The Electronic Industry Growth in India
India embarked on its Electronics journey around 1965 with an orientation towards space and defence technologies. This was rigidly controlled and initiated by the government. This was followed by developments in consumer electronics mainly with transistor radios, Black & White TV, Calculators and other audio products. Colour Televisions soon followed.
After the software boom in mid 1990s India’s focus shifted to software. Moreover the steep fall in custom tariffs made the hardware sector suddenly vulnerable to international competition. In 1997 the ITA agreement was signed at the WTO where India committed itself to total elimination of all customs duties on IT hardware by 2005
The electronic industry is one of the most diversified and dynamic sectors, evolving at a rapid pace with continuous innovations. There is high modularity in the electronics industry, as a result of which an electronic production cycle can be segregated into many different parts which can be finally assembled. Therefore, production can be distributed over different geographies, making the role of global su pply chains pivotal for the industry.
The Indian Electronics Industry can be categorized into six sub-sectors, namely consumer electronics, industrial electronics, computers, strategic electronics, communication and broadcasting equipment and electronic components.
The largest segment is the consumer electronics segment and the largest export segment is of components.
In recent years the electronic industry is growing rapidly. One of the fastest-growing regional electronics sectors is located in India.
A host of factors like growth of middle class population, rising disposable incomes, increase in adoption of high end technology, rollout of new telecom networks like 4G & 3G combined with the low level of penetration in rural India are expected to propel the Electronic industry in India to a high growth trajectory
To meet these demand levels India needs to create its own high-tech, modern and competitive electronics industry. Otherwise, the imports of these products will create the single largest trade deficit item, which would even be larger than petroleum products. On the other hand, if this particular unique opportunity is utilized, it can create a large electronics industry catering to domestic consumption, which will help achieve self- reliance in strategic sectors like telecom and defence, while leading to large exports as well.
Restrictive regulations and a largely dysfunctional implementation of past support policies have constrained investment in plants and equipment and technology absorption and innovation. Electronics manufacturing remains disconnected from India’s chip-design capabilities which are integrated, instead, into global networks of innovation and production. India’s growing domestic demand for electronic products results in rising imports of final products and high import-dependence for key components.
The government’s National Policy on Electronics and schemes like Make in India is a first step on this path, but it needs to be complemented by reforms relating to taxation, customs, compliance, and inspections. Equally important are efforts to enhance the strategic use of technical standards and smart approaches to international trade diplomacy.
GST (Goods and service tax) will prove to be very much beneficial for electronics manufacturer as due to introduction of GST the ultimate cost of warehouses and logistics will get reduced and manufacturer will pass on this cost reduction benefit to the consumers and the ultimate consumers of electronic products will be benefited. Electronic products like Air Conditioner, refrigerator, Television, fan, cooler, etc. will get cheaper. However, the proposed rates are higher which can also prove detrimental to the industry which will further impact the sales, and a new draft rule and regulation is also proving the same as it proposed that even if the consumer is purchasing a new electronic item and availing exchange offers on the product, then the discount received will not consider anymore for the tax deduction. In the present scenario, one gets a discount on the VAT applicable as it is only on cash part but the upcoming goods and service tax will change this rule and will levy GST on the whole product price regardless of the discounted part. In current indirect taxation system consumer has to pay around 25 percent more than the actual cost of production due to the levy of excise duty and value added tax on manufactured goods and the expected rate of GST is 18 percent which will be beneficial for different industrial sectors including electronic industry.
Demonetisation has also presented a huge opportunity for the manufacturing sector, especially in the Indian electronics industry. The industry, thus far, was struggling due to the cash driven trading of electronic components, which bypassed the tax system.
Since most of the black money or surplus cash will now be sucked out of the system, cash transactions will be less, and so will the non-payment of taxes. Implementation of GST in the near future will also make it more difficult to avoid tax.
The combined effect of demonetisation and GST implementation is likely to provide the sector a much needed boost. According to industry sources, this could in fact result in a positive sentiment for FDI in this sector. The government has also decided to encourage this positive mood by announcing several relaxations and incentives for the Indian electronics industry.
To achieve its potential, electronics manufacturing must focus on “low-volume, high-value” production and on frugal innovation for the domestic market.
To achieve its potential, electronics manufacturing in India must focus on “low-volume, high-value” pro duction and on frugal innovation for the domestic market.
Diverse areas such as manufacturing, R & D, IP creation, manpower and training, standards, e-waste management, investment and the setting up of a National Mission are the immediate requirements for a growth in the Indian electronics scenario.
Some strategic initiatives that may be needed include
• Upgrade technology levels to bring it at par with global benchmarks;
• Develop manpower skills to support industry‘s future requirements;
• Secure supplies of critical input materials;
• Enhance customer centricity;
• Introduce policy changes to provid e a level-playing field to Indian electronics manufacturers;
• Develop and strengthen support infrastructure
Against the backdrop of the global recession, cost competitiveness, technological innovations and emerging markets are the key drivers of the industry’s transformational growth. Indian electronics industry has to use strategic planning to move ahead and capture a larger share in global market.