GST and policy implementation are urgently required to strengthen the ESDM industry

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ESDMFebruary 10, 2015: Since the factors that have held back the ESDM sector in India have been pinpointed and new policies have been formulated to address the problems, the current need is to speedily implement these policies on the ground

By Shweta Sengar

The electronic system design and manufacturing (ESDM) sector is among those that contribute to building a buffer against economic downturns. Though the industry has not grown as predicted by the experts, the revenue it generated over the past couple of years is excellent, overcoming the economic slowdown. The ESDM industry was expected to grow at a compound annual growth rate (CAGR) of 9.9 per cent between 2011 and 2015, resulting in an industry turnover of US$ 94.2 billion by 2015.

The ESDM industry in India comprises four key segments, namely, electronic products, electronic components, semiconductor design services and electronics manufacturing services (EMS). Although the electronics industry in India is growing at a very fast pace, the irony is that most of the demand is still met by imports. Many policies have been launched by the government to boost the growth of Indian electronics industry. A thorough examination of policies reveals that certain key factors need to be focused on in order to accelerate the growth rate of the ESDM industry. Favourable policies to incentivise investment, speed up the adoption and application of new technologies, accelerate innovation and entrepreneurship, and improve skills development must be implemented to achieve the country’s electronics manufacturing ambitions.

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Key drivers and challenges for the Indian ESDM industry

The market for mobiles, consumer electronics and IT products is continuously growing in size and, therefore, offers immense potential for the ESDM industry. However, the continuous reliance on imports in this domain is hampering the growth of domestic manufacturing. The high cost for manufacturing products is another major hurdle for the ESDM industry. India’s current rules on taxation, capital requirements, duties and infrastructure tend to dampen investor confidence in this sector.

An alternative to China

The Indian electronics industry is growing rapidly in terms of revenue as well as exports. However, till date, a large share of domestic demand is met by imported electronic products. Speaking about the missed opportunities for manufacturing, Anil Bali, vice president, Deki Electronics, said, “The government is going all out to make India an attractive investment by announcing the National Manufacturing Policy. It is now up to the Indian ESDM manufacturers to take advantage of this. We had missed the manufacturing bus earlier with our focus on software, but we should not miss it now.” Highlighting the reasons why manufacturers are looking for alternatives to China, he added, “China’s labour costs are no longer competitive; they are rising at a fast pace. Manufacturers now need an alternative where labour costs are competitive.”

Clarity in policies and their implementation is a key task

According to Sanjiv Narayan, CEO and managing director, SGS Tekniks, “The ESDM industry has to grow for the good of the country and this is now a one way street.” Highlighting the urgent needs of the ESDM industry, he said, “GST implementation with a rate of around 17 per cent is the first requirement. The industry favours the Goods and Services Tax (GST) and expects its speedy implementation. Along with this, more clarity is required from the government on the current manufacturing policy. There are many issues that need to be addressed and mere policy formulation will not help.” He stressed that policy implementation is the need of the hour, followed by finance availability with a 5 per cent subsidy offered for a five year period. He emphasised that the government needs to encourage existing companies to invest and expand, and this will be the fastest short term kick start for the sector. Improved infrastructure comprising good roads, rail networks, ports, telecom, etc, are a priority.

Therefore, the immediate need is not policy formulation but policy implementation. India’s electronics market is growing at a very fast rate and is poised to become a US$ 400 billion industry by 2020. Keeping this in mind, the ambiguities need to be addressed as soon as possible.

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