India is set to become the next global electronics manufacturing hub.
With a population nearing 1.4 billion, and per capita disposable income and private consumption having doubled in the past seven years, India has emerged as one of the largest markets for electronics products in the world. In 2019, its electronics market was valued at $118 billion, composed of mobile phones (24%), consumer electronics (22%), strategic electronics (12%), computer hardware (7%), LEDs (2%) and industrial electronics (34%) comprising of automotive, medical, and other industrial electronic products, according to Invest India.
The country has experienced rapid growth in domestic electronics production—from having $29 billion worth of production in 2014 to $75.7 billion in 2019. Mobile phone production, in particular, registered more than fivefold production growth, from 60 million units in 2014 to 330 million units in 2019. India’s share in global electronics manufacturing has also grown—from only 1.3% in 2012 to 3.6% in 2019.
In fact, under Prime Minister Narendra Modi’s initiatives such as the “Digital India” and “Make in India” programs, the country has witnessed an unprecedented growth in electronics manufacturing in the past five years. The National Policy on Electronics 2019 envisions positioning India as a global hub for electronics system design and manufacturing (ESDM) by focusing on size and scale, promoting exports, and enhancing domestic value addition by creating an enabling environment for the industry to compete globally.
While the highest growth is in demand for smart phones, lighting products, security products as well as industrial technologies, there is also significant expansion in markets for medical electronics, defense, and emerging technologies such as 5G, IoT, Industry 4.0, and smart cities. According to Invest India, the country’s electronics market is forecast to reach $400 billion by 2025.
The biggest challenges facing India’s electronics manufacturing industry
While the outlook is bright for India’s electronics market, one of the electronics manufacturing industry’s biggest challenges is the cost disadvantage being faced by component manufacturers.
“Component manufacturing is characterized by high value addition and consequentially faces higher disabilities, ranging from 10–10.5%. Similarly, EMS companies face disability costs ranging from 6–7%,” says Paresh Vasani, president of the Electronic Industries Association of India (ELCINA).
Established in 1967, ELCINA is a forum formed to deliberate on the ways in which the electronic component industry could be developed to satisfy the local demand and reduce dependency on imports in the shortest possible time. ELCINA was the first industry association supporting electronics hardware, when India’s electronics industry was still in its infancy. Since then, ELCINA has established itself as an interactive forum for electronics and IT manufacturers, actively interacting with the government and advising on policy and business environment issues. It networks with technical institutions and business support organizations in India and abroad to enable business expansion and information dissemination on technical developments.
“Regarding materials and consumables, India faces a 5.88% disability in relation to other countries, particularly with China due to its large scale and well-developed supply chain ecosystem.”
These costs are distributed across key cost components such as manufacturing process cost—where India has an advantage—but there is a disadvantage in cost of finance, power, and logistics.
“Labor costs in India are comparable to other competing countries when compared on the yardstick of wages as well as productivity,” says Vasani. But he notes that the lack of availability of components and the high import dependence are a significant challenge.
“There is a huge gap in supply of electronic components such as PCBs, capacitors, resistors, chip components and semiconductor devices,” he says. “The recent disruptions in the global supply chain and challenges posed by the COVID-19 pandemic have further exposed the weakness and gaps in our supply chain. We need to invest a lot more to bridge these gaps and improve our self-reliance.”
Government support and initiatives
The Indian Government has recognized the need to strengthen the country’s electronics industry and has formulated two National Policies on Electronics, in 2012 and an updated policy in 2019. These policies have set an ambitious target of increasing electronics manufacturing in the country to $400 billion by 2025.
“Various schemes have been drafted under this policy to encourage investments in new electronics manufacturing facilities as well as expansion of existing ones,” explains Vasani. “This scheme is called SPECS—Scheme for Promotion of Electronic Components and Semiconductors. Further, there is the Production Linked Incentive (PLI) Scheme, which is very popular and has a very high budget allocation. The first PLI Scheme launched in 2019 was for mobile phone manufacturing and selected components, which was allocated $5.5 billion. This has been followed by a larger PLI Scheme under Atmanirbhar Bharat [Self-Reliant India] in 2020 to support seven segments, including advanced cell chemistry, automobiles and auto components, telecom and networking products, solar PV modules, white goods (air conditioners and LED lights), IT hardware, and other electronic/technology products. This policy has a budget of $14.94 billion.”
In addition to the above, there is an Electronic Manufacturing Clusters (EMC) Scheme to develop industrial parks and provide modern manufacturing facilities and a competitive environment to investors.
Vasani notes that there are several other national initiatives in progress to support R&D, startups, e-waste management, and focus on innovation. Several state governments have also launched their policies for the electronic systems design and manufacturing sector to encourage investments in their respective states.
“Almost $20-25 billion have been allocated to financially support the electronics industry over the next five to six years and enhance its competitiveness,” says Vasani. “There is also a consistent effort to encourage sourcing locally from manufacturers based in India. The Government itself is increasing its purchases from local sources through a Preferred Market Access policy.”
For ELCINA’s part, Vasani notes that they constantly endeavor to upgrade their services to uphold the vision and objectives of ELCINA. Efforts include active industry-government interface and networking with key decision-making bodies to ensure that supportive policies are formulated, and industry challenges are mitigated.
ELCINA has co-promoted Electronics Sector Skills Council of India (ESSCI) together with other sister associations, with support from the National Skill Development Corp. (NSDC), to develop and impart skills development programs throughout the country. “In the same vein, under the umbrella of ELCINA Centre for Knowledge Management, we organize training and interactive programs and workshops. To recognize excellence, ELCINA instituted the Annual ELCINA Awards for Excellence in Electronic Manufacturing & Services over 40 years ago—and these have served as a great encouragement for the industry stakeholders to perform better.”
The association has also been intensively involved in facilitating the establishment of greenfield and brownfield clusters and promoting companies to invest in these clusters with support under the National Electronics Policy. To support decision-making by members, ELCINA also provides advisory and consultancy services on business viability, opportunities, and market trends as well as consultancy support in availing benefits under the various Schemes mentioned before.
“In addition, we have established an electronics cluster/park near New Delhi, where about 15 companies are setting up their facilities. We are developing new platforms for business promotion and engage very actively with electronic industry associations in Taiwan, Japan, South Korea, and Europe to promote collaborations and business opportunities,” says Vasani. “ELCINA’s focus has been to supporting domestic manufacturing and we do so for all companies, whether local or global. One of our criteria is that the company should establish operations in India and strengthen our electronics value chain.”
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