Catching up with China and South Korea


The National Electronics Policy 2019 is a comprehensive document that envisions India as a global hub for the design and manufacture of electronic systems. It stimulates the capabilities to develop basic components, including chipsets, and to create an environment for the industry to be competitive on a global scale.

Between 2015 and 2020, national electronics production grew from $ 29 billion to $ 81.5 billion, a compound annual growth rate (CAGR) of 23%. The country’s share of global electronics manufacturing has tripled from 1.3% in 2012 to 3.6% in 2019, and electronics manufacturing now accounts for 2.7% of India’s GDP.

Exports of electronic products increased by 34%, from $ 8.8 billion in 2018-19 to $ 11.7 billion in 2019-2020, and accounted for up to 3.74% of total exports, for the same period. However, electronics imports fell only 4%, from $ 57.4 billion in 2018-19 to $ 54.4 billion in 2019-2020. Domestic demand for electronic equipment is expected to increase to around $ 400 billion by 2025. Even 10 percent of this equipment manufactured in the country would lead to the creation of significant income or jobs.

India is now the second largest manufacturer of mobile phones, although most of the components are imported. National added value is still low at 10-30 percent. This is due to the lack of ecosystems to manufacture electronic components, semiconductors, and displays.

The main growth in domestic electronics manufacturing has occurred through the assembly of finished products from imported electronic components or sub-assemblies or parts, mainly catering to domestic demand. The challenge is that the manufacturing of critical components such as displays and semiconductors is capital intensive and the technology is constantly evolving.

The component factor

Components are at the heart of electronic products. For example, screens account for 25% of production costs for smartphones and up to 70% for televisions and other larger screens.

Overall, the establishment of such facilities has only been possible with substantial government support. Countries like China and South Korea understood the strategic importance of electronics manufacturing decades ago and have invested heavily in building the ecosystem, from R&D to logistics and skills. These countries now control about 48 percent of the global electronics manufacturing market.

The Chinese government, for example, has provided investments and grants of up to 60 percent of the project cost, preferential lending rates down to zero, and even grants of 50 percent of R&D costs outside of the project. preferential tax rates, free land, import duty exemptions on procurement of equipment and components and import-export tariff rate adjustments.

Likewise, the South Korean government has provided financial support to specific clusters in the form of an SME support fund, a fund for the construction of factories, special expenses for critical components of a multi-million dollar value as well as tax incentives, exemptions and discounts on property tax, composite property tax, materials, parts and equipment. South Korean companies have also obtained low-interest loans and the duty-free importation of some capital goods.

India, on the other hand, after moderate success of M-SIPS and PMP policies, has developed the SPECS policy which aims to provide a 25 percent financial incentive on capital expenditure for the identified list of products. electronics such as key electronic components, semiconductor manufacturing units and displays.

In addition, the PLI program offers a 4 to 6 percent incentive on additional sales of products made in India and covered by target segments, to eligible companies, for only five years. While the government’s focus and effort on electronics manufacturing is laudable, it is still insufficient to take on China, Taiwan and South Korea in this fiercely competitive industry.

Industry estimates show that India’s electronics manufacturing sector suffers from a handicap of around 15-18% due to inadequate infrastructure, a national supply chain and logistics issues; high financing cost; insufficient availability of quality electricity; limited design capacity and focus on R&D by industry; and gaps in skills development.

If India is to become the world’s next electronics manufacturing hub, the government must seriously push for aggressive support for the FAB ecosystem, both for semiconductors and displays. A single FAB display unit could generate billions of dollars in tax revenue, currency savings, increased domestic added value, and thousands of jobs generated due to the creation of an entire upstream and downstream ecosystem. for the manufacture of electronic products.

In a few years, India could potentially completely replace the need for imports and its dependence on China. If we are to truly achieve the vision of the NPE, we have to be prepared to provide much more support in the short term, for the bargains of the future.

The author is an angel investor and business strategist

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