Introduction
India's electronic manufacturing industry is poised for a transformative phase, driven by a convergence of favorable factors. According to a recent report by Equirus Securities, this sector is projected to experience a substantial annual growth rate of 41% until FY 26. This remarkable growth trajectory is attributed to the Indian government's proactive efforts to position the country as a key player in the global electronics manufacturing landscape, evolving global manufacturing trends, and the availability of a skilled labor force within the nation.
The report forecasts that by FY 26, the industry's valuation in India will soar to an impressive Rs 5,980 billion, a remarkable surge from Rs 1,069 billion in 2021. This projected growth underscores India's burgeoning potential as a global manufacturing powerhouse, poised to revolutionize the electronics sector.
Global Manufacturing Trends and the Rise of India
The report highlights a significant global shift towards India, as companies increasingly adopt the China+1 strategy to diversify their manufacturing operations. This strategic move is driven by various factors, including rising labor costs, geopolitical tensions, and supply chain disruptions in China. India's attractive business environment, skilled workforce, and proactive government policies have positioned the country as a viable alternative for companies seeking to mitigate risks and expand their manufacturing footprint.
To bolster the sector, the Indian government has earmarked a substantial Rs 760 billion for electronic manufacturing and has introduced several incentive schemes. These initiatives aim to attract global manufacturers and foster the development of a robust electronics ecosystem within the country.
Domestic Consumption and Export Dynamics
While the growth outlook for India's electronic manufacturing industry is optimistic, the report also highlights a notable trend – the decline in exports of electronic products from India. This decline is largely attributed to the surge in domestic consumption, fueled by increasing disposable incomes and rising consumer demand for electronic goods. India, which has traditionally been a net importer of electronics, second only to crude oil, has seen China and Hong Kong account for a significant portion of its electronic imports. However, the nation's electronic exports are dominated by mobile phones and Electronic Control Units (ECUs), with the United States and the United Arab Emirates emerging as major export destinations.
Domestic Production and Segment Breakdown
India's domestic production of electronics reached a substantial $101 billion in FY23, with mobile phones accounting for the largest segment at 43%, followed by consumer electronics (12%), industrial electronics (12%), electronic components (11%), and IT hardware (5%). Other segments, including strategic electronics, wearables and hearables, Printed Circuit Board Assembly (PCBA), auto electronics, and LED lighting, contribute to the diversified product portfolio.
Government Initiatives and Schemes
To position India as a global hub for Electronics System Design and Manufacturing (ESDM), the Indian government has introduced several schemes aimed at fostering a comprehensive value chain and bolstering the ESDM ecosystem. These initiatives include:
1. Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing and IT Hardware: This scheme aims to enhance India's manufacturing capabilities and exports, aligning with the vision of Aatmanirbhar Bharat (Self-Reliant India). It targets the development of globally competitive mobile phones, IT hardware products, and components.
2. Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS): SPECS targets the downstream value chain, encompassing electronic components, semiconductor/display fabrication units, Assembly, Testing, Marking, and Packaging (ATMP) units, specialized sub-assemblies, and capital goods used in manufacturing these items. The scheme offers a 25% financial incentive on capital expenditure for establishing new units or expanding/modernizing/diversifying existing ones.
3. Modified Electronics Manufacturing Clusters (EMC 2.0): The EMC 2.0 scheme aims to bolster the electronics manufacturing sector by facilitating the development of high-quality infrastructure equipped with shared facilities like Ready Built Factory (RBF) sheds and Plug and Play facilities. This initiative is expected to attract major global manufacturers and their supply chains to establish production units in India.
Semiconductor and Display Ecosystem
Recognizing the critical importance of semiconductors and displays in the electronics value chain, the Indian government has launched the Semicon India Program, with an incentive outlay of $10 billion. This initiative seeks to establish India as a global hub for semiconductor and display manufacturing, enhance self-reliance, fortify resilience in global supply chains, and propel India towards technological leadership in the industry.
Challenges and Opportunities
While India's electronic manufacturing industry presents significant opportunities, challenges persist. Sandeep Narula, Chairman of the Electronics and Computer Software Export Promotion Council, highlighted India's reliance on imported laptops, primarily from China, as a nuanced challenge akin to the country's dependence on imported olives for olive oil.
This reliance underscores the pressing need to cultivate a domestic semiconductor ecosystem to mitigate the 95% dependency on foreign semiconductors. Narula further acknowledged that India's decision to defer import restrictions on laptops and introduce an import management system until September 30, 2024, signals a strategic move aimed at bolstering domestic manufacturing capabilities.
Conclusion
India's electronic manufacturing sector is undergoing a significant transformation, positioning the nation as a global hub for electronics production. This transformation is expected to drive economic growth, create job opportunities, and foster technological innovation nationwide. With proactive government initiatives, evolving global manufacturing trends, and the availability of a skilled workforce, India is poised to capitalize on its potential and emerge as a formidable player in the global electronics manufacturing landscape.
As the country addresses challenges such as developing a robust semiconductor ecosystem and enhancing domestic manufacturing capabilities, the future of India's electronic manufacturing industry holds immense promise. By leveraging its strengths and seizing opportunities, India is well-positioned to redefine the global electronics value chain and contribute significantly to the world's technological advancement.
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