Foreword
Along with strong Gross Domestic Product (GDP) growth, approximately one sixth of the world's population and a growing per capita income, India has been on the forefront of consumer demand. While demand has been increasing across all sectors, the demand for electronic products has registered significant growth in the last decade. The domestic Indian market for electronics hardware (electronic products and electronic components) is estimated to be USD 64 billion in Financial Year (FY) 2015-16.
The total electronics equipment production of India in 2015 was estimated at USD 1,861 trillion. Over the years, production bases have shifted from the US and the European Union (EU) to Asia, whose share in global production has increased to over 60%. However, India only represents 1.5% of the world's electronic hardware production.
In its current state, the major issue plaguing the Indian electronics hardware industry is that approximately 58% of the local demand for electronic products and components are being fulfilled by imports. Even amongst the items which are domestically manufactured, local value addition is very small. This discrepancy is mainly caused due to the inverted duty structure on hardware for electronics, the nascent components ecosystem in India, the high-cost of finance, infrastructure deficiency and proximity to developed production countries such as China, Taiwan, etc.
However, the Indian government has recently realised the potential of the electronics industry in terms of its importance to GDP growth and providing employment. The National Policy on Electronics (NPE), Make in India and Digital India are significant steps towards supporting the manufacture of electronics hardware in India.
The NPE proposes the set-up of over 200 electronic manufacturing clusters. The government has showed its strong intention towards achieving zero dependency on imports for meeting the electronics hardware demand through policies such as Modified Special Incentive Package Scheme (M-SIPS), Electronics Development Fund (EDF), Preferential Market Access (PMA), etc. These initiatives will facilitate growth in local manufacturing of electronics hardware over the coming years.
Industry Overview
Electronic hardware production in India has grown to approximately USD 33 billion in FY 2015-16 while simultaneously, imports have increased considerably to USD 37 billion. India also exported electronic goods amounting to USD 6 billion. With favourable demand side conditions, the Indian market is poised to grow considerably within the next 5-10 years. Realising its potential for economic growth, the Government of India (GOI) had given a high priority to the manufacturing of electronics and IT hardware which has the potential to generate domestic wealth and employment apart from enabling a cyber-secure ecosystem. In the past, efforts such as 100% Foreign Direct Investment (FDI) permitted under the automatic route, no industrial license requirement, payment of technical know-how fees and royalty for technology transfers have facilitated the rapid growth of the electronics hardware (including telecom) manufacturing sector.
However, these efforts have not led to a substantial impact; partly because India is a signatory to the Information Technology Agreement (ITA-1) which has resulted in a zero duty regime on the import of goods covered under the agreement. India has also executed Free Trade Agreements (FTAs) and Preferential Trade Agreements (PTA) with several countries/trading blocks which enabled the zero duty import of items not covered under the ITA. Other hampering factors include the lack of reliable power, high cost of finance, poor logistics and infrastructure, weak component manufacturing bases, lack of targeted and proactive R&D in collaboration with the industry, etc. However, with the advent of NPE, Make in India, Digital India and other initiatives, the GOI has shown its intent towards facilitating electronic manufacturing in India.
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