Will Indian electronics industry reach $280 bn in 2020?

The government need to focus on compensation for disabilities, implementation of PMA across government purchases; incentives for encouraging electronics exports and incentivising component-level manufacturing and ESDM Venture Fund

The Indian electronics industry is estimated to be $104 bn in 2016 and is forecast to reach $280 bn in 2020 thanks to consumer electronics (which includes mobile phone), industrial electronics, computers, communication & broadcasting, strategic electronics and electronic components.

India’s domestic electronic production is estimated to be in the range of $45 billion. The electronics sector contribution to India’s GDP is abysmally very poor and is just 1.8 per in comparison to China where it is 12.7 per cent and Taiwan where it is 15.5 per cent. Globally, electronics sector contribute 4.6 per cent to overall GDP.

With Indian economy growing and all sectors of electronics be it consumer electronics, industrial electronics, computers, communication & broadcasting, strategic electronics and electronic components growing due to domestic demand and exports. The market is ripe for increasing the size of electronics industry in the country with proper handholding by the government.

Indian Electronics Market Break-up:

Segment – Market Share (%)

Consumer Electronics – 29.7

Industrial Electronics – 20.9

Computers – 9.7

Communications & Broadcasting – 10.2

Strategic Electronics – 8.4

Electronic Components – 21.1

Source: ELCINA 

In India, the challenges faced by electronics industry are: market growing faster than domestic manufacturing therebyà increasing imports; very low value added manufacturing Real ‘Make in India’ not happening; continuing problem of inverted duties due to dual use inputs high input taxes makes Indian products uncompetitive; complex procedures for claiming ‘zero duty, actual user’ benefit, which is extremely cumbersome; high cost of finance, power and logistics; and regulatory and procedural problems.

To help the electronics industry grow, the government should focus on following activities: Compensation for disabilities; Phased Manufacturing Programme (PMP); implementation of PMA across central and state government purchases; incentives for encouraging electronics exports; policy for incentivising component-level manufacturing; EMC Scheme should be supported with ‘Turnkey Projects’ scheme to cut the gestation time; and ESDM Venture Fund for enhanced low cost investments.

With respect to compensation for disabilities, the government should provide open subsidy along with capex subsidy, production subsidy and benefit through direct tax. In Phased Manufacturing Programme (PMP), the product needs to be developed for progressively incentivizing domestic manufacturing of components/parts. The PMP should be shared in advance with the stakeholders for planning investments.

Implementation of PMA should be extended for national projects like Digital India, smart cities, UJALA, Street Lighting National Programme (SLNP) with domestically manufactured products for both central and state governments. MEIS incentives should be increased to 5-6 per cent from existing 2 per cent of FoB value of exports.

Similar advantage as was available through differential duty for a set of products such as set top boxes, security products and mobile phones may be maintained in the recently announced GST regime. This may be done by disallowing Input Tax Credit (ITC) on imports and refund of CGST portion of GST on domestically manufactured inputs/items.

ELCINA recommends that along with further lowering of customs duty on inputs/components used in assembling of zero duty items, simultaneous measures should be taken to nourish component industry in the country. This may be done by incentivizing value addition in the components segment. Higher incentives for those achieving high value additions.

The government may offer turnkey projects to credible manufacturers with proven track records. For these turnkey projects such as SMT lines etc. the modalities of the scheme may be defined after due deliberations with various stakeholders involved.

Huge investments are required to achieve the target of ‘Net Zero’ imports in Electronics by 2020, as per NPE 2012. For this the total investments in electronic industry are envisaged at $100 Bn. This is a distant possibility without having a mega pool of funds to be invested in ESDM manufacturing and research. A Venture Capital Fund exclusively for investing in electronics manufacturing units may be established and coordinated by a Nationalised Bank or a SPV in a PPP (Public Private Partnership) mode. To make this fund a reality, contributors to this fund may be offered tax benefits.

In the recently announced GST rates, the demerit rate of 28% has been fixed for electro-mechanical components and also for mobile chargers and adaptors. In fact, this is the only segment of electronic components where India has considerable capacity and capability. It is imperative that the rate of these is brought down to a maximum 18% and should not be more than the rate applicable on the corresponding finished product.

All these will definitely help Indian electronics industry to reach $280 billion by 2020.

 

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