of logistics challenges, the unavailability of continuous power and a low ease of doing business score, the local ACE industry becomes uncompetitive.
Underlining the sluggishness of the domestic manufacturing base, Sunil Vachani, chairman, Dixon Technologies, says that no country can become competitive in exports unless it has a strong domestic base. He adds, “Until you are competitive in the domestic market, you cannot compete in the international market. If you have an ecosystem, scale, backward integration and high levels of localisation, then exports will automatically happen.”

Expectations and recommendations
The electronic components industry is the backbone of the consumer durables industry in India. Unfortunately, the former is currently registering sluggish growth because of technological barriers. This, in turn, is preventing companies from achieving economies of scale and obstructing the path of investments. Any multinational organisation will look for economies of scale before shifting components manufacturing to India. Instead of waiting for them, Indian MSMEs should come forward and join hands with such foreign firms who are keen to start components manufacturing in India, suggests Manish Sharma, president and CEO of Panasonic India. “Indian companies can get into technical collaboration with foreign components makers to bring their technologies into the country, providing a platform for these companies to take a look at the economies of scale in the industry,” he adds.

Where Indian makers lost badly to Chinese manufacturers was in the smartphones space. These local firms are urging the government to impose some anti-dumping duty on imported, cheap phones. “The government should increase the duty on completely built units (CBUs) to 20 per cent, which is at present between 10-15 per cent,” says Vivek Agarwal, co-founder, M-tech Informatics Ltd. Highlighting the advantages of making such a move, he adds that this will provide domestic manufacturers a level playing field vis-a-vis importers, and encourage them to expand capacity.

Changes in duty structure, lower cost of financing and simplified GST rates are the recommendations the industry wants to put forth. Singh says, “We urge the government to lower the GST rate slab for electronics to 18 per cent, so that we can fulfill our aim of providing air conditioners to every household.”

Talking about the bilateral agreements that India has signed till now, Vachani says that 10-12 years ago, India signed the Free Trade Agreements (FTAs) mostly with production based countries who have the same aspirations of becoming manufacturing powerhouses. Such agreements, according to him, will not help in spurring manufacturing because they are not providing a market for the finished products and are restricting the scope for export. To attract investments into the sector, there needs to be a big market for the finished products so that the components makers are encouraged to come in. “Our request to the government is to sign FTAs with consumption based economies, which will open up huge markets for our products and drive growth in exports,” he suggests.

Advertisement

SHARE YOUR THOUGHTS & COMMENTS

Please enter your comment!
Please enter your name here

Are you human? *