Electronics Industry in India: At the cusp of turning tide

The government could redirect the source-markets for electronic goods away from China — the single largest supply market now – to others like Singapore, Malaysia, Taiwan and the US. More than 90 per cent of the electronic goods imports from China are of integrated circuits, and television sets.

In the electronics sector, the country is heavily dependent on Chinese suppliers. Electronic goods account for 32 per cent of our overall imports from China which meets 40 per cent of our total imports of electronic goods, which includes consumer electronics, industrial electronics, computer and IT hardware, mobile  phones, strategic electronics, light emitting diodes etc.

Between April 2019 and February 2020, total imports of electronic goods stood at Rs 3.59 lakh crore. Out of this, imports from China stood at Rs 1.42 lakh crore or 40 per cent of total imports of such goods.We imported 98 per cent of parts used in electronic integrated circuits and micro assemblies from China. Similarly, our reliance on China was 93 per cent in colour TV sets and 90 per cent when it comes to imports of the subscriber-end equipment in the telecom industry.

Although the overall mobile phone imports declined sharply in FY20, the share of China increased in total imports. Cell phone imports almost halved to Rs 6,313 crore in April-February of FY2019-20 from Rs 11,304 crore in the full year of FY2018-19 primarily because of the increase in domestic manufacturing and the hike in import duty on handsets.

Imports from China also declined from Rs 6,265 crore in FY2018-19 to Rs 4,717 crore in April-February of FY2019-20. However, the share of China in overall imports grew from 55 to 75 per cent.

On rerouting the supplier base, we should diversify our imports basket until such time our indigenous production of electronic goods picks up.

Between 2014 and 2020, local production of electronic goods has grown at an impressive CAGR of 20.6 per cent and this can grow at much faster pace given the market. Local production of electronic goods grew to Rs 5.33 lakh crore in FY2019-20 from Rs 1.73 lakh crore in FY2013-14.

These electronic goods include consumer electronics, industrial electronics, computer hardware, mobile phones, strategic electronics, electronic components and light emitting diodes.

Until the domestic production increases, we can diversify the import baskets for electronic goods away from China by sourcing integrated circuits and colour TV sets from Singapore, the US, Malaysia and Japan; telecom equipment from Singapore, Taiwan, Germany, Israel and Japan; and non-automatic voltage regulators and stabilizers from Singapore, the US, Italy and Denmark.

The Indian market has shown a tremendous increase in the appliance and consumer electronics (ACE) market, which reached Rs 76,400 crore (US$ 10.93 billion) in 2019. The appliances and consumer electronics industry is expected to double to reach Rs 1.48 lakh crore (US$ 21.18 billion) by 2025, keeping in mind, the current push from the government of India with ‘Make in India’. Other technology transitions such as the rollout of 5G networks and IoT are driving the accelerated adoption of electronics products. Initiatives such as ‘Digital India’ and ‘Smart City’ projects have raised the demand for IoT in the market and will undoubtedly usher in a new era for electronic products.

Electronics hardware production in the country has increased from Rs 1.90 trillion (US$ 31.13 billion) in FY14 to Rs 4.58 trillion (US$ 65.53 billion) in FY19 and the demand for electronics hardware in India is expected to reach US$ 400 billion by FY24. The National Policy (DNP) targets production of one billion mobile handsets by 2025.

Television industry in India reached an estimated Rs 787 billion (US$ 11.26 billion) in 2019 and is projected to reach Rs 955 billion (US$ 13.66 billion) by 2021. Shipment of TVs in India increased 15 per cent annually to reach the highest-ever level of 15 million units in 2019. As of FY20, electronics, domestic appliances and air conditioner market in India were estimated to be around Rs 5,976 crore (US$ 0.86 billion), Rs 17,873 crore (US$ 1.80 billion) and Rs 12,568 crore (US$ 2.56 billion), respectively.

There is a lot of scope for growth from the rural market with consumption expected to grow in these areas as penetration of brands increases. Demand for durables like refrigerators and consumer electronic goods are likely to witness an increased demand in the coming years, especially in the rural areas as the Government plans to invest significantly in rural electrification.

White goods industry in India is highly concentrated. In washing machines and refrigerators, the top five players have more than 75 per cent of the market share, while in air conditioners and fans, it is around 55-60 per cent. On the other hand, kitchen appliances segment is fragmented with top five players having a 30-35 per cent market share. For the issuance of electronic Certificates of Origin (CoO), the Government launched Common Digital Platform, a single access point for all the exporters and all the Free Trade Agreements (FTAs) for all agencies concerned.

Growing awareness, easier access, and changing lifestyle have been the key growth drivers for the consumer market. The Government of India’s policies and regulatory frameworks, such as relaxation of license rules and approval of 51 per cent Foreign Direct Investment (FDI) in multi-brand and 100 per cent in single-brand retail, are some of the major growth drivers for the consumer market. According to the Department for Promotion of Industry and Internal Trade (DPIIT), between April and March 2020, FDI inflow in the electronics sector stood at US$ 2.79 billion. As per the revised FDI policy, the Government has introduced certain bars for E-commerce platforms from selling on their websites and has imposed a limit on how much one supplier can sell on their portal. Consumer durable loans in India increased 43 per cent y-o-y to Rs 6,495 crore (US$ 921.4 million) in FY20.

Consumer Electronics Imports – Past
India’s electronics imports touched a record $55.6 billion in FY19, against $51.5 billion a year before, and remained the largest driver of its trade deficit after oil, showed the latest official data. However, what offered policymakers some comfort was that electronics exports jumped as much as 39 per cent to a record $8.9 billion last fiscal, against 12.3 per cent in the previous year.

Imports to India plunged 28.40 percent from a year earlier to USD 28.47 billion in July 2020 as purchases were down for coal, coke and briquettes (-53.76 percent), machinery, electrical and non-electrical (-32.89 percent), petroleum, crude and products (-31.97 percent), organic and inorganic chemicals (-12.22 percent) and electronic goods (-4.31 percent).

Consumer Electronics Import – Present

The total global electronics hardware industry is about US$2 Trillion, out of which, India’s Production was about US$ 47 billion during the year 2016-17. The domestic consumption in India was about $ 86.4 billion during the year 2016-17, while exports were about US$ 6 billion.

The current value addition in the sector ranges from 5-30% in India, depending upon the constituent of value chain. For example, it is around 25-30% in components, whereas, it is approx. 5-15% at SKD assembly level.

Government efforts for uplifting electronics production and sales:

For transformation of Indian economy into digital economy, three schemes namely the Production Linked Incentive Scheme (PLI), Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) and Modified Electronics Manufacturing Clusters Scheme (EMC 2.0) have been notified by the Ministry of Electronics and Information Technology (MEITY) as of April 2020:

Production Linked Incentive Scheme (PLI): The Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing proposes a financial incentive to boost domestic manufacturing and attract large investments in the electronics value chain including mobile phones, electronic components and ATMP units. Production Linked Incentives of up to INR 40,951 crores will be awarded over a period of 5 years.


Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS): The Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) aims to strengthen the manufacturing ecosystem for electronic components and semiconductors. Target manufacturing of electronic components and semiconductors through the scheme will help meet domestic demand, increase value addition and promote employment opportunities in this sector. Incentives of up to INR 3,285 crore will be awarded under the Scheme over a period of 8 years. 

Modified Electronics Manufacturing Clusters Scheme (EMC 2.0): The Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme seeks to strengthen the infrastructure base for the electronics industry and deepen the electronics value chain in India. The development of industry-specific facilities like Common Facility Centers, Ready Built Factory, Sheds/Plug and Play facilities will not only strengthen supply chain responsiveness and promote the consolidation of suppliers but also decrease time-to-market and lower logistics costs. EMC 2.0, therefore, provides financial incentives for creating quality infrastructure as well as common facilities and amenities for electronics manufacturers. Financial Incentives of up to INR 3,762 crore will be disbursed over a period of 8 years.

Steps taken by the government to help the market during COVID 19

Indian economy has been jolted and disrupted majorly by the Coronavirus-19. It is the time to take every possible measure to upgrade and scale up telecommunication and information technology industry to save jobs and production for the present and lay-down the foundation for further. The highlights of the policy initiative taken by Government of India include:

  • Modified Special Incentive Package Scheme (MSIPs) subsidy of 25% of capital expenditure (20% in SEZs) is available and all excise/CVD paid on capital equipment is reimbursed.
  • Electronic Manufacturing Clusters Scheme which provides 50% of the cost for development of infrastructure and common facilities in Greenfield clusters (undeveloped or underdeveloped area from electronic manufacturing point of view) and 75% of the cost for Brownfield clusters (area where a significant number of existing EMC exists). Land can be made readily available in several of the new Electronic Manufacturing Clusters being supported by the Government of India. Currently around 30 Electronic Manufacturing clusters are notified and GoI is targeting for 200 Electronic Manufacturing clusters by 2020.
  • Preference to domestically manufactured goods in Government procurement. Extent of government procurement will not be less than 30%. Around 30 electronic products are already notified under this scheme.
  • Export of domestically manufactured Set top boxes and other electronic products are eligible for 2-5 % incentive in Focus Product Scheme under the Foreign Trade Policy.
  • Electronic Development Funds for Research & Development and Innovation in Electronics sector is under active consideration to support start-ups in electronics and IP generation in the area of electronics.
  • Department has accorded approval for setting up of two semiconductor wafer Fabrication (FAB) manufacturing facilities in the country.
  • To promote greater research in electronics and IT, Government of India will fund PhD students in Universities across the country for research in industry specific needs. 3000 PhDs will be generated through this program in the area of electronics & IT/ITES.
  • Providing opportunities for skill development for the private sector through two Sector Skills Councils- Telecom and Electronics. Under the scheme for providing support for skill development, Government of India provides 75% to 100% of training cost for industry specific skills for skilled and semi-skilled workers.
  • Opportunities for investment in testing laboratory infrastructure under the mandatory standards regime brought in force.
  • Several State Governments, including Andhra Pradesh and Karnataka have already announced complementary incentives as part of their State Electronic Policies. Electronic Manufacturing Clusters have been announced by states of Madhya Pradesh, Andhra Pradesh, Punjab, and Kerala. Other states are also in process of taking similar initiatives, thereby offering a host of incentives and facilities for ESDM investors.
  • In addition, to recognize and motivate the Micro Small and Medium Scale Enterprises (MSMEs) in the Electronic System Design & Manufacturing (ESDM) sector, the Government of India (GoI) has announced a national scheme for the sector. The Scheme aims at providing financial support to MSMEs to promote manufacturing, to build quality into Indian manufacturing and also to encourage exporters. The support under the Scheme will be provided in the form of reimbursement to the manufacturers in the MSMEs. The scheme for providing financial support as Grant in Aid is expected to benefit the manufacturers, domestic industry, exporters in the electronics sector. This will also assist to attract value added manufacturing involving medium and high technologies.