Electronics

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OVERVIEW

The global electronics hardware industry is estimated to be US$ 2 trillion. India is one of the largest consumer electronics market in the Asia Pacific, with the domestic demand for electronics hardware being fuelled by the relatively high growth rate of the Indian economy, aspirations of the younger generation, and the large middle class in India with increasing disposable income. The country also has the potential to develop and manufacture electronic hardware for the global markets.

During the period 2013-14 to 2018-19, the domestic production of the electronics industry registered a robust CAGR of 20.47 percent. The domestic production was valued at ₹ 4580 billion in 2018-19, with LED products recording the highest CAGR of 46.27 percent, followed by mobile phones (44.82 percent), industrial electronics (19.19 percent), electronic components (16.09 percent), strategic electronics (15.42 percent), consumer electronics (10.09 percent) and computer hardware (3.90 percent).

The IIP (Index of Industrial Production) of computer, electronics and optical products stood at 149.7 during 2019-20, as compared to 168.7 during the previous year, recording a decline of (-) 11.3 percent during 2019-20, as compared to a growth of 13.5 percent recorded during the previous year.

Production of Electronic System in India

(In ₹ Crores)

Vertical 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 % CAGR
(FY14-19)
Consumer Electronics 47599 55806 55765 64742 73524 77000 10.09
Industrial Electronics 33600 39374 45083 62214 69057 80850 19.19
Computer Hardware 17484 18691 19885 20382 21401 21180 3.90
Mobile Phones 26650 18900 54000 90000 132000 170000 44.82
Strategic Electronics 13800 15700 18055 20760 23562 28270 15.42
Electronic Components 32102 39723 45383 52099 59132 67706 16.09
Emitting Diodes (LED) Products 1941 2172 5092 7134 9630 13000 46.27
Total 180454 190366 243263 317331 388306 458006 20.47
Source: MEITY, Exim Bank Research

Electronic items accounted for 3.58 percent of the total exports from India in 2019-20. Exports from the sector recorded a y-o-y growth of 33.74 percent during the year. The export of telecom instruments recorded the highest y-o-y growth of 77.55 percent, followed by electronic instruments (21.45 percent), consumer electronics (15.83 percent), electronic components (5.20 percent) and computer hardware, peripherals (0.37).

The exports of electronics registered a CAGR of 11.87 percent during FY 15-20, increasing from US$ 6009.09 million in 2014-15 to US$ 10526.54 million in 2019-20. The growth in exports from the industry could largely be attributed to the growth in exports of telecom instruments, electronic instruments and components which recorded a CAGR of 33.14 percent, 8.54 percent and 4.72 percent respectively, during the period. Consumer electronic witnessed negative CAGR of (-) 9.96 percent, while computer hardware and peripheralsrecorded negative CAGR of (-) 1.19 percent during this period.

Trends in Export of Electronic Items from India

(In US$ Million)

Electronic Items 2014-15 Value 2015-16 Value 2016-17 Value 2017-18 Value 2018-19 Value 2019-20 Value % CAGR
FY15-20
Computer Hardware, Peripherals 346.44 365.16 262.38 329.68 345.43 326.30 -1.19
Consumer Electronics 808.01 656.46 583.85 361.50 440.07 478.23 -9.96
Electronic Components 1880.46 1842.65 1789.41 2139.20 2395.63 2368.57 4.72
Electronic Instruments 1900.92 1968.63 2009.94 2038.54 2505.79 2863.48 8.54
Telecom Instruments 1073.26 880.75 1043.60 1202.85 2706.48 4489.96 33.14
Total 6009.09 5713.64 5689.18 6071.77 8393.39 10526.54 11.87
Source: DGCIS, MoCI, Exim Bank Research

The government allows 100 percent FDI in the sector under automatic route with no industrial license requirement, payment of technical know-how fee and royalty for technology transfer. Cumulative FDI in the electronics sector amounted to US$ 2.79 billion during the period April 2000 to March 2020, accounting for 0.59 percent of the total FDI inflows into the country.

Going forward, rapid urbanization, rising personal disposable income, adoption of high-end technology devices, high technology obsolescence and product innovation, competitive pricing of products, easy financing schemes, expansion of organized retail and distribution networks, and several government initiatives are going to be the major drivers for the growth of the electronics industry in India.

The mobile phone industry in India expects that the Government of India's boost to production of battery chargers will result in setting up of 365 factories, thereby generating 800,000 jobs by 2025. The growing customer base and the increased penetration in consumer durables segment has provided enough scope for the growth of the Indian electronics sector. Also, digitization of cable would lead to increased broadband penetration in the country and open up new avenues for companies in the electronics industry.

The new schemes of PLI, SPECS and EMC 2.0 under National Policy on Electronics 2019 are expected to contribute significantly to achieving a US$ 1 trillion digital economy and a US$ 5 Trillion GDP by 2025. These schemes will also leapfrog India towards a US$ 400 billion ESDM Industry, and encourage higher value addition in the electronics value chain.

 

SELECT GOVERNMENT INCENTIVES

  • The Ministry of Electronics and Information Technology has announced the National Policy on Electronics 2019 (NPE 2019) to focus on increasing competitiveness, innovation, and R&D, promoting/incentivizing exports in ESDMand positioning India as one of the global hubs. Incentives for investments in the electronics sector to expand and diversify electronics manufacturing into sectors like medical, automobile, EVs, defence, components and in emerging domains such as 5G, IoT, Artificial Intelligence and more, are provided under the policy. This will help domestic value addition, R&D, innovation in the industry and ultimately encourage exports.
  • The Government has announced 3 key schemes under NPE 2019 to incentivize the electronics industry. The three schemes, 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) will enable large scale electronics manufacturing, a domestic supply chain ecosystem of components and state-of-the-art infrastructure and common facilities for large anchor units and their supply chain partners.
    • PLI- Offers production linked incentive of 4-6 percent on incremental sales (over base year) of goods manufactured in India which are covered under the target segments, for a period of 5 years, to boost domestic manufacturing and attract large investments in mobile phone manufacturing and specified electronic components, including assembly, testing, marking and packaging units (ATMP units).
    • SPECS- Offers an incentive of 25 percent on capital expenditure pertaining to plant, machinery, equipment, associated utilities and technology, including R&D for the identified list of components, semiconductors, ATMP Units, specialized sub-assemblies and Capital Goods. The scheme will strengthen the domestic manufacturing ecosystem for electronic components and semiconductors.
    • EMC 2.0- Provides 50 percent of the project cost as grant subject to a ceiling of ₹ 70 crore for every 100 acres of land for common infrastructure development and financial assistance of up to 75 percent of the project cost, subject to a ceiling of ₹ 75 crore for building Common Facility Centres (CFC). The EMC 2.0 Scheme is a successor to the EMC Scheme of 2012, and aims at setting up of world class infrastructure for electronics manufacturing.
  • Electronics Development Fund- Electronics Development Fund was launched in February 2016 with the objective of creating a vibrant ecosystem of innovation and research and development (R&D) with active industry involvement. The scheme promotes start-ups and innovation by investing in venture funds, which in turn invest in innovation ventures/ start-ups in electronics, nano- electronics and IT.
  • Scheme for Promotion of Medical Devices- The scheme of “Assistance to medical devices industry for common facility centre” is revised and termed as “Promotion of Medical Device Parks”. The revised scheme provides for grant-in-aid to 4 medical devices park with a minimum limit of ₹ 100 crore per park or 70 percent of the project cost of Common Infrastructure Facilities (90 percent in case of hilly areas or North-east region), whichever is less. The scheme is valid for a tenure of 2020-21 to 2024-25. The scheme is expected to strengthen existing infrastructure facilities, provide easy access to standard testing and value addition through infrastructure facilities, reduce cost of production of medical devices and exploit benefits arising due to optimization of resources and economies of scale.
  • Production Linked Incentive Scheme for Promoting Domestic Manufacturing of Medical Devices- The objective of the scheme is to boost domestic manufacturing and attract large investments in the medical device sector. The scheme provides incentive of 5 percent on incremental sales (over base year 2019-20) of goods manufactured in India to eligible companies for a period of 5 years. The scheme is applicable for the following target segments of medical devices:
    • Cancer care/ radiotherapy medical devices
    • Radiology and imaging medical devices (both ionizing and non-ionizing radiation products) and nuclear imaging devices
    • Anaesthetics and cardio-respiratory medical devices including catheters of cardio-respiratory category and rental care medical devices
  • All implants including implantable electronic devices like cochlear implants and pacemakers.
 

SELECT EXPORT MARKET REGULATIONS

Europe

Companies selling electrical and electronic goods in the EU must conform to the EU legislation for electrical and electronic equipment (EEE), which includes:

  • The Waste Electrical and Electronic Equipment Directive (WEEE), which sets out the financial and other responsibilities of EEE producers with regard to the collection and recycling of waste from a broad range of EEE at their end of life.
  • The Restriction of Hazardous Substances Directive (RoHS), which bans the use of certain hazardous substances (such as lead, mercury, cadmium, hexavalent chromium and some polybrominated flame retardants) in EEE.

For further details on regulations applicable in various geographies, refer to this link: WEE Responsibilties

China

China’s “Measures for Administration of the Pollution Control of Electronic Information Product (EIP)”, commonly known as RoHS, is intended to restrict the use of hazardous materials in electrical and electronic equipment. All products manufactured on or after March 1st, 2007 for sale in China must adhere to stage 1 requirement. Products imported into the country for the purpose of re-export or for manufacturing of other export products are excluded. The following requirements need to be adhered to:

  • The hazardous substances which come under the ambit of this measure are Lead (Pb), Hexavalent Chromium (CR6+), Mercury (Hg), Cadmium (Cd), Polybrominated Biphenyls (PBBs) and Polybrominated Diphenyl Ethers (PBDEs). If an EIP doesn’t contain any of these, then the following symbol needs to be used.
  • If any of the above mentioned hazardous substance is present above the maximum concentration value, then the following symbol needs to be used, with the number inside it representing the Environmental Friendly Use Period (EFUP):
  • The user manual of the EIP should contain table of names and contents of toxic and hazardous materials if the product contains them in quantities above the maximum concentration values. China’s maximum concentration values are 0.1 percent for all hazardous substances other than cadmium for which the level is set at 0.01 percent.
  • Packaging of EIPs should be in accordance with GB 18455-2001 standard. China Compulsory Certification (CCC) mark is required to be obtained by the manufacturers before exporting or selling products in China. Several electronic products require the CCC mark.

For further details on regulations applicable, refer to this link: China ROHS

The USA

Several federal agencies in the USA are responsible for regulations pertaining to electrical and electronic products. These include Consumer Product Safety Commission (CPSC), Customs and Border Protection (CBP),Department of Energy (DOE), Environmental Protection Agency (EPA) Toxic substances, Energy Star, Federal Communication Commission (FCC), Food and Drug Administration (FDA), Federal Trade Commission (FTC) and Occupational Safety and Health Administration (OSHA). The regulations require any importer/ manufacturer to conform to ‘19 CFR 134, Country of Origin Marking’ regulations. These regulations require that every article of foreign origin (or its container) imported into the USA be marked in a conspicuous place as legibly, indelibly, and permanently as the nature of the article (or its container) will permit, in such a manner as to indicate to an ultimate purchaser in the USA the English name of the country of origin of the article at the time of importation.

For further details on regulations applicable, refer to this link: A guide to United States Electrical and Electronic Equipment Compliance Requirements