The electronics industry has witnessed massive transformations over the last couple of decades. These have fundamentally been in the product area (across formats, technologies, and design), the development of the retail background (from classical to large-format techno-scientific stores and e-commerce), and a developing regulatory landscape. The requirements of both the industries and the consumers have changed, pointing to a demand for more innovation-driven products.
The industry’s environment has encountered extreme changes to keep pace with the dynamic demand patterns. The supply chains are now far more complicated, optimized, and diverse to satisfy the new business structure. Currently, a significant share of Indian demand is getting fulfilled by imports but the Indian electronics industry is stepping in into a period wherein the production of diverse elements will be native through administrative support and native manufacturing from the government of India.
The prolonger growth potential for the industry is hopeful, fundamentally because the market penetration is still feeble, currently standing at restricted digits for some divisions like industrial electronics and LED products. Additionally, the positive viewpoint of greater GDP growth rate, increasing disposable incomes, developing social and physical infrastructure (availability of water and electricity), more reliable logistics (promoted by upgraded road connectivity), the Digital India program, and the progress of retail will give extra impetus. It is the promise of sustainable prolonger growth that has captivated various international brands to India, few of them have set up manufacturing amenities here.
In particular, in the electronics sector, numerous policies such as Make in India, National Policy of Electronics, Net Zero Imports in Electronics, etc have been designed, as they indicate a dedication to development in domestic manufacturing, decreasing import dependence, boosting exports, and Eco-friendly manufacturing. Incentives to bring capital and means to develop the element supply base (involving the Phased Manufacturing Plan for mobiles to other divisions) will have to be sustained at the supply section, while also improving irregularities in GST on the demand side. Besides, despite the lockdown, the government of India has been regularly increasing incentives by the three major schemes it originated in April 2020 with a cost of ₹ 500 billion.
The government of India is concentrating on manufacturing electronics hardware in India, which appears to be the conceptual foundation for both the Digital India programs and Make in India. These actions promote domestic manufacturing and exports over the electronics system design and manufacturing (ESDM) value chain, intending to reach a market size of US$ 251 billion by 2023. The Indian electronics industry consists of seven foremost sections, including industrial electronics, consumer electronics, strategic electronics, broadcasting electronics, electronic components, strategic electronics, computer hardware, and LED products.
Aside from policies like the Make in India initiative, Digital India, and the National Policy on Electronics (NPE) 2019, the Indian government has also upheld the sector with the Electronics Development Fund (EDF), Preferential Market Access (PMA), the Phased Manufacturing Programme (PMP), the Modified Special Incentive Package Scheme (MSIPS), and by rationalizing the duty structure.
With the growing manufacturing charges in other marketplaces and the rising labor charges in China, coupled with the trade war between the China and USA, global industries are supposed to shift their units from China to India to assist global and domestic demand. Thus, it is assumed that the Indian electronics industry is possible to enhance its share in the global market.
A summary of the Indian market-
With the exponential increase in demand and supportive demand circumstances, the Indian market is poised to expand considerably in the coming five years, fundamentally on account of rising per capita incomes, the consumption of electronics assets (such as smartphones, customer electronics, etc), and increasing industrial demand.
Around 50% is met by imports from the entire electronics demand in India, whereas of the complete local electronics production, 16% is transported. The government of India is very keen to lessen electronics imports by forming a regional ecosystem for electronics manufacturing.
Slowly, the growth rate in indigenous production is outpacing growth in imports, which underscores the government’s focus on supporting new leads for the Indian electronics manufacturing industry. Currently, semiconductors and integrated circuits (ICs) are the main products being imported, as India lacks the essential ecosystem and technical know-how to create them.
Here are some important insights into the electronics trade in the Indian market:
- In FY 19, for the first time, electronics imports decreased as compared to the prior year. In opposition, both electronics exports and electronics production enhanced compared with the prior year.
- In FY 18, 75 % of the complete electronics imports constituted elements, computer hardware, industrial electronics, and strategic electronics.
- However, in FY 2019, for the first time, indigenous production overtook imports broadly due to the Make in India initiative and the decline in mobile data charges.
- In the industrial electronics section, the focus is moving, especially to solar and cleaner energy. In this part, imports satisfy 50 % of the local demand.
- With India importing substantial quantities of medical electronic equipment from the US, it is considered that imports in this section reached US$ 5 billion in FY 18. This section is supposed to see huge growth for local manufacturing.
- Computer hardware and software imports are notable due to the large-scale commercial uses of PCs, laptops, and business solutions.
- With older lights such as CFLs and ILs becoming technologically old-fashioned, the trend is to move towards more energy-efficient and environment-friendly products like LEDs.
India’s main exports are to the US, which composed 14 % of entire electronics exports from the country in FY 19. India’s import dependency on China has decreased significantly as imports from that country in FY 19 were 39 % of the complete electronics imports, as compared to 59 percent in FY 18.
The main imports included ICs, semiconductors, mobile phones, and electronic products for security/defense, in both FY 18 and FY 19.
Market segment analysis-
Currently, transmission and broadcast devices (mobile phones), as well as consumer electronics mutually, contribute over 50 % of the Indian electronics industry’s revenues. The other main sections involve industrial electronics (18 %) and electronic segments (15 %).
The industrial electronics section has been rising on account of the rising automation of manufacturing amenities coupled with a rising focus on harnessing renewable energy. Strategic electronics is a nearly guarded section with few significant players and huge barriers to entry. The section concentrates on products like radars, defense equipment, satellites, etc.
The computer hardware section is a small but developing segment, and the growth can be attributed to the demand from educational institutions and SMEs. LED products have continually been rising on account of the rising focus on energy-efficient illumination products. There has been a proliferation of brands in this section centering on commercial, residential, and industrial products.
Some of the fundamental growth drivers and hurdles present in the industry are mentioned below.
Accelerated urbanization and income growth: Fast urbanization, joined with income growth, has directed to higher affordability of goods and consequently a boost in demand for tablets, mobile phones, and other household devices.
Economic growth: India is one of the rapidly growing economies in the world, with the GDP assumed to grow regularly. The developing economic activity and deployment of the most advanced automation technologies across several sectors have positively impacted demand in the industrial and strategic electronics fields.
Government actions: The GST, Make in India, and other policies such as Preferential Market Access, have made the industry environment far more favorable for local manufacturing. The government’s flagship plans, such as Digital India and Smart Cities, are also raising the demand for electronic products. In April 2020, the government published three additional schemes which were announced by the Ministry of Electronics and IT (MeitY), allotting a sum of ₹ 500 billion (~ US$ 7.2 billion) in sum, for incentives under the schemes. These incentives are expected to support the regional production of electronics and anchor companies in the foremost electronics clusters in India.
The three schemes are:
- Production Linked Incentives (PLI)
- Modified Electronics Manufacturing Clusters (EMC 2.0)
- Scheme for the Promotion of Manufacturing of Components and Semiconductors (SPECS)
Emerging technology and innovation: Accelerated technology elevations and newer products with better technology have directed durable life cycles for electronic products. Also, changing customer opinions and consumer-to-consumer websites, such as Quikr, and Olx, have made it easier for customers to replace their existing electronic products with fresh devices.
Heightened demand for high-speed data has also contributed towards burgeoning demand for expensive smartphones. This growing choice for advanced technology products has stimulated agile and active innovation in consumer electronics. Emerging technologies such as IA, IoT, and the introduction of analytics and robotics in the industrial and strategic electronics segment, have all led to the overall development of numerous electronic products, which has given a rise to local demand.
A complicated value chain: The electronics industry is uniformly changing due to disruptive innovation, thereby raising the pressure on the value chain to update continuously. The sourcing and contractual interdependencies between suppliers and OEMs are now more complicated due to the extremely advanced technology of the elements, the number of components needed for a single finished product, the level of collection or assembly required, and the need to adapt to variations in product design. The Indian ecosystem for electronic components is still growing and has a long way to go.
A capital-intensive industry with short raw stock availability: The electronics industry is fundamentally dependent on the number and competence of domestic chip fabrication centers (fab centers). Fab centers need a dedicated ecosystem, which includes investment, the know-how of chip fabrication, raw stock supplies, the flow of demand, and unit up-gradation competence. Looking at the current scenario, India lacks most of the important resources for the development of domestic chip fabrication units. Thus, the development and design of electronic products are often outsourced to ODMs (original design manufacturers) in other countries with more effective designing and manufacturing capacities.
Sustainability: Developing regulations and standards for greener and cleaner technology are driving companies to be accountable for the manufacturing process as well as the end product. The entire recycling and disposal process for electronics requires to be recognized as an important element of the product life cycle.
E-waste management: India stands fifth globally among top e-waste producing nations. Consumers are abandoning old mobiles, PCs, tablets, and other electronics a lot earlier than before. Concerning this, e-waste management is slowly being taken thoughtfully in the industry.
The Indian market growth has predominantly seen consumption-driven extension in the last various years. However, the government’s assistance for the industry has been influential, with various conducive policies. Growth in our electronics manufacturing industry will place India among the leading economies of the globe. With this purpose, it is assumed that the growth momentum will be sustained over the upcoming decade.
These new consumers will stimulate the demand for consumer appliances, such as washing machines, air conditioners, and others. These product divisions are also the cornerstone of the growth in consumer electronics sales. While the growth is predominantly consumer-driven, the industry is also expected to accelerate innovation to raise the share of electronics across various applications. In the automotive industry, the government has published a draft announcement to ban all internal combustion engine-powered two-wheelers and three-wheelers by 2023 and 2025, sequentially.
The proposed change has generated the momentum to attract EV companies (manufacturers and their suppliers) to explore investments in Indian production. Likewise, a newer technology like 5G is expected to accelerate the growth and consumption of Indian electronics production.
With future investments in semiconductors, electronic elements, and ICs, India is seeing set to welcome another flow of growth in the electronics sector. This transition will be fuelled by a massive young population, developing research initiatives, and desirable investment policies. The impetus given by the government will give additional encouragement to indigenous manufacturing as India is prepared to be the next global hub for electronics exports and production.