Electronic and Hardware Industry Needs Major Boost

by Manu Sharma    Feb 02, 2010

If the government does not take proper measures to boost the electronic and hardware production industry, India is unlikely to meet the projected target of US $125 billion by 2014 and US $400 billion by 2020.

Even though the US $1.75 trillion electronics market is the fastest growing manufacturing industry in the world is expected to reach US $2 trillion by 2014, however, in India the current demand stands at only US $45 billion. But has a potential to grow to US $125 billion by 2014 and US $400 billion by 2020.

Addressing the media at the ISAVision Summit 2010, B.V. Naidu, chairman of India Semiconductor Association (ISA) said, "As we realize that the electronic industry in India is at cusp of a large and growing opportunity, we need to be mindful that there has been many missed opportunities in past decade. So while the future holds a lot of promise, still a lot of challenges like inadequate infrastructure, tax structure, supply chain and logistics, inflexible labour laws, limited R&D focus, funding and limited focus to value addition and exports need to be resolved."

Last week, a presentation was made on the Recommendations of Sub-Committee of Taskforce set up by Department of IT, Government of India for stimulating the Electronics System Design and Manufacturing ecosystem (ESDM) in India. The recommendations of the sub-committee was headed by Ajoy Chowdhury, chairman of HCL Infotech; Som Mittal, President, NASSCOM; B.V. Naidu, Chairman, ISA; along with Kiran Karnik, former President, NASSCOM.

It said that while China has a 14.6 percent share in the global production from the electronic and hardware production industry and contributes 12.7 percent to the country’s GDP, India has only a 0.7 percent share in the global production from this industry and contributes only 1.7 percent to the country’s GDP.

"In fact, in Israel, the GDP contribution from the electronic and hardware production is as high as 23 percent," said Naidu.

The report said that even the domestic consumption has a great potential to grow at a CAGR of 22 percent for the period 2009-10. This is basically driven by a surge in income levels, the aspirational values of electronic goods, demand for a resurgent corporate sector and the government’s focus on e-governance. Domestic production is at present less than 45 percent of domestic consumption.

Some of the other challenges for the industry includes:

1.  Inadequate infrastructure

2.  Tax structure

3.  Supply chain and logistics

4.  Inflexible labor laws

5.  Limited R&D focus funding

6.  Limited focus to value addition and exports

Supply is not keeping pace with demand and hence increasing imports and also that the model hardware towns like Sriperambadur and Noida could not be replicated elsewhere.

But the opportunities include, domestic manufacturing companies can contribute 20 percent of GDP by 2020 and the Electronics industry can increase employment from 4.4 million currently to 27.8 million in 2020. "Long term vision of government should focus on access to public services, healthcare, energy, education, digitization and security," said Naidu.

Naidu said the electronic industry has a huge potential to leapfrog India just as it has done in the telecom sector. "Just as the government introduced wireless connectivity, on the electromechanical meters front, it should introduce smart meters (AMI), green energy, affordable devices, telemedicine on the healthcare and digital and virtual classrooms for education."

Naidu said some the recommendations to the government to catalyze the electronic industry growth are to establish a ‘National Electronic Mission’, promote existing clusters and create new ones, encourage ‘Made In India’ goods, create a R&D fund, creation of a manufacturing value addition fund and rationalize of tax structure to encourage long term investment by the companies.

Even on the employment side, the electronic industry can increase employment in the country significantly, since some of the segments such as electronic system manufacturing are human capital intensive. The industry employs around 4.4 million currently and this number is expected to grow to 16.1 million and 27.8 million in 2020.