Electric push to electronics

By: | Published: March 6, 2017 3:39 AM

The Indian electronics system design and manufacturing industry is poised to reach $200 billion in the next three years as the ecosystem has evolved to give it much needed boost.

The electronic manufacturing services (EMS) segment has been one of the major beneficiaries of government’s focused effort towards developing ESDM sector.

The increasing pervasiveness of the Internet bringing along with the growing number of connected devices has boosted the power of electronics. The combination of hardware and software elements is driving the entire Indian electronic system design and manufacturing (ESDM) industry which is expected to double in the next three years.

The India Electronics and Semiconductor Association (IESA) along with EY in a recent report said that the ESDM industry is poised to grow at a CAGR of 16-23% to reach $171-228 billion by 2020 from the current level of around $100 billion plus. In 2015, India’s ESDM industry was at $82 billion growing at a CAGR of 8% from 2013.

Apart from sector specific drivers, the IESA-EY forecast is based upon several parameters such as overall GDP growth of India, currency movement, inflation, existing trade agreements, consumer sentiments, potential government consumption, existing government policies, investments (foreign and domestic), manufacturing entities and type of value addition in India. In the base case, the drivers are assumed to stay at existing levels or move as perforeseeable forecasts. However, in optimistic case all drivers are expected to stay positive leading to a significant growth (resembling a hockey stick growth chart) over the forecast period.

IESA chairman K Krishna Moorthy said, “We see the year ahead as a year where the ESDM industry will scale up in value addition and value proposition. With the ongoing digital revolution in the country and the thrust from the government to use technology to improve governance delivery to the people, the requirement for developing new and better innovative products and solutions are growing by the day. This has opened up a number of opportunities to promote both product and solutions

development and manufacturing them in our country.”

Favourable ESDM policy and initiatives such as Modified Special Incentive Package Scheme (M-SIPS), Preferential Market Access (PMA), Electronic Development Fund (EDF), duty arrangements, along with rising interest of MNCs and Indian enterprises in the sector have created immense positive impact on Indian ESDM value chain.

There are four main components of the ESDM industry: electronic products, electronic manufacturing services, electronic components and design services. In the electronic products segment, mobile devices remain the largest driver. This market is expected to grow at a CAGR of 17% over the next five years to reach $36.9 billion by 2020. The growth will be primarily driven by smartphone penetration increase and tablets seeing increasing use in government and education sector.

The electronic manufacturing services (EMS) segment has been one of the major beneficiaries of government’s focused effort towards developing ESDM sector. Indian EMS market is estimated to witness exponential growth of 42-68% over the next five years to reach $6-13.2 billion by 2020, driven majorly by mobile manufacturing in India and further supported by steady growth in other sectors such as strategic electronics.

Design services revenue is forecast to reach $23.5-29.2 billion by 2020 at a CAGR of 13-18%. The segment has shown a strong growth in the last ten years, witnessing entry of a number of domestic and global companies in Indian design services landscape. Leveraging abundance of local talent and presence of mature ITeS firms that have achieved significant scale; India has already emerged as an attractive destination for offshored ER&D services.

As a segment, design services revenue is heavily reliant on export demand. Though the domestic market has grown in last few years, it is at a nascent stage given limited cases of indigenous product companies generating domestic demand for offshored R&D services.

IESA president MN Vidyashankar said, “With the allocation and incentives of schemes like M-SIPS and EDF to R745 crore in this year’s budget, we believe that India will be the next manufacturing powerhouse of the globe.”

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At the same time, there are a few initiatives which need to be taken to seize the opportunity which includes the promotion of domestic manufacturing, setting up indigenous R&D innovation and lastly nurturing the required talent pool. This sector is certainly a multi-billion dollar market opportunity and the conditions seem favourable to reach this goal.

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