India to be the next big Electronics Manufacturing Hub
The Electronics and Electrical Industry is experiencing a high growth rate in APAC countries – mainly India, China, South Korea, and Japan due to rapidly increasing demands. The electronic market in India is one of the largest in the world and is expected to reach $400 billion in 2020. Owing to the enabling policies by the government, the ‘Make in India’ and ‘Digital India’ initiative, local manufacturing in the Electronics Industry is currently a hot topic.
FDI in Electronics manufacturing in 2016 was an all-time high of $18.36 billion. The GST regime proposed to be implement from 1st July 2017, is also much awaited in the Electronics System Design and Manufacturing (ESDM) Industry, where the tax rates are projected to actually reduce further enhancing manufacturing in the industry.
The Indian IT-Electronics Sector has witnessed a consistent growth in terms of market size, however, challenges like high costs of power and finance, high transaction costs, prevalent tax structure and lack of development of a healthy supply chain, have kept India behind in electronics hardware manufacturing capabilities. To overcome these challenges, at the Pre- Budget Consultative Meeting held in December 2016, many suggestions were made to further boost manufacturing in the Electronics Industry. Some topics discussed were to consider excise and customs duty benefits to local producers be extended all Information Technology Agreement (ITA) goods, Customer Premise Equipment (CPE) goods to be included under the differential duty scheme for locally made devices, proposal for a ‘Component Trading Hub’ was also discussed for electronics and IT hardware manufacturing which would bring down logistics costs by creating a robust infrastructure for connectivity.
According to a report by Consumer Electronics and Appliances Manufacturers Association (CEAMA) and Frost and Sullivan, the Consumer Electronics Industry in India is projected to grow at a CAGR of 9.5%from 2015 till 2021. While taking about Consumer Electronics, India’s smartphone adoption is growing at a CAGR of 23% and the country overtook the US this year to become the world’s second-largestsmartphone market by users. With 42 mobile handset manufacturing units and 15 component manufacturing units been set up in the past two years, the mobile phone manufacturing industry, especially the component sector is in the lime light. Components worth $80 billion will be required for smartphones and feature phones sold in India over the next five years, compared to current $11 billion. The Industry has thus proposed to bring mobile phone components under the differential duty scheme in the upcoming Union Budget 2016-17 to strengthen India’s position as a global mobile phone manufacturing and export hub. The Indian Cellular Association has also proposed the finance ministry for a 10-year tax holiday for manufacturing mobile handsets which they believe will make India competitive against manufacturers like China and Vietnam. International companies like Apple Inc., Samsung Electronics Co. and Xiaomi Corp. have been vigorously focusing on the Indian market as growth in the U.S., China and other markets slows.
The IT and electronics ministry has reworked on the Modified Special Incentive Package Scheme (M-SIPS) which will be taken up for approval at the cabinet meeting this week. To attract investments in electronic manufacturing, the M-SIPS was notified in 2012 for both new and expansion projects. The scheme provides for 20-25% subsidy of capital expenditure, reimbursement of countervailing duty/excise for capital equipment for non-SEZ units and reimbursement of central taxes and duties for some high capital investment projects. Under the revisions, the subsidy timeframe will be reduced to five years from current 10 years, and no incentives will be provided for relocation of manufacturing under the scheme. The aim of this revision is to accelerate investments in the sector and simplify the subsidy disbursement process. The Union government has approved 75 proposals worth $885 million in the first phase under M-SIPS for manufacturing.
Under the CFC Scheme, the Government provides, 75% grant for the project for a minimum of seven companies. The Southern India Electronic Industries Chamber (SIEIC), together with 15 ESDM companies, is set to establish an Electronic Common Facility Centre (CFC) in the Electronic Manufacturing Cluster of Vellore district in Tamil Nadu through the Union Ministry of Electronics. The focus of the centre will be on electronics hardware manufacturing skill development, research and development to promote electronic hardware manufacturing and an innovation centre for engineering and design. In the later phase, the focus would be on establishing advanced electroplating for electronic industries.
The Indian Electronics Industry is certainly on the right track to becoming a preferred Manufacturing destination. International brands like Huawei, TristoneFlowtech, LeEco, Zopo Mobile, Panasonic, Havells, among others have invested in India in the past year. Other global Electronics companies like the UK based Dyson Ltd is planning to enter India in 2017, Japanese Akai re-enters Indian market. President of India Electronics and Semiconductor Association (IESA), M N Vidyashankar, projects an investment of $29.33 billion in the ESDM Industry in the coming four years. With the past paced developments and investments, it seems like the right time for global Electronic equipment and component manufacturing companies to enter and expand in the India market.