Indian ESDM sector: A promising road ahead

The Indian ESDM sector has ambitions of becoming a global hub

Friday, April 12, 2014: The harsh economic reality of recent times has forced the economies of many countries into recession, suppressing their growth and tempering the positive attitudes of the investors. As a result, governments have toppled and political sentiments have fluctuated wildly in an effort to arrest a seemingly interminable slide into economic depression. India, despite its temporary slowdown in the last few years, has not only withstood the adverse changes, but has also been introducing forward-looking policies to safeguard the long-term economic health of the country.

The Electronics Systems Design and Manufacturing (ESDM) sector ranks high among the various segments that the government has singled out as being crucial to the country’s economic prospects in the future. While the industry may not have achieved the exponential growth previously forecast, its performance in the last few years can be termed an achievement in view of the overall slowdown of the Indian economy.

Uninterrupted growth

Witnessing uninterrupted growth, the electronics industry in India is globally renowned for its consumption potential. Changing global landscapes in electronics design, manufacturing capabilities and cost structures have turned the attention of global companies towards India. MNCs are looking to build local capabilities in India not just to serve the domestic market but also to cater to overseas markets by establishing manufacturing and design hubs in India.

Consequently, the development of indigenous capabilities has blossomed across the ESDM value chain. India’s strengths in the design of electronic products and systems are well-recognised while the country also possesses niche capabilities in the manufacturing of certain electronics. Various applications markets across India, such as telecom electronics, automotive electronics, consumer electronics and industrial electronics, also have unique merits that could greatly spur the development of the ecosystem. The current focus of the government is rightly on providing the necessary impetus to take advantage of dormant capabilities across the various electronics markets and on developing the missing links so as to make the local ESDM sector globally competitive.

The Indian ESDM industry was approximately worth US$ 68.3 billion in 2012. The corresponding size of the industry by 2015 is anticipated to be US$ 94.2 billion, with the compounded annual growth rate (CAGR) during the period 2011-2015 expected to be 9.88 per cent.

Bridging the current demand-supply gap

Much of the electronics consumption in the country is currently served by imports. This does not bode well for India’s economic health in the long term. Electronics imports are currently the third highest on the country’s import bill next to crude oil and gold. The Indian government, through the Department of Electronics and Information Technology (DeitY), has instituted a number of forward-looking policies like the NPE (National Policy on Electronics), the NMP (National Manufacturing Policy), the MSIPS (Modified Special Incentive Package Scheme), the plans to set up semiconductor fabrication units, EMCs (Electronics Manufacturing Clusters) and an EDF (Electronics Development Fund) to foster the growth of the Indian electronics ecosystem. These initiatives are aimed at developing the ESDM industry in a holistic manner, by offering specific incentives for the development of each element in the value chain.

Upon performing a deep analysis of electronics consumption in the country, 25 products were identified that contributed to more than 80 per cent of the total revenue in the electronics markets. Providing the necessary support and incentives to eliminate roadblocks and disability costs associated with local manufacturing and value addition (with regard to these products) would enable enormous development in the overall ecosystem. Frost & Sullivan has identified the top seven products (Figure 1) across industry segments that have the potential for immediate indigenous development.

Development and sustenance of a robust design and manufacturing ecosystem

The most crucial elements for the development and sustenance of a robust ecosystem include:

• A healthy consumption economy with export potential

• Design, development and R&D capabilities

• Capability to locally source raw materials

• Availability of adequate infrastructure

• Favourable policy environment

• Availability of necessary skillsets

Local availability of components and raw materials is considered very significant for achieving high local value addition. Moreover, local supply of components ensures a faster turnaround time and lower production costs; this is why globally, component suppliers and manufacturers are located close to product manufacturing hubs. An absence of the associated components ecosystem is also a major disability in electronics product manufacturing in India. Likewise, the components that have been identified as having great potential to indigenise value addition across electronics products are: printed circuit boards (PCB), transformers and LCD displays.

These priority products and components constitute a significant percentage of not only the overall electronics consumed in India but also the value addition done in the country. Providing a favourable environment to develop the value chain for these products and components in the country can greatly contribute to high value-added indigenous manufacturing. Continuing domestic consumption, changing global supply chain dynamics, and the slew of policy measures introduced to support indigenous manufacturing are expected to positively influence local electronic systems design and manufacturing. Ensuring hassle-free implementation of the new initiatives and taking appropriate corrective measures will go a long way towards building confidence in the Indian business environment among global companies and ushering manufacturing investment into the country.