The Indian electronics industry is expected to reach $75 billion by 2017, claims a new study.
With the increasing penetration of consumer electronics products in semi-urban and rural areas, India will easily grow at a CAGR (compound annual growth rate) of 10.1 per cent to reach $75 billion by 2017 from $61.8 billion in 2015, notes the Assocham-EY study.
The rising manufacturing costs in China and Taiwan is leading many firms to set up production sites in India where labor is abundant and is relatively cheap. The study reveals that the average manufacturing labor cost per hour in India was $0.92 as compared to $3.52 of China.
“The electronic components industry in India was valued at US$13.5 billion in 2015, growing from US$10.8 billion in 2013 at a CAGR of 11%. The market is dominated by electromechanical components (such as PCB and connectors) which form 30% of the total demand, followed by passive components (such as resistors and capacitors) at 27% ,” noted the study.
Titled ‘Turning the Make in India dream into a reality for electronics and hardware industry’, the study is also critical on the fact that the manufacturing ecosystem for electronics and hardware industry in the country is still at a nascent stage and faces various challenges.
It could be that manufacturers in India do not add high electronic content in the products due to limited industry-specific standards. “Although global markets are witnessing rapid consumer uptake as electronic content increases across verticals; India has a slower adoption as consumers remain highly sensitive to even a marginal increase in product prices,” the study notes.
“Due to nascent stage of electronics manufacturing in India, scale of operations is low, resulting in reduced cost competitiveness. Traditional electronics manufacturing destinations such as China, Taiwan and South Korea have built significant capacities across manufacturing value chain.”
So even if the labor cost was cheap in India, labor productivity stood lower than traditional destinations. In addition to that, the basic infrastructure for industry purposes is not up to the mark. “While the government has notified Greenfield Electronic Manufacturing Clusters, they still remain un-operational due to infrastructure issues,” the study said.
Other challenges brought up by the study includes: the current labor scenario with less relevant skills; the lack of training centers; the high cost of working capital and capex-related financing due to high interest rates; and the complex taxation system.
In addition to those, the study notes that procedural and regulatory clearances are time consuming and complex. “According to industry sources, it takes up to a year to set up a manufacturing plant in the country and a new production line could take up to six months to become fully operational,” it said.