3 Months agoIndia’s electronics industry is emerging as a favourable destination for global investors. Read on!
The Indian electronics industry is one of the largest and fastest-growing industries in the world. This sector comprises electronic products as well as components to manufacture these products. In 2015, the industry in India was valued at USD 75 Billion, despite a weak global economy.1 sector has undergone an evolution from being primarily a consumption-driven market to the one with manufacturing capability to cater to local and overseas demand.
The Electronic System Design and Manufacturing (ESDM) sector provides lucrative opportunities for investors. Foreign Direct Investment (FDI) equity inflow saw an increase in the last two years – from USD 97 Million in April 2012 – March 2014 to USD 208 Million in April 2014 – March 2016.2
With a spike in demand for electronic products, the ESDM sector in India is predicted to reach USD 228 Billion by 2020, growing at 16-23% annually.3 The report also predicted a 17% growth in manufacturing of electronic products and 24-68% growth in electronic manufacturing services over the next 5 years.
To further give an impetus to the sector, the Government has envisioned a policy to substitute the import of electronic products by 2020.4 The Government has already embarked on this journey – in FY 2014-15, around 1900 billion electronic products were manufactured indigenously.5 Electronic manufacturing companies are now increasingly looking at setting up their units in India, especially in the mobile phone segment, to serve the Indian domestic market.
Increasing domestic demand, upswings in disposable incomes, the endeavour to build a Digital India through wider broadband connectivity and e-governance programs, rising manufacturing costs in other manufacturing economies and burgeoning consumption in the Middle East, Latin America and North Africa fuelling global demand - all have been contributing towards the growth of the Electronics Sector in India.
The electronics market is currently being steered by mobile phones and consumer electronics, which together contributed nearly 45% of the overall electronic products revenues in 2015.6 Industrial electronics contributed 15% to the revenue share, largely driven by Government infrastructure projects such as smart cities, modernisation of railways and increasing automation in industries. Between 2015 and 2020, automotive electronics and industrial electronics are estimated to be high growth segments.
Due to rising labour costs, an increasing number of companies are now relocating their units from China to India to serve domestic demand.
India is predicted to double the sale of its smartphones to 200 million/year by 2020.7 In the last quarter of 2015, the total of number of Fourth-Generation (4G) enabled smartphone shipments in India was 13.9 million units, at least 50% more than the total shipments for 3G-enabled smartphones.8
Government initiatives like Digital India are providing an impetus to the electronics manufacturing sector. Digital India aims to ensure all Government services are accessible to citizens electronically. With a rise in income driving demand for electronics and the Government’s focus on e- governance initiatives, Digital India is likely to spur growth in the ESDM sector.
Additionally, there is also a significant demand for high-end consumer electronics. The consumer electronics and appliances sector is predicted to grow at a CAGR of 13.4% to touch USD 20.6 Billion by 2020.9
Apart from these factors, India boasts of a vast talent pool which has strong capabilities in design and R&D. The work force is not just skilled, but cost-effective as well. Further boost is being provided in this area through a host of Skill Development initiatives. This has resulted in a large number of global enterprises setting up their manufacturing units in India.
To make India a global hub for electronics manufacturing, a budgetary provision of USD 114 Million has been made in towards incentive schemes like Modified Incentive Special Package Scheme (M-SIPS) and Electronics Development Fund (EDF) in FY 2017-18. The increase in allocation has been made to keep pace with the increase in the number of investment proposals received within the sector. This is likely to reduce the dependence on imports.
About 15 product categories fall under the M-SIPS Scheme now – smart cards, consumer appliances, Internet of Things products, to name a few. In the last two years (April 2014 – September 2016), the Government has received 192 M-SIPS applications worth USD 16.9 Billion from global OEMs/ODMs and component manufacturers.10 The EDF has been created to provide financial assistance in the areas of innovation and R&D. The Fund provides risk capital to both industry and academia for development of new technologies in the area of electronics.10 As of now, the Government has given their approval to four venture funds worth USD 27.5 Million and 12 venture funds have been approved for in principle commitment of USD 78.4 Million.12
The Electronics Manufacturing Clusters Scheme intends to promote the establishment of Greenfield and Brownfield Electronic Manufacturing Clusters to promote innovation and steer growth in the ESDM sector. In the case of Greenfield EMCs, assistance will be provided with a restriction of 50% of the cost of the project, subject to a ceiling of USD 7.6 Million for every 100 acres of land. For Brownfield projects, assistance will be provided with a restriction of 75% of the project with a ceiling of USD 7.6 Million.
In the last few years, the Government has initiated positive steps to create a favourable ecosystem for investors, under the umbrella of the Make in India initiative. The electronics industry has given a positive response to these initiatives and an increasing number of foreign companies are setting up their manufacturing units in India. With the Government’s vision to reduce the dependence on imports by 2020, India is poised to become a hub for electronics manufacturing.