• ‘Disability identification study’ with Ernst & Young

• ‘Analysis of opportunity & growth plan’ with Frost & Sullivan

India, January 13, 2014: India Electronic and Semiconductor Association (IESA), the premier trade body representing the Indian Electronic System Design and Manufacturing (ESDM) industry, released two studies today. The IESA-Frost & Sullivan Report analyses the growth & opportunity in the Indian ESDM market, while the ‘Disability identification study’ with Ernst & Young examines key macro issues that are impairing the growth of electronics manufacturing in the country.

The ESDM industry in India is expected to grow at a CAGR of 9.9% to reach US$94.2 billion by 2015. This is more than twice the growth rate of the global ESDM market and presents immense potential for the domestic market. Currently, 65% of demand for electronic products is met by imports in the country, and even the balance 35% which is manufactured in India is mainly “Low Value Added Manufacturing”. In this context, the two reports emphasize on developing an ecosystem for bridging the demand-supply gap and make concrete recommendations to the government to create a favourable environment for “High Value Added” electronics manufacturing facilities in India.

The ‘Disability identification study’ by Ernst & Young focuses on key issues across different electronic segments such as consumer electronics, IT systems and hardware and industrial electronics, and highlights key issues preventing the growth of indigenous manufacturing of electronics in India. The Frost & Sullivan report presents detailed product wise SWOT analysis of 25 high priority products that accounts for nearly 82% of the overall electronics consumption in India. It also has recommendations for bolstering an ecosystem to meet the demand of these 25 top products that are strategically important for the country. This report also captures 4 key components used in these 25 products, as the focus has to be for both Products as well as Component Manufacturing

Commenting on these reports, Mr. Sanjeev Keskar, Chairman, IESA said, “As per the government’s National Policy on Electronics we have a $100 billion investment target to meet by 2020. To put an entire ecosystem on track, certain fundamentals have to be set right. With the clear recommendations in this report, it’s time to adopt necessary changes to boost domestic product development and manufacturing. Ensuring speedy implementation of the new initiatives and taking corrective measures on certain key irritants will go a long way in building confidence ushering manufacturing investments into the country.” He added that “As this study corroborates, providing a favourable environment for developing the ecosystem in the country could eliminate disability costs associated with local manufacturing and lead to enormous development of the overall ecosystem. Focusing on the top 25 priority products along with key components could be a huge step forward in solving the problem.”

A summary of the issues as per Ernst and Young report and their impact:

• Tax related disabilities such as Basic Custom Duty (BCD) on import of end products, Higher Excise Duty for domestic manufacturers, STB, VAT, long procedures for availing concessional duty on import of components and more, collectively impacts to about 3% - 6% of revenue, for Indian manufacturers.

• Higher cost of finance impacts 2% - 14 % of revenue; this includes higher interest rates, greater cost of working capital financing, capital and design expenses.

• Poor domestic availability of components constitutes to about 3% -  5% of revenue, taking into account higher inventory carrying costs and additional freight cost due to import of components

• Higher manufacturing cost due to poor infrastructure forms 0.5% - 1.5% of revenue due to unreliable power supply and higher cost of real estate.

• Higher cost of international marketing impacts less than 1% of the revenue.

Summary of recommendations

• Speedy implementation of the various schemes of the National Policy on Electronics of 2012 including the EDF

• Give a boost to innovation and creation of Intellectual Property (IP) assets within India by encouraging setting up of both business Incubators, and Centres of Excellence in identified verticals

• Overhaul of the taxation structure for ITA-1 products – including grant of “Deemed Export” status, soft loans and interest subvention, VAT/CST rebate and BCD rationalization to overcome inverted duty structure

• Give a fillip to component ecosystem by encouraging domestic manufacturing of key components and establishment of a Free Trade and Warehousing Zone (FTWZ) to be setup near a major port or EMC, with same benefits under both EMC and M-SIPS scheme of the NPE-2012

• Reduce transaction costs by simplifying procedures and adopting self-declaration route as far as feasible

• Aggressively pursue anti-dumping cases, in order to protect domestic manufacturers

According to the Frost & Sullivan study, from the top 25 high priority electronic products that account for 82% of overall electronics consumption in India, the top 5 product categories alone account for 60% of the overall electronics consumption. Some of the high consuming electronic products identified are -

• Mobile Phones 38.85%

• FPD TV 7.91%

• Notebooks 5.54%

• Desktops 4.39%

Power electronics/supply, Processor, LCD Display, Memory and PCB feature among the top 4 components contributing to the product Bill of Materials (BoM) across majority of the top 25 high priority products. According to the report, 69% of local consumption of the top 25 priority products are currently met through imports.

Strategic recommendations by Frost & Sullivan:

• Aim to meet 50% of demand for 25 high priority products by local high value added manufacturing by 2018.

• Address >20 % of the disability cost in producing the high priority products locally by normalizing duty structure and cost of working capital.

• Provide subsidies / low interest loans to address working capital issues for SME manufacturers.

• Provide a single window system for quick clearance of applications under the M-SIPS and EMC policies.

• Skill Development Council to focus on developing skill-sets needed in the ecosystem for the 25 high priority products.

About IESA

The India Electronics & Semiconductor Association (IESA) is India’s premier trade body in the ESDM space. More information on IESA is available at www.iesaonline.org

Contact: 

Rahul Nag
Sonali Pappur Sadanand
Text100 India
+91 9958644228 / +91 9844489854