Electronics Manufacturing: Market Growth and Demand Drivers

1. Electronics Manufacturing: Market Growth and Demand Drivers Date: 2nd March, 2017

2. Where is the overall electronics market headed? Market Size in 2020 Current Market (2016): ~USD 104 Billion (in 2016) USD 181 Billion USD 400 Billion USD ? Billion CAGR of 40% over next 4 years CAGR of 15% over next 4 years CAGR of 15% over last 6 years

3. What are pockets of challenges and opportunities

4. Slow down in some of the largest contributor segments is impacting the market • 4% growth in market witnessed in 2015-16 • Computing market is declining year on year • 12-15% growth expected in 2016-17 • Expected to continue through 2020 • 5-6% growth expected from 2017-18 to 2020-21

5. In addition, India’s reliance on import continues to be high at about 60% Shares in Total Production of Electronics, 2015-16 Around 60% of the demand for electronic products is fulfilled through imports, while nearly 75%-80% of the electronic components market is dependent on imports Unavailability of local components leads to low value addition/localization

6. So, where are the opportunities? Other significant segments: Consumer Electronics & LED High growth verticals for 2020 Growth in smart city applications, new LED and Solar PV projects will drive demand for industrial electronics Increased demand for safety, energy efficiency, connectivity and IoT is leading to increased electronics content in vehicles

7. Smart Cities Project Digital India Initiative Solar Powered Projects Make In India GoI announced programs driving the consumption of electronics products and hence creating more opportunities for domestic manufacturers Will drive substantial demand for electronic products including IT hardware, and networking and communication equipment GoI announced programs

8. What is stopping India from scaling up domestic manufacturing?

9. Challenges faced by Indian manufacturers that hold them from scaling up the volume • Nascent Ecosystem • Majority of domestic manufacturing is high level assembly, resulting in low value addition • Limited availability of components and other raw material at low-cost and good quality leads to low localization • Global competition • Traditional electronics manufacturing destinations such as China, Taiwan and South Korea have built significant capacities across manufacturing value chain (SKD assembly, CKD assembly, Semiconductor Assembly & Testing Services) . • In addition, emerging (Malaysia, Vietnam) destinations have also built capacities. • Infrastructure Issues • Power, water good roads & connectivity and logistics – remain as roadblocks • Power outage directly affects domestic production • Cheap Import Options & Taxation structure • Inverted duty structure has been a cause of higher cost and thus making it attractive for OEMs to import components. • This is turn lead to depressed demand for domestically manufactured components • Lack of domestic demand • Limited scale of operations and local component demand due to the nascent product manufacturing in India • Component demand in India is quite low due to very limited value addition as primarily last level product assembly takes place in India • High Turn-around time • Unavailability of component supply, leads to delayed turnaround time and increased production cost

10. So, what do we need to do to drive the ecosystem?

11. Areas that will drive growth

12. Steps to improve the domestic production scenario • Indian Domestic manufacturing would be cost-competitive only if India develops complete supplier base here to support the local manufacturing need; It can be done by - • Creating electronics manufacturing clusters • Setting up component manufacturing ecosystem Creating the complete ecosystem for Electronics industry #1 China’s changing business environment is creating a unique opportunity for India – foreign investors should be made aware of Ease of doing business in India – with single window clearance, e-Biz portals Improved infrastructure - development of world-class ports, cargo hubs, highways and railway corridors that will provide greater accessibility Attracting foreign investment forElectronics sector #2 • Tax reforms that would help domestic manufacturers and would make them more competitive : • Unified Goods and Services Tax (GST) • By reducing indirect taxes and import duties • Imposing anti-dumping duty • Zero duty on imports Stimulating domesticdemand #3 Capital subsidy for domestic manufacturer to help them to scale up their production Preferential market access to give preference to domestically manufactured electronics components/products) Judicial selection of target markets based on existing technical capability

13. Setting up electronics product park with integrated supply chain – which would help significantly in completing the eco-system and enhancing competitiveness • GoI has already initiated several initiatives to attract foreign investment - Investors should be encouraged to set up electronics product parks with integrated supply chain • The foreign companies/MNCs should come with their vendors for ancillary parts that would eventually help to create an ecosystem in India, which is currently missing Operating within such an consolidated industry environment will further attract domestic companies to flourish where the complete value chain can exist

14. Thank You! Biswapriya Bhattacharjee Executive Vice President & Head Technology Research Email: biswapriya.bhattacharjee@imrbint.com