The Indian Electronics Industry is one of the fastest growing in the world and is expected to grow at a CAGR of 42.4% to reach $400 billion in 2020 from $100 billion in 2016. Electronics manufacturing is one of the key 25 focus sectors of the Make-in-India programme, which seeks to transform India into a global design and manufacturing hub.
In recent years, the sector has attracted huge investments in the form of M&As – one of the latest being the acquisition of Harman International by Samsung Electronics. Foreign companies are set to expand their investments in production, distribution and R&D in India in the next few years. Additionally, this growth is supported by the government through a wide range of policies and schemes:
- 100% FDI in the electronics hardware manufacturing sector is permitted under the automatic route.
- Initiatives such as the “Modified Special Incentive Package Scheme (M-SIPS) will provide a capital expenditure subsidy of 20-25%.
- Electronic Manufacturing Clusters (EMC) and Information Technology Investment Region (ITIR)
- An Electronic Development Fund (EDF) Policy has been approved to rationalize an inverted duty structure.
- The Indian Electronics & Semiconductors Association (IESA) provided a budgetary support of $110 million through schemes aimed at focusing on local manufacturing and design-led growth.
Furthermore, the government-intended reduction in imports is likely to push domestic electronics manufacturing. Imported mobile phones and other consumer electronics like chargers, headsets, batteries and USB cables will become more expensive due to the government’s decision to levy 10% customs duty on these goods with immediate effect. However, in order to boost locally made electronics, specified parts necessary for production, like touch panels, PCBA, ringers, and vibrator motors for phones will remain exempted from any sort of duty even under GST. Certainly, this will give a boost to the “Make in India” initiative. With the Goods and Services Tax (GST) implementation on 1st July 2017, taxes on electronic items have increased by about 4% to 5%. Previously a cumulative tax of about 23 to 28% was levied on electronic goods, but under the GST the slab has been set at 28%. However, Domestic electronic manufacturers are not much concerned as GST brings with it the much needed uniformity across the country.
The government’s push for local manufacturing especially of mobile phones is evident. With over 292 million users, India is the second largest smartphone market in the world. According to a recent report by Internet & Mobile Association of India (IAMAI) and Enixta Innovations, by 2020 nearly 96% of mobile phones sold in India will be locally manufactured.
The Indian electrical and electronics industry is not only gearing up to meet domestic demands but is also increasingly focusing on exports. India exported electronic goods worth $ 5.54 billion during April 2016 to February 2017, which marked a 4.25% growth in 2016-17. The increase in exports is helping the industry growth especially in products like power transformer, HV switchgear, energy meters and cables. Especially low voltage switchgears sales grew tremendously by 22% due to revival in growth of realty, infrastructure and other manufacturing industries. IEEMA director general Sunil Misra said, “Indian Electrical equipment industry is fully equipped, not only to meet the present domestic demand, but also geared up to meet likely demand arising out from capacity addition in the future.”
According to P. P. Chaudhary, Minister of State for Electronics and Information Technology, a combination of push and pull factors like minimal professional charges, low manufacturing costs together with a huge population and vast geographical area can work in favor of India and help it in becoming a global hub for the electrical and electronics manufacturing sector. Considering the huge demand growth for electronic hardware, India yields great opportunities for investments. In order to attract global companies, the Ministry of Electronics and IT has initiated various schemes as mentioned above in this article. Chaudhary further explained that with the help of foreign investment, the schemes are aimed at fundamentally changing the industry rather than just being a low-cost manufacturing destination. In this respect, he also stressed the need for India to promote research and development to stay abreast of technology in this digital age.
Key drivers for the electronic sectors development are the steady pursuit of digitalization, rising demands, as well as the availability of talent. Apart from rising disposable incomes, changing lifestyles and easier access to credit, the growing demand is also attributed to rising government and corporate spending. With focus on developing industrial corridors and smart cities, the government’s goal is to ensure a holistic development of the nation and to promote advance practices in manufacturing. Looking at the growth prospects, India’s electronics and electricals industry certainly offers various lucrative investment opportunities for foreign companies looking to invest in the country.
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