Manufacturing Sectors in India

In October 2020, India’s manufacturing sector recorded improvement for the third consecutive month, with businesses growing production to the greatest extent in 13 years in the middle of robust sales growth.

Manufacturing has emerged as one of the high-growth sectors in India. Prime Minister of India, Mr. Narendra Modi, launched the ‘Make in India’ program to place India on the world map as a manufacturing hub and give global recognition to the Indian economy. The government aims to create 100 million new jobs in the sector by 2022.

Market Size

The sector’s Gross Value Added (GVA) at current prices was estimated at US$ 350.27 billion as per the first advanced estimate of FY21. The IHS Markit India Manufacturing Purchasing Managers Index (PMI) reached 55.4 in March 2021 from 57.5 in February 2021. The manufacturing GVA accounts for 19% of the country’s real gross value added.

As per the latest survey, capacity utilization in India’s manufacturing sector stood at 63.3% in the second quarter of FY21.

The manufacturing component of the IIP stood at 114.7 between April 2020 and February 2021.

According to the Ministry of Statistics & Programme Implementation, India’s industrial output measured by the Index of Industrial Production (IIP) stood at 129.4 in February 2021.

The overall index stood at 127.8 as of February 2021. Growth in the index was supported by growth in fertilizer production. Fertiliser’s output grew by 2.4% between April 2020 and February 2021.

Investments

With the help of Make in India drive, India is on a path of becoming the hub for hi-tech manufacturing as global giants such as GE, Siemens, HTC, Toshiba, and Boeing have either set up or are in process of setting up manufacturing plants in India, attracted by India’s market of more than a billion consumers and an increasing purchasing power.

Cumulative Foreign Direct Investment (FDI) in India’s manufacturing sector reached US$ 91.28 billion between April 2000 and September 2020. In May 2020, the Government of India increased FDI in defence manufacturing under the automatic route from 49% to 74%.

India has become one of the most attractive destinations for investment in the manufacturing sector. Some of the major investments and developments in this sector in the recent past are:

• Between April 2020 and January 2021, India received a total foreign direct investment (FDI) infl­ow of US$ 72.12 billion, a 15% increase YoY.
• On February 16, 2021, Amazon India announced to start manufacturing electronic products in India, starting first with Amazon Fire TV stick manufacturing. The company plans to start manufacturing with contract manufacturer Cloud Network Technology, a subsidiary of Foxconn in Chennai by end-2021.
• In April 2021, Samsung started manufacturing mobile display panels at its Noida plant and plans to ramp up manufacturing IT display panels soon.
• Samsung Display Noida, which has invested Rs. 4,825 crore (US$ 650.42 million) to move its mobile and IT display manufacturing plant from China to Uttar Pradesh, has received special incentives from the state government.
• In April 2021, Bharti Enterprises Ltd. and Dixon Technologies (India) Ltd., formed a joint venture to take advantage of the government’s PLI scheme for the manufacturing of telecom and networking products.
• In April 2021, Godrej Appliances launched a range of Made-in-India air conditioners (AC). The company plans to invest Rs. 100 crore (US$ 13.48 million) in its manufacturing units (located in Shirwal and Mohali) to increase its AC production capacity to 8 lakh units by 2025.

Government Initiatives

The Government of India has taken several initiatives to promote a healthy environment for the growth of manufacturing sector in the country. Some of the notable initiatives and developments are:

The government approved a PLI scheme for 16 plants for key starting materials (KSMs)/drug intermediates and active pharmaceutical ingredients (APIs). The establishment of these 16 plants would result in a total investment of Rs. 348.70 crore (US$ 47.01 million) and generation of ~3,042 jobs. The commercial development of these plants is expected to begin by April 2023.

As part of efforts to expand its smartphone assembly industry and improve its electronics supply chain, the government, in March 2021, announced funds worth US$ 1 billion in cash to each semiconductor company that establishes manufacturing units in the country.

The Union Budget 2021-22 is expected to enhance India’s domestic growth in manufacturing, trade and other sectors. Development of a robust infrastructure, logistics and utility environment for the manufacturing sector is a primary focus field.

Some of these initiatives are as follows:

• The Mega Investment Textiles Parks (MITRA) scheme to build world-class infrastructure will enable global industry champions to be created, benefiting from economies of scale and agglomeration. Seven Textile Parks will be established over three years.
• The government proposed to make significant investments in the construction of modern fishing harbours and fish landing centres, covering five major fishing harbours in Kochi, Chennai, Visakhapatnam, Paradip, and Petuaghat, along with a multipurpose Seaweed Park in Tamil Nadu. These initiatives are expected to improve exports from the textiles and marine sectors.
• The ‘Operation Green’ scheme of the Ministry of the Food Processing Industry, which was limited to onions, potatoes and tomatoes, has been expanded to 22 perishable products to encourage exports from the agricultural sector. This will facilitate infrastructure projects for horticulture products.
• The Union Budget 2021-22 allocated funds of Rs. 1,000 crore (US$ 137.16 million) for the welfare of tea workers, especially women and their children. About 10.75 lakh tea workers will benefit from this, including 6.23 lakh women workers involved in the large tea estates of Assam and West Bengal.

Road Ahead

India is an attractive hub for foreign investments in the manufacturing sector. Several mobile phone, luxury and automobile brands, among others, have set up or are looking to establish their manufacturing bases in the country.

The manufacturing sector of India has the potential to reach US$ 1 trillion by 2025. The implementation of the Goods and Services Tax (GST) will make India a common market with a GDP of US$ 2.5 trillion along with a population of 1.32 billion people, which will be a big draw for investors. The Indian Cellular and Electronics Association (ICEA) predicts that India has the potential to scale up its cumulative laptop and tablet manufacturing capacity to US$ 100 billion by 2025 through policy interventions.

With impetus on developing industrial corridors and smart cities, the Government aims to ensure holistic development of the nation. The corridors would further assist in integrating, monitoring and developing a conducive environment for the industrial development and will promote advance practices in manufacturing.

Electronics System Design & Manufacturing (ESDM)

The ESDM sector plays a key role in the government’s goal of generating US$ 1 trillion of economic value from the digital economy by 2025

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.

• 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.

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.

Automobile Manufacturing

India’s electric vehicle (EV) market is estimated to be a Rs. 50,000 crore (US$ 7.09 billion) opportunity by 2025, with two- and three-wheelers expected to drive higher electrification of the vehicles.

Introduction

In 2020, India was the fifth-largest auto market, with ~3.49 million units combined sold in the passenger and commercial vehicles categories. It was the seventh-largest manufacturer of commercial vehicles in 2019.

The two-wheelers segment dominate the market in terms of volume owing to a growing middle class and a young population. Moreover, the growing interest of the companies in exploring the rural markets further aided the growth of the sector.

India is also a prominent auto exporter and has strong export growth expectations for the near future. In addition, several initiatives by the Government of India and major automobile players in the Indian market is expected to make India a leader in the two-wheeler and four-wheeler market in the world by 2020.

Market Size

Domestic automobiles production increased at 2.36% CAGR between FY16-20 with 26.36 million vehicles being manufactured in the country in FY20. Overall, domestic automobiles sales increased at 1.29% CAGR between FY16-FY20 with 21.55 million vehicles being sold in FY20.

Two-wheelers and passenger vehicles dominate the domestic Indian auto market. Passenger car sales are dominated by small and mid-sized cars. Two-wheelers and passenger cars accounted for 80.8% and 12.9% market share, respectively, accounting for a combined sale of over 20.1 million vehicles in FY20. Two-wheeler sales stood at 1,195,445 units in March 2021, compared with 1,846,613 units in March 2020, recording a decline of 35.26 %.

Passenger vehicle (PV) sales stood at 279,745 units in March 2021, compared with 2,17,879 units in March 2020, registering a growth of 28.39%.

As per the Federation of Automobile Dealers Associations (FADA), PV sales in December 2020 stood at 271,249 units, compared with 218,775 units in December 2019, registering a 23.99% growth.

Overall, automobile export reached 4.77 million vehicles in FY20, growing at a CAGR of 6.94% during FY16-FY20. Two-wheelers made up 73.9% of the vehicles exported, followed by passenger vehicles at 14.2%, three-wheelers at 10.5% and commercial vehicles at 1.3%.

EV sales, excluding E-rickshaws, in India witnessed a growth of 20% and reached 1.56 lakh units in FY20 driven by two-wheelers. According to NITI Aayog and Rocky Mountain Institute (RMI) India’s EV finance industry is likely to reach Rs. 3.7 lakh crore (US$ 50 billion) in 2030. A report by India Energy Storage Alliance estimated that the EV market in India is likely to increase at a CAGR of 36% until 2026. In addition, a projection for the EV battery market is forecast to expand at a CAGR of 30% during the same period.

• Premium motorbike sales in India recorded seven-fold jump in domestic sales, reaching 13,982 units during April-September 2019. The luxury car market is expected to register sales of 28,000-33,000 units in 2021, up from 20,000-21,000 units sold in 2020. The entry of new manufacturers and new launches is likely to propel this market in 2021.

Investments

In order to keep up with the growing demand, several automakers have started investing heavily in various segments of the industry during the last few months. The industry has attracted Foreign Direct Investment (FDI) worth US$ 25.40 billion between April 2000 and December 2020, according to the data released by the Department for Promotion of Industry and Internal Trade (DPIIT).

Some of the recent/planned investments and developments in the automobile sector in India are as follows:

• In 2019-20, the total passenger vehicles sales reached ~2.8 million, while ~2.7 million units were sold in FY21.
• In February 2021, the Delhi government started the process to set up 100 vehicle battery charging points across the state to push adoption of electric vehicles.
• In January 2021, Fiat Chrysler Automobiles (FCA) announced an investment of US$ 250 million to expand its local product line-up in India.
• A cumulative investment of ~Rs. 12.5 trillion (US$180 billion) in vehicle production and charging infrastructure would be required until 2030 to meet India’s electric vehicle (EV) ambitions.
• In January 2021, Lamborghini announced it is aiming to achieve sales in India higher than the 2019-levels, after recovering from pandemic-induced disruptions.
• In January 2021, Tesla, the electric car maker, set up a R&D centre in Bengaluru and registered its subsidiary as Tesla India Motors and Energy Private Limited.
• In November 2020, Mercedes Benz partnered with the State Bank of India to provide attractive interest rates, while expanding customer base by reaching out to potential HNI customers of the bank.
• Hyundai Motor India invested ~Rs. 3,500 crore (US$ 500 million) in FY20, with an eye to gain the market share. This investment is a part of Rs. 7,000 crore (US$ 993 million) commitment made by the company to the Tamil Nadu government in 2019.
• In October 2020, Kinetic Green, an electric vehicles manufacturer, announced plan to set up a manufacturing facility for electric golf carts besides a battery swapping unit in Andhra Pradesh. The two projects involving setting up a manufacturing facility for electric golf carts and a battery swapping unit will entail an investment of Rs. 1,750 crore (US$ 236.27 million).
• In October 2020, Japan Bank for International Cooperation (JBIC) agreed to provide US$ 1 billion (Rs. 7,400 crore) to SBI (State Bank of India) for funding the manufacturing and sales business of suppliers and dealers of Japanese automobile manufacturers and providing auto loans for the purchase of Japanese automobiles in India.
• In October 2020, MG Motors announced its interest in investing Rs. 1,000 crore (US$ 135.3 million) to launch new models and expand operations in spite of the anti-China sentiments.
• In October 2020, Ultraviolette Automotive, a manufacturer of electric motorcycle in India, raised a disclosed amount in a series B investment from GoFrugal Technologies, a software company.    
• In September 2020, Toyota Kirloskar Motors announced investments of more than Rs 2,000 crore (US$ 272.81 million) in India directed towards electric components and technology for domestic customers and exports.
• During early September 2020, Mahindra & Mahindra singed a MoU with Israel-based REE Automotive to collaborate and develop commercial electric vehicles.
• In April 2020, TVS Motor Company bought UK’s iconic sporting motorcycle brand, Norton, for a sum of about Rs. 153 crore (US$ 21.89 million), making its entry into the top end (above 850cc) segment of the superbike market.
• In March 2020, Lithium Urban Technologies partnered with renewable energy solutions provider, Fourth Partner Energy, to build charging infrastructure across the country.
• In January 2020, Tata AutoComp Systems, the auto-components arm of Tata Group entered a joint venture with Beijing-based Prestolite Electric to enter the electric vehicle (EV) components market.

Government Initiatives

The Government of India encourages foreign investment in the automobile sector and has allowed 100% foreign direct investment (FDI) under the automatic route.

Some of the recent initiatives taken by the Government of India are –

• In Union Budget 2021-22, the government introduced the voluntary vehicle scrappage policy, which is likely to boost demand for new vehicles after removing old unfit vehicles currently plying on the Indian roads.
• In February 2021, the Delhi government started the process to set up 100 vehicle battery charging points across the state to push adoption of electric vehicles.
• The Union Cabinet outlaid Rs. 57,042 crore (US$ 7.81 billion) for automobiles & auto components sector in production-linked incentive (PLI) scheme under the Department of Heavy Industries. 
• The Government aims to develop India as a global manufacturing centre and a Research and Development (R&D) hub.
• Under NATRiP, the Government of India is planning to set up R&D centres at a total cost of US$ 388.5 million to enable the industry to be on par with global standards.
• The Ministry of Heavy Industries, Government of India has shortlisted 11 cities in the country for introduction of EVs in their public transport systems under the FAME (Faster Adoption and Manufacturing of (Hybrid) and Electric Vehicles in India) scheme. The Government will also set up incubation centre for start-ups working in the EVs space.
• In February 2019, the Government of India approved FAME-II scheme with a fund requirement of Rs. 10,000 crore (US$ 1.39 billion) for FY20-22.

Road Ahead

The automobile industry is supported by various factors such as the availability of skilled labour at low cost, robust R&D centres, and low-cost steel production. The industry also provides great opportunities for investment and direct and indirect employment to skilled and unskilled labour.

Indian automotive industry (including component manufacturing) is expected to reach Rs. 16.16-18.18 trillion (US$ 251.4-282.8 billion) by 2026.

The Indian auto industry is expected to record strong growth in 2021-22, post recovering from the effects of the COVID-19 pandemic. Electric vehicles, especially two-wheelers, are likely to witness positive sales in 2021-22.

A study by CEEW Centre for Energy Finance recognised US$ 206 billion opportunities for electric vehicles in India by 2030.

Defence Manufacturing

The Indian government has set the defence production target at US$ 25.00 billion by 2025 (including US$ 5 billion from exports by 2025). The government is taking several initiatives to encourage domestic manufacturing and reduce its external dependence.

Introduction

The Indian defence manufacturing industry is a significant sector for the economy. The industry is likely to accelerate with rising concerns of national security. Demand for defence equipment in India has been growing due to the ongoing territorial disputes with Pakistan and China over the ownership of the Northern State of Kashmir and the North Eastern State of Arunachal Pradesh, respectively.

Over the last five years, India has been ranked among the top importers of defence equipment to gain technological advantages over rival countries such as China and Pakistan. To modernise its armed forces and reduce dependency over external dependence for defence procurement, several initiatives have been taken by the government to encourage ‘Make in India’ activities via policy support initiatives.

Market Dynamics

India’s defence manufacturing sector has been witnessing a CAGR of 3.9% between 2016 and 2020. The Indian government has set the defence production target at US$ 25.00 billion by 2025 (including US$ 5 billion from exports by 2025). Defence exports in India was estimated to be at US$ 1.29 billion in 2019-20. India’s defence import value stood at US$ 463 million for FY20 and is expected to be at US$ 469.5 million in FY21. Defence exports in the country witnessed strong growth in the last two years. India targets to export military hardware worth US$ 5 billion (Rs. 35,000 crore) in the next 5 years. As of 2019, India ranked 19th in the list of top defence exporters in the world by exporting defence products to 42 countries.

Recent development/Investments

Foreign Direct Investment (FDI) equity inflow in the defence sector for April 2000 – December 2020 stood at US$ 10.15 million (Rs. 61.51 crore) as per data released by the Department for Promotion of Industry and Internal Trade (DPIIT).

• In April 2021, Under the Development cum Production Partner (DcPP) programme, Defence Research and Development Organisation (DRDO) allowed private sector firms to develop and produce missile systems, such as vertical launched surface and air missile system programmes, to promote the domestic defence industry.
• In April 2021, Defence Research and Development Organisation (DRDO) developed an advanced chaff technology to safeguard the naval ships against a missile attack. Defence Laboratory Jodhpur (DLJ), a DRDO laboratory, has indigenously developed three variants of this critical technology, namely short-range chaff rocket (SRCR), medium-range chaff rocket (MRCR) and long-range chaff rocket (LRCR) that meet Indian Navy’s qualitative requirements. This successful development of advanced chaff technology by DLJ is another step towards ‘Atmanirbhar Bharat’.
• In April 2021, Defence Research and Development Organisation (DRDO) Defence Materials and Stores Research lab and Development Establishment (DMSRDE), Kanpur, developed a lightweight bullet proof jacket (BPJ), which weighs 9.0 kilograms and meets qualitative requirements of the Indian Army.
• In April 2021, Defence Research and Development Organisation (DRDO) developed single crystal blades technology and supplied 60 of these blades to Hindustan Aeronautics Limited (HAL), as part of their indigenous helicopter development programme, for helicopter engine application.
• In March 2021, the Defence Ministry signed a Rs. 1,188 crore (US$ 161.2 million) contract with Bharat Dynamics Ltd. (BDL) and defence public sector enterprise (DPSE) for manufacturing and supplying the French-origin MILAN-2T Anti-Tank Guided Missiles.
• In March 2021, the Defence Ministry signed a Rs.1,056 crore (US$ 143.3 million) contract with Mahindra Defence Systems (MDSL) for supply of 1,300 light specialist vehicles to the Indian Army.
• In February 2021, the Defence Ministry was allocated Rs. 70,000 crore (US$ 9.5 billion) for domestic procurement in 2021-22.
• In February 2021, Ministry of Defence (MoD) and Defence Public Sector Undertaking (DPSU) Bharat Electronics Limited (BEL) signed a contract for procurement of Software Defined Radio Tactical (SDR-Tac) worth Rs 1,000 crore (US$ 137.50 million).
• In February 2021, at Aero India 2021 in Bengaluru, Hindustan Aeronautics Limited (HAL) and Mishra Dhatu Nigam Limited (MIDHANI) signed a memorandum of understanding (MoU) for development and production of composite raw materials.
• In January 2021, the Institute of Nuclear Medicine and Allied Sciences (INMAS), a Delhi-based DRDO laboratory, presented Rakshita, a bike-based casualty transport emergency vehicle to Central Reserve Police Force (CRPF). 
• In December 2020, the Indian Military acquired Sea Guardian drones from the US under the 2018 Communications Compatibility and Security Agreement, which facilitates secure exchange of military information and data between platforms operated by both countries. The partnership eases way by which India can buy unmanned aerial vehicles (UAVs) and promotes greater India-US cooperation on maritime domain awareness.
• In December 2020, The Economic Times reported that India is planning to develop an air-launched swarm drone system to overwhelm Chinese air defenses, giving their fighter jets an edge in any potential conflict. The development process of the project is expected to take four years. State-owned aerospace and defense manufacturing company Hindustan Aeronautics Ltd. is partnering with two start-ups to work on the project, according to The Economic Times.
• In December 2020, India and Vietnam agreed to collaborate on numerous domains such as shipbuilding, surface and subsurface capacities such as submarines at sea. Both sides also signed the agreement on Hydrographic cooperation that will enable sharing Hydrographic data and assist in the production of navigational charts.
• In December 2020, The Economic Times reported that India is developing very high altitude and long endurance unmanned aircraft for surveillance and reconnaissance purposes. The vehicle is being designed to fly 70,000 feet for a period of days, providing real-time feedback to controllers while remaining beyond the range of most air defense systems.
• In December 2020, Advanced Towed Artillery Gun System (ATAGS) development reached the last stages of its trial and reportedly, could soon be inducted into the Indian Army. ATAGS is being developed by the Defence Research Development Organisation’s (DRDO) Armament Research Development Establishment (ARDE) Pune, Defence Electronics Application Laboratory, Dehradun, and the Centre for Artificial Intelligence and Robotics, Bengaluru, along with major corporates such as Bharat Forge, TATA Power SED, Ashok Leyland and Cummins. 

Government Initiatives

The government formulated the ‘Defence Production and Export Promotion Policy 2020’ to provide impetus to self-reliance in defence manufacturing under the ‘Aatmanirbhar Bharat’ scheme. The ministry aims to achieve a turnover of Rs. 1 lakh 75 thousand crores (US$ 25 billion), including export of Rs. 35 thousand crores (US$ 5 billion) in aerospace and defence goods and services by 2025.

To encourage more participation from start-ups and micro, small & medium enterprises (MSMEs) in Defence Research & Development (R&D) in achieving the ‘Aatmanirbhar Bharat’ goal, the Defence Minister Mr. Rajnath Singh released a new version of ‘Defence Research and Development Organisation (DRDO) Procurement Manual 2020’ on October 20, 2020. There are plans to establish new infrastructure including a defence park in Kerala to manufacture defence equipment for the armed forces. The project is aimed at promoting MSMEs and boosting the ‘Make in India’ initiative. In November 2020, the Department of Defence, in partnership with the DGDE and Armed Forces, established a land management system (LMS) as part of efforts to enhance the overall defence land management. In February 2021, Defence Research and Development Organisation (DRDO) handed over Licensing Agreements for ToT (LAToT) for 14 DRDO developed technologies to 20 industries at Aero India 2021 in Bengaluru.

To increase defence manufacturing in India and make the country a reliable weapon supplier to friendly countries, the Indian government allowed the following FDI limits in September 2020. For new licensees – FDI allowed up to 74% through automatic route; FDI beyond 74% would need to be permitted under the Govt. route. For existing Licensees – Infusion of new foreign investments up to 49% can be added by making declarations of change/transfer within 30 days.

Defence ministry plans to put 101 defence items (artillery guns and assault rifles) under import embargo to offer potential military hardware manufacturing opportunities to the Indian defence industry. In February 2020, Defence Minister, Mr. Rajnath Singh at Aero India 2021 announced to reduce defence imports by at least US$ 2 billion by 2022.

The defence ministry estimates a potential contract worth ~Rs. 4 lakh crore (US$ 57.2 billion) for the domestic industry in the next 5-7 years (2025-2027).  To boost the domestic defence sector manufacturing, the Ministry of Defence, in December 2020, approved the export of indigenously-developed surface-to-air Akash missile system and set up a panel to ensure faster approvals for acquisition proposals by various countries.

Road Ahead

The Indian government is focusing on innovative solutions to empower the country’s defence and security via ‘Innovations for Defence Excellence (iDEX)’, which has provided a platform for start-ups to connect to the defence establishments and develop new technologies/products in the next five years (2021-2026).

Working through partner incubators, iDEX has been able to attract the start-up community to participate in the Defence India Start-up Challenge (DISC) programme.

The Defence Ministry has set a target of 70% self-reliance in weaponry by 2027, creating huge prospects for industry players. Introduced Green Channel Status Policy (GCS) to promote and encourage private sector investments in defence production to promote the role of private sector in defence production.

MSME Manufacturing

The number of registered MSMEs grew to 2.5 million units in 2020 due to the launch of the Udyog Aadhaar Memorandum policy.

Introduction

The Micro Small and Medium Enterprises (MSMEs) sector is a major contributor to the socio-economic development of the country. In India, the sector has gained significant importance due to its contribution to Gross Domestic Product (GDP) of the country and exports. The sector has also contributed immensely with respect to entrepreneurship development especially in semi-urban and rural areas of India.

According to the provisions of Micro, Small & Medium Enterprises Development (MSMED) Act, 2006 the Micro, Small and Medium Enterprises (MSME) are classified in two classes i.e. Manufacturing Enterprises and Service Enterprises.

The enterprises are further categorized based on investment in equipment and annual turnover.

Market Size

India has approximately 6.3 crore MSMEs. The number of registered MSMEs grew 18.5% Y-o-Y to reach 25.13 lakh (2.5 million) units in 2020 from 21.21 lakh (2.1 million) units in 2019. The Indian MSMEs sector contributes about 29% towards the GDP through its national and international trade.  

According to data shared by the MSME Minister in the Rajya Sabha, the registered MSME is dominated by micro-enterprises at 22.06 lakh (2.2 million) units in 2020 from 18.70 lakh (1.8 million) units in 2019, while small enterprise units went up from 2.41 lakh (0.24 million) units to 2.95 lakh (0.29 million) units. Midsized businesses only increased from 9,403 units to 10,981 units during this period.

MSMEs are being encouraged to market their products on the e-commerce site, especially through Government e-Marketplace (GeM), owned and run by the government, wherefrom Ministries and PSUs (public sector undertakings) source their procurement. The platform has recorded transactions worth Rs. 55,048 crore (US$ 7.5 billion) until September 2020.

Domestic business requires a strong financial stimulus with concessional working capital loans to ensure adequate liquidity is maintained in business operations from the government and financial institutes.

Statutory Bodies

MSME Ministry has five statutory bodies namely:

1. Khadi and Village Industries Commission (KVIC) who is responsible for promoting and developing khadi and village industries for providing employment opportunities in rural areas, thereby strengthening the rural economy,
2. Coir Board in charge of promoting overall development of the coir industry and improving living conditions of workers in this industry,
3. National Small Industries Corporation Limited (NSIC) responsible for promoting, aiding and fostering growth of micro and small enterprises in the country, generally on commercial basis,
4. National Institute for Micro, Small and Medium Enterprises, (NI-MSME) incharge of enterprise promotion and entrepreneurship development, enabling enterprise creation, performing diagnostic development studies for policy formulation, etc. and lastly,
5. Mahatma Gandhi Institute for Rural Industrialisation (MGIRI) responsible for accelerating rural industrialisation for sustainable village economy, attract professionals and experts to Gram Swaraj, empower traditional artisans, encourage innovation through pilot study/field trials and R&D for alternative technology using local resources.

Government Policies

The Government of India has designed various policies for the growth of MSMEs in the country.

• Budget allocation for MSMEs in FY22 more than doubled to Rs. 15,700 crore (US$ 2.14 billion) vis-à-vis Rs. 7,572 crore (US$ 1.03 billion) in FY21.
• The government also announced Rs. 3 lakh crore (US$ 40.85 billion) collateral-free automatic loans for businesses.
• In Union Budget 2021, the government announced funds worth Rs. 10,000 crore (US$ 1.36 billion) for ‘Guarantee Emergency Credit Line’ (GECL) facility to eligible MSME borrowers, giving a major boost to the sector.

Recent Developments:

• In April 2021, the non-banking finance companies (NBFCs) requested the Reserve Bank of India to extend the one-time restructuring scheme of MSME advances till March 31, 2022, as these players are unable to revive their businesses.
• In March 2021, the Ministry of MSME, through the Development Commissioner (DC-MSME) implemented the Technology Centre Systems Program (TCSP) to establish 15 new Technology Centres (TC). The centres provide assistance to the industry predominantly MSMEs in General Engineering, Automotive, Fragrance & Flavour and ESDM sectors.
• In March 2021, the Finance Ministry allowed private retirement funds to invest up to 5% in Category I & II AIFs regulated by SEBI; this will help widen the fundraising options for MSMEs and expand the domestic pool of capital
• Category 1 AIFs consists of infrastructure, venture capital, angel and social venture funds. Category II AIFs covers funds where at least 51% of the size can be invested in either infrastructure, SMEs, venture capital or social welfare entities
• In March 2021, MSME support and development organisation, National Small Industries Corporation (NSIC) announced that they will assist MSMEs working with the Agricultural and Processed Food Products Export Development Authority (APEDA) across multiple areas
• The NSIC, through an MoU with APEDA, will help its MSME members in exploring the export potential of their agricultural and processed foods products. Additionally, APEDA members will get access to NSIC schemes, which would help them address issues pertaining to technology adoption, skills, product quality, and market access
• The relationship will also support promotion of green & sustainable manufacturing technology for MSME clusters, enabling units to switch to sustainable and green production processes and products
• In February 2021, Walmart’s Vriddhi programme was extended to Uttar Pradesh, with launch of an e-institute to facilitate small businesses in granting access to skills and competencies across online and offline platforms such as Flipkart’s marketplace and Walmart’s global supply chain.The company stated that this new e-institute will benefit 50,000 MSMEs across the country to expand domestically and globally.
• In February 2021, Mastercard and Razorpay signed a partnership to help small businesses and entrepreneurs in India embrace digital payments. The partnership integrates Razorpay’s payment processing capabilities with Mastercard’s digital banking platforms and card services.
• In February 2021, Bank of Maharashtra has collaborated with Vayana Network, a supply chain financing (SCF) platform, to provide financial assistance to the MSME market. Through this partnership, the bank will provide short-term credit to address the budget needs of legitimate corporate dealers/vendors through the bank’s ‘Mahabank Channel Financing Scheme’ and Vayana Network’s expertise.
• In February 2021, Indian Bank signed a memorandum of understanding (MOU) with the Society for Innovation and Development (SID), a project of the Indian Institute of Science, to provide exclusive credit to start-ups and MSMEs.
• In February 2021, the Small Industries Development Bank of India (SIDBI), a financial institution dedicated to the promotion, financing, and development of micro, small, and medium enterprises (MSMEs), signed an agreement with the government of Andhra Pradesh to help expand the state’s MSME ecosystem.

Road Ahead

The Government of India has envisioned doubling the Indian economy to US$ 5 trillion in five years. In order to achieve this goal, career opportunities for the young population have been generated and MSMEs have the potential to serve as a key employment generator. Therefore, the government has taken up the promotion of MSMEs in order to create new jobs in the sector. Further, the government aims to enhance MSME’s share in exports and its contribution to GDP.

In order to achieve these targets, the government should invest in providing more back-end services to improve the performance of the MSME sector as it supplies goods and services to big industrial enterprises. Lack of technology-based production activities and low investment in R&D activities are bottlenecks hindering the sector to become competent. Globally available technology could be subsidised by the government so that the product quality of MSME players can be improved using the existing resources. This also requires the help of academic institutions in the form of providing research and development (R&D) services for product innovation.

Telecommunications Manufacturing

India is one of the biggest consumer of data worldwide. As per TRAI, average wireless data usage per wireless data subscriber was 11 GB per month in FY20. It is expected to reach to 18 GB by 2024.

Introduction

Currently, India is the world’s second-largest telecommunications market with a subscriber base of 1.16 billion and has registered strong growth in the last decade. The Indian mobile economy is growing rapidly and will contribute substantially to India’s Gross Domestic Product (GDP) according to a report prepared by GSM Association (GSMA) in collaboration with Boston Consulting Group (BCG). In 2019, India surpassed the US to become the second-largest market in terms of number of app downloads.

The liberal and reformist policies of the Government of India have been instrumental along with strong consumer demand in the rapid growth in the Indian telecom sector. The Government has enabled easy market access to telecom equipment and a fair and proactive regulatory framework that has ensured the availability of telecom services to consumers at affordable prices. The deregulation of Foreign Direct Investment (FDI) norms have made the sector one of the fastest growing and the top five employment opportunity generator in the country.

Market Size

India ranks as the world’s second-largest market in terms of total internet users. The total number of internet subscribers increased to 757.61 million in January 2021. The total wireless or mobile telephone subscriber base increased to 1,163.41 million in January 2021, from 1,153.77 million in December 2020.

India is also the world’s second-largest telecommunications market. The total subscriber base in the country stood at 1,183.49 million, as of January 2021.

Gross revenue of the telecom sector stood at Rs. 68,228 crore (US$ 9.35 billion) in the third quarter of FY21.

Over the next five years, a rise in mobile phone penetration and a decline in data costs will add 500 million new internet users in India, creating opportunities for new businesses.

Investment/Major Development

With a daily increasing subscriber base, there has been a lot of investment and development in the sector. FDI inflow into the telecom sector from April 2000 – December 2020 totalled US$ 37.62 billion according to the data released by the Department for Promotion of Industry and Internal Trade (DPIIT).

Some of the developments in the recent past are:

• In April 2021, Elon Musk’s SpaceX has started accepting pre-orders for the beta version of its Starlink satellite internet service in India for a fully refundable deposit of US$ 99. Currently, Department of Telecommunications (DoT) is screening the move and more developments will be unveiled soon.
• In March 2021, Vodafone Idea Ltd. (VIL) announced that the acquired spectrum in five circles would help improve 4G coverage and bandwidth, allowing it to offer ‘superior digital experience’ to customers.
• In March 2021, Advanced Television Systems Committee (ATSC) and Telecommunications Standards Development Society, India (TSDSI) signed a deal to boost adoption of ATSC standards in India in order to make broadcast services available on mobile devices. This allows the TSDSI to follow ATSC standards, fostering global digital broadcasting standard harmonisation.
• In December 2020, BSNL, in partnership with Skylotech India, announced a breakthrough in satellite-based NB-IoT (Narrowband-Internet of Things) for fishermen, farmers, construction, mining and logistics enterprises.
• In the first quarter of FY21, customer spending on telecom services increased 16.6% y-o-y, with over three-fourths spent on data services. This spike in consumer spending came despite of the COVID-19 disruption and lack of access of offline recharges for a few weeks
• India had over 500 million active internet users (accessed Internet in the last one month) as of May 2020.
• In June 2020, Jio Platforms Ltd. sold 22.38% stake worth Rs 1.04 trillion (US$ 14.75 billion) to ten global investors in a span of eight weeks under separate deals, involving Facebook, Silver Lake, Vista, General Atlantic, Mubadala, Abu Dhabi Investment Authority (ADIA), TPG Capital and L. Catterton. This is the largest continuous fundraise by any company in the world.

Government Initiatives

The Government has fast-tracked reforms in the telecom sector and continues to be proactive in providing room for growth for telecom companies. Some of the key initiatives taken by the Government are as follows:

• The Rs. 12,195 crore (US$ 1.65 billion) production-linked incentive (PLI) scheme or telecome is expected to bring in investment of around Rs. 3,000 crore (US$ 400.08 million) and generate huge direct and indirect employment.
• In April 2021, the government pointed out that firms such as Ericsson and Nokia are now eager to expand their operations in India, and global companies like Samsung, Cisco, Ciena and Foxconn have expressed interest to set up their manufacturing base in the country for telecom and networking products.
• In March 2021, TEPC (Telecom Equipment Export Promotion Council) organised India Telecom 2021—a platform for convergence of technologies and business exchange.
• The Union Cabinet approved Rs. 12,195 crore (US$ 1.65 billion) production-linked incentive (PLI) scheme for telecom & networking products under the Department of Telecom.
• In 2021-22, the Department of Telecommunications has been allocated Rs. 58,737.00 crore (US$ 8 billion). 56% allocation is towards revenue expenditure and the remaining 44% is towards capital expenditure.
• Under Union Budget 2021-22, the government allocated Rs. 14,200 crore (US$ 1.9 billion) for telecom infrastructure that entails completion of optical fibre cable-based network for Defence services, rolling out broadband in 2.2 lakh panchayats and improving mobile services in the North East.
• On January 15, 2021, India and Japan signed an MoU to enhance cooperation in the field of Information and Communications Technologies. The MoU was signed between the Union Minister for Communications, Electronics and IT, Ravi Shankar Prasad, and the Japanese Minister for Internal Affairs and Communications, Takeda Ryota.
• On January 6, 2021, the Department of Telecommunications (DoT) issued Notice Inviting Applications (NIA) for auction of Spectrum in 700 MHz, 800 MHz, 900 MHz, 1,800 MHz, 2,100 MHz, 2,300 MHz and 2,500 MHz bands. Last date for submission of applications for participation in the auction is February 5, 2021, and auction to commence online from March 1, 2021.
• In December 2020, the Union Cabinet, chaired by the Prime Minister, Mr. Narendra Modi, approved a proposal by Department of Telecommunications for setting up of Public Wi-Fi Networks by Public Data Office Aggregators (PDOAs) to provide public Wi-Fi services through Public Data Offices (PDOs).
• In December 2020, the Union Cabinet, chaired by the Prime Minister, Mr. Narendra Modi, approved the provision of submarine optical fibre cable connectivity between Mainland (Kochi) and Lakshadweep Islands (KLI Project).
• On November 4, 2020, The Union Cabinet, chaired by the Prime Minister, Mr. Narendra Modi, approved to sign a Memorandum of Understanding (MoU) between the Ministry of Communication and Information Technology and the Department of Digital, Culture, Media and Sports (DCMS) of United Kingdom Government on cooperation in the field of telecommunications/information and communication technologies (ICTs).
• On September 21, 2020, Prime Minister, Mr. Narendra Modi launched a project to connect all 45,945 villages in Bihar with optical fibre internet service. This project will be completed by March 31, 2021 at a cost of Rs. ~1,000 crore (US$ 135.97 million); Rs. 640 crore (US$ 87.01 million) of capital expenditure will be funded by Department of Telecommunications.
• In March 2020, the government approved the Production Incentive Scheme (PLI) for Large- scale Electronics Manufacturing. The scheme proposes production-linked incentive to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components including Assembly, Testing, Marking and Packaging (ATMP) units.
• FDI cap in the telecom sector has been increased to 100% from 74%; out of 100%, 49% will be done through the automatic route and the rest will be done through the FIPB approval route. FDI of up to 100% is permitted for infrastructure providers offering dark fibre, electronic mail and voice mail.

Road Ahead

Revenue from the telecom equipment sector is expected to grow to US$ 26.38 billion by 2020. The number of internet subscribers in the country is expected to double by 2021 to 829 million and overall IP traffic is expected to grow four-fold at a CAGR of 30% by 2021.

According to a Zenith Media survey, India is expected to become the fastest-growing telecom advertisement market, with an annual growth rate of 11% between 2020 and 2023.

The Indian Government is planning to develop 100 smart city projects, and IoT will play a vital role in developing these cities. The National Digital Communications Policy 2018 envisaged attracting investment worth US$ 100 billion in the telecommunications sector by 2022. App downloads in India is expected to increase to 18.11 billion in 2018F and 37.21 billion in 2022F.