Electronics System Design & Manufacturing (ESDM) Industry in India

Introduction

India witnessed a substantial spike in demand for electronic products in the last few years; this is mainly attributed to India’s position as second-largest mobile phone manufacturer worldwide and surge in internet penetration rate. The Government of India attributes high priority to electronics hardware manufacturing, as it is one of the crucial pillars of Make in India, Digital India and Start-up India programmes. The Electronics System Design & Manufacturing (ESDM) sector plays a vital role in the government’s goal of generating US$ 1 trillion of economic value from the digital economy by 2025. With various government initiatives aiming to boost domestic manufacturing, India has already started witnessing initial movement with increased production and assembly activities across products such as mobile phones and other consumer electronics.

Market Size

• Electronics market has witnessed a growth in demand with market size increasing from US$ 145 billion in FY16 to US$ 215 billion in FY19—the market witnessed a growth of 14% CAGR from 2016-19.
• In FY20, imports accounted for US$ 50 billion, wherein China and Hong Kong accounted for ~US$ 28 billion, or ~57% of India’s total electronic imports.
• India’s exports of electronic goods were valued at US$ 11.7 billion in FY21.
• In India, smartphone shipments reached 150 million units and 5G smartphone shipments crossed 4 million in 2020, driven by high consumer demand post-lockdown.
• The Electronics System Design & Manufacturing (ESDM) is broadly segregated into—electronics system and electronics design.
• Electronics system market is expected to witness 2.3x demand of its current size (FY19) to reach US$ 160 billion by FY25.
• Electronics design segment, growing at 20.1%, was 22% of the ESDM market size in FY19; it is anticipated to be 27% of the ESDM market size in FY25.
• In FY20, the production value of mobile devices reached US$ 30 billion from US$ 3 billion in FY15
• The consumer electronics and appliances industry in India is expected to become the fifth largest in the world by 2025.

Investments

According to the Department for Promotion of Industry and Internal Trade, from April 2000 to December 2020, Foreign Direct Investment (FDI) equity inflows stood at US$ 3,000.35 million.

The following are some recent investments and key developments in the Indian electronics and ESDM sector:

• In April 2021, Japanese electronics brand AIWA, which registered its India subsidiary in February 2021, is relaunching with five products in the TWS (True Wireless Stereo) and audio segments at a total investment outlay of US$ 10 million for Phase-1 of operations.
• The government has set a target to get ~Rs. 18,000 crore (US$ 2.4 billion) investments in the electronics manufacturing segment by 2021-22.
• In January 2021, Panasonic Life Solutions India, a wholly-owned subsidiary of Panasonic Corporation, announced that it will invest Rs. 600 crore (US$ 82.34 million) to set a up a new electrical appliances manufacturing facility in Sri City, Andhra Pradesh.
• On February 16, 2021, Amazon announced that it will commence manufacturing of electronics products from India with Cloud Network Technology, a subsidiary of Foxconn in Chennai, later in the year. The device manufacturing programme will be able to produce ‘Fire TV Stick’ devices in large quantities every year, catering to demands of customers in India.
• In January 2021, boAt, a earphones and smart wearable manufacturer, received an investment of US$ 100 million from Warburg Pincus, a key private equity firm.
• In December 2020, Lenovo announced its plan to start manufacturing tablets in India and expand its laptop manufacturing by 10x. The company is also expecting to grow by 25-30% in the current fiscal year, due to increase in demand from the education segment and large enterprises.
• In December 2020, to establish the required ecosystem at Noida, the Indian Cellular and Electronics Association (ICEA) proposed the establishment of a centre of excellence in Noida for product-based Li-ion cells (post-cell). This has been approved and groundwork will begin as soon as the Government of India receives sanctions. In partnership with the Ministry of Electronics & Information Technology and industrial associations, the government will create three centres of excellence.
• In November 2020, to explore incubation and mentoring opportunities for infrastructural funding and international visibility for Semiconductor Fabless Accelerator Lab (SFAL) start-ups, an MoU was signed between the Semiconductor Fabless Accelerator Lab (SFAL) and US-based Applied Materials, Inc. The agreement aims to accelerate existing fabless SMEs to the next level and promote domestic innovation and create more job opportunities in the electronics device design and manufacturing (ESDM) market.
• On November 26, 2020, the Ministry of Electronics & Information Technology (MEITy) and IBM India Pvt Ltd. collaborated to create an education and skilling ecosystem for the next-generation of innovators through the Common Services Centre Academy.
• In October 2020, Tata Group announced plans to invest Rs. 5,000 crore (US$ 673.20 million) to set up an Apple phone component plant in Hosur, Tamil Nadu.

Government Initiatives

• As per Union Budget 2021-22, the Ministry of Electronics and Information Technology (MeitY) has been allocated Rs. 9,720.66 crore (US$ 1.33 billion). In the allocated budget, revenue expenditure allocation is Rs. 9,274.66 crore (US$ 1.27 billion) and capital expenditure allocation is Rs. 446 crore (US$ 61.34 million).
• The key government initiatives such as ‘Make in India’ and ‘Digital India’ improved the country’s EoDB. In 2021-22, the total budget allocation towards the ‘Digital India’ programme is Rs. 6,806.33 crore (US$ 936.19 million).
• In January 2021, the India Cellular and Electronics Association (ICEA) proposed a RoDTEP rate of 2% on smartphones, 2.4% on featurephones, 2% on tablets/laptops, 3.4% on battery chargers and 1.48% on battery packs.
• In December 2020, the Government of India issued expression of interest (EoI) to set up or expand the existing semiconductor wafer/ device fabrication (FAB) facilities in the country or acquire semiconductor FABs overseas.
• To accelerate quantum computing-led research & development and enable new scientific discoveries, the Ministry of Electronics and Information Technology (MeitY), in collaboration with Amazon Web Services (AWS), will establish a quantum computing applications lab in the country.
• On November 11, 2020, Union Cabinet approved the production-linked incentive (PLI) scheme in 10 key sectors (including electronics and white goods) to boost India’s manufacturing capabilities, exports and promote the ‘Atmanirbhar Bharat’ initiative.
• On December 02, 2020, ‘Hubli ESDM Exchange’ (HEX), an incubation centre for the development of electronic device design (ESDM), backed and funded by the state government’s Karnataka Innovation & Technology Services (KITS) and managed by the India Electronics & Semiconductor Association (IESA), was launched at the KLE Tech Park of the KLE Technical University (KLETU) in Hubballi.
  • A fund of Rs. 3.2 crore (US$ 433.46 thousand) for three years has been approved by the Department of Electronics, IT, BT, Science & Technology.
• As per the Union Budget 2020-21, Ministry of Electronics and Information Technology (MeitY) has been allocated ~US$ 920 million. In the allocated budget, revenue expenditure allocation is ~US$ 870 million and capital expenditure allocation is US$ 50 million.
• In October 2020, the government approved applications of 16 electronics companies including 10 mobile phone manufacturers for reward under the product-linked incentive scheme for a total disbursement of Rs. 40,000 crore (US$ 5.44 billion). The international mobile phone manufacturing companies approved to avail incentives for manufacturing mobile phones with invoice value Rs. 15,000 (US$ 204.35) and above are Samsung, Foxconn Hon Hai, Rising Star, Wistron and Pegatron.
• The Government of India has allowed 100% Foreign Direct Investment (FDI) under the automatic route in the ESDM sector. In case of electronics items for defence, FDI up to 49% is allowed under automatic route and beyond 49%, government approval is required.

Currently, India is undergoing a digital revolution leading to a surge in the consumption of electronics devices in India. This growth is mainly attributed to increasing middle-class population, rising disposable incomes and declining electronics prices in the country. Besides, India has been one of the largest consumers of electronic products, specifically in Asia-Pacific, owing to rising per capita disposable incomes and consumption in the past decade.

With this spike in demand for electronic products, the electronics system design & manufacturing (ESDM) sector in India is predicted to reach ~US$ 220 billion by 2025, expanding at a 16.1% CAGR between 2019 and 2025. The ESDM was valued at US$ 90 billion in FY19 and is segmented into electronics system (78%) and electronics design (22%). The high internet penetration rate and India’s position as the second-largest smartphone manufacturer worldwide boosted the penetration of electronic products, which in turn is driving ESDM market. The government intends to incentivise and attract investments to set up semiconductor FABs (fabrication plants) in India.

To support the ESDM sector and its growth path, the government has made electronics production as a vital pillar of many initiatives such as ‘Make in India’, ‘Digital India’ and ‘Start-up India’. The ESDM sector holds a position of crucial importance in the government’s goal of generating US$ 1 trillion of economic value from the digital economy by 2025.

In India, smartphone shipments reached 150 million units and 5G smartphone shipments crossed 4 million in 2020, driven by high consumer demand post-lockdown. India’s export of electronic goods reached Rs. 8,806 crore (US$ 1.2 billion) in December 2020; mobile phones contributed 35% of the export.

For defence electronics, FDI inflows in this sector up to 49% are allowed under automatic route and beyond 49% through government approval. From April 2000 to September 2020, Foreign Direct Investment (FDI) equity inflows stood at US$ 2,941.91 million. The government allows 100% FDI in the ESDM sector through an automatic route to attract investments, including original equipment manufacturers (OEMs) and integrated device manufacturers (IDMs). The government has set a target to get ~Rs. 18,000 crore (US$ 2.4 billion) investments in the electronics manufacturing segment by 2021-22.

Under Union Budget 2021-22, the government has set a target to get ~Rs. 18,000 crore (US$ 2.4 billion) investments in the electronics manufacturing segment by 2021-22. It has also allocated Rs. 2,631.32 crore (US$ 361.50 million) to promote electronics and IT hardware manufacturing programmes (Modified Special Incentive Package Scheme (M-SIPS), Electronics Development Fund (EDF) and Manufacturing Clusters).

On April 1, 2020, the government announced three new schemes to position India as a global hub for the ESDM sector and push further the vision of the National Policy on Electronics (NPE) 2019. These schemes include Production Linked Incentive Scheme (PLI), Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) and Modified Electronics Manufacturing Clusters scheme (EMC 2.0). Of these, the PLI, one of the significant incentive schemes, is aimed at boosting domestic manufacturing of mobile phones and their components, including Assembly, Testing, Marking and Packaging (ATMP) units. As a part of this scheme, ~US$ 5.7 billion (Rs. 420 billion) will be extended as an incentive of 4-6% on incremental sales (of goods manufactured locally) for a period of five years.

In January 2021, India Cellular & Electronics Association announced its plan to create a smartphone design, R&D and application ecosystem in India.

On November 11, 2020, Union Cabinet approved the production-linked incentive (PLI) scheme in 10 key sectors (including electronics and white goods) to boost India’s manufacturing capabilities, exports and promote the ‘Atmanirbhar Bharat’ initiative.

For growth industries, such as consumer electronics, electric vehicles and renewable energy, ACC battery production represents one of the biggest economic opportunities. PLI scheme for the ACC battery would allow key domestic and international players to set up a competitive ACC battery plants in the region.

Road Ahead

Fueled by strong policy support, huge investments by public and private stakeholders and a spike in demand for electronic products, the ESDM sector in India is predicted to reach US$ 220 billion by 2025, expanding at 16.1% CAGR between 2019 and 2025.