Page 22 - CII Artha Magazine 1

s the year 2021 draws
fiscal, which is broadly in-line
spending aided by
state level rather than a
to a close, it is an
with our expectations.
nation-wide lockdown of the
robust government’s
opportune time to
previous year.
capex spending
In the first half
key economic indicators in
4. Strong capital market
Going forward, CII expects
(April-September FY22),
the current year and the likely
fund-raising that has
growth has topped 13.7 per
India’s GDP to rebound to 9.5
trends in the next year.
helped repair the risk
per cent in 2021-22, after
cent which is expected to
As regards our economic
capital that was lost
moderate to 5.6 per cent in
contracting by 7.3 per cent in
performance, the first half of
during the pandemic
the previous fiscal. We expect a
the second half
the current year was roiled
(October-March FY22) as per
further strengthening of the key
5. Reforms momentum
by the deadly second wave of
the first advance estimates of
levers of the economy, as the
the corona pandemic which
staying intact
GDP. The waning of the
government has stepped up
proved to be a major
public investment which, in the
favourable base effect along
Likely headwinds on the
roadblock for the economy
with supply-side disruptions
process, would crowd in private
horizon
just recovering from the
and the likely impact of the
investment to rekindle a new
aftermath of the first wave.
1. Possible third wave due
demand cycle in the economy.
omicron variant is expected
However, the economic
to the new mutant of
to impinge on growth in the
impact emanating from the
the virus, though
As per the first advance
second-half of the year.
second wave was much
uncertainty still persists
estimates released by CSO, real
milder than the first wave,
with respect to its
GDP is expected to grow by
Further, in 2022-23, we
largely due to the imposition
impact as compared to
expect GDP growth to
the second wave
come at around 8.0-8.5
per cent, with the
2. High energy prices
following drivers and
could inflate our import
laggards:
bill and pressurise
margins
Likely drivers of growth
3. As inflation starts to
1. Increased coverage of
impinge upon growth,
vaccination which would
there is a risk of the
help to mitigate the impact
Central Bank moving
of the pandemic on the
away from its
economic activity by
accommodative stance
reducing the probability of
4. Lacklustre pick-up in
severe disease
key contact-intensive
2. Continued robust
sectors such as travel &
performance of exports of
tourism is likely to
goods and services
impact jobs creation
Sector in Focus analyse the performance of of localised lockdowns at the 9.2 per cent in the current 3. Strong investment
The monthly trends also show B. LAGGARDS Faster-than-expected Government expects the electronics sector to that the value of production in presently imported. This is example, the country
that public spending is normalisation of the US Electronics Sector: Policy thrust for the sector Advantage India the sector has gone up from Rs. also evident from the annual depends entirely on imports
progressing at a rapid clip. As Consumption demand monetary stimulus grow to around Rs 22.5 lakh crore 1,90,366 crore (US$27.20 import bill which has for its semiconductor needs.
per the latest data available on continues to move at billion) in 2014-15 to about Rs. escalated from Rs. 2,29,615 Already, electronics attracts
CGA, capital spending for snail’s pace During the COVID-19 by 2024-25 One of the world’s lowest electronics 5,33,550 crore (US$76.0 crore 2014-15 to Rs. 3,85,081 the second highest import
April-November FY22 stood pandemic, the US Federal Poised for PLI Scheme billion) in 2019-20, exhibiting an crore in 2019-20 marking a bill and semiconductors
at Rs 2.73 lakh crore, which is The disaggregated picture Reserve brought short-term (For Large Scale Domestic Electronics Manufacturing) consumption per capita: Global: impressive CAGR of 23 per CAGR of 10.89 per cent. account for a significant
13.5 per cent higher in from the demand side shows interest rates to near-zero Electronics production in India US$300; India: US$80 cent. portion.
year-on-year terms and that private final consumption and restarted large-scale Extends a financial incentive of 4-6% to eligible companies
represents 49.4 per cent of expenditure (PFCE) continues bond purchases, referred to Rs 4.97 lakh crore (2020-21) on an incremental sale (from 2019-20) of select electronic
goods for 5 years
the budgeted spend for the to move at snail’s pace and as Quantitative Easing (QE). It What is notable is that India has There is need to incentivize
current fiscal. Notably, it is 28.0 trails pre-pandemic levels. It helped in sharply bringing Higher Growth Second-largest manufacturer of mobile emerged as a leading production of the high-tech
per cent higher than the same grew at a slower rate of 8.6 down the borrowing costs, Even as electronics exports have grown at an manufacturer of mobile phones sectors such as
period in the pre-pandemic per cent in the Q2FY22 as which cushioned the phones in the world: ensures presence in recent years. In FY20, mobile semiconductors in the
year of 2019-20. While the compared to 19.3 per cent in economic recovery process handsome CAGR of 10.9% in last 6 years the phone manufacturing country. As per CII study, the
progress so far has been good, the previous quarter as in the US. SPECS of quality manufacturing infra accounted for 41 per cent of development of these
to achieve the budgeted capital impact of a favourable base trade deficit continues to remain high total production of the sector, industries entails huge
expenditure of Rs 5.5 lakh effect waned. With this, the However, in his recent Despite (To promote Domestic Electronics Supply Chain of components) followed by industrial In view of its pivotal role in investments and hence need
TAKING STOCK heartening to note that the A. DRIVERS OF GROWTH crore, the capex push by the Sectors such as Transport In absolute terms, the consumption spending grew remarks, the Federal Reserve Electronic imports, are currently the 3 Provides financial incentive of 25% of capital expenditure Home to strong electronic chip design electronics (18 per cent), realising the US$5 trillion significant Government
rd
for the identified list of electronic goods comprising of
by 13.5 per cent in the first
economy dream in near
consumer electronics (16 per
support, both monetary (may
government needs to be
merchandise exports have
services, Construction &
Chair Jerome Powell has
real GDP in absolute terms at
downstream value chain of electronics
OF THE YEAR Rs 35.7 lakh crore in the Public investment sustained. One of the ways to Real Estate, Metals & Metals reached a cumulative value half of the current fiscal. indicated that the Fed will highest, next to crude & gold and embedded software ecosystem cent), electronic components future, the government has Manufacturing of Electronic components’ ecosystem, is which restrict the potential account for more than half of
However, encouragingly,
do so is to expedite the
the total project’s cost) and
identified electronics
(15 per cent), strategic
Products and Chemicals &
continues to do the
of US$299.7 billion between
start tapering its bond
second quarter of this fiscal
has crossed the pre-pandemic heavy lifting as the key projects delineated under the Chemical Products, where April-December 2021, private consumption is now purchases soon in order to Challenges electronics (6 per cent) and manufacture as a thrust Components and again a logical step to augment growth of the sector. Some non-monetary (including
National Infrastructure
at 96 per cent of the
computer hardware (4 per
sector in policy formulation
semiconductor-grade
sustained demand recovery is
The GDP print during levels of Rs 35.6 lakh crore demand-side driver of Pipeline (NIP), which are visible, are driving the recovery in which amounts to 75 per pre-pandemic level. keep inflation in check. This is cent). to boost electronics Semiconductors (SPECS) and the electronics manufacturing of the challenges include infrastructure requirements,
the economy
Q1FY22 showed that the seen in the second quarter of nearing completion. private investment and account cent of the US$400 billion likely to have repercussions on EMC 2.0 Scheme Modified Electronics capabilities in the country infrastructure deficiency
economy expanded by an 2019-20. An analysis of the second for nearly 62 per cent of total export target set up by the Supply-chain bottlenecks interest rates globally, thus Economic growth, favourable Similarly, major strides have manufacturing in India, reduce Manufacturing Clusters while the Modified Electronics such as shortage of land and preferential market
access); as has been the case
import dependence and
government.
impressive 20.1 per cent - quarter of this fiscal shows Encouragingly, capital spending private investment spending by stifling growth impulses affecting foreign inflows to (To create National Champion Companies and Deepen Value Chains) Scheme (EMC 2.0). A fourth Manufacturing Clusters high-quality power, deficien-
testifying that the green From supply-side basis, real that public investment has by the government across key end of third quarter. Industrial sectors such as emerging economies like India. To strengthen infrastructure base and develop demographics & rising been made towards increase exports. scheme, namely the Scheme (EMC 2.0) is specially cies in transportation/logis- in countries which are global
increasing exports of
leaders like Taiwan, South
shoots of economic recovery gross value added (GVA) continued to do the heavy infrastructure sectors has engineering goods, Supply-side bottlenecks However, compared to 2013, industry-specific facilities like Common Facility Centres, disposable incomes Production Linked Incentive tailored to provide the tics, high cost of finance,
are slowly but surely stood at 8.5 per cent in lifting as it bounced back to remained healthy at Rs 1.81 Healthy exports also petroleum products and especially related to coal and the Fed is being more cautious Ready Built Factory, Plug & Play facilities in India electronic components, electronics items. As per The National Policy on Scheme (PLI) for IT Hardware requisite infrastructure to inadequacy of domestic Korea, Israel and China.
becoming visible. However, Q2FY22 as compared to 18.8 the pre-pandemic levels in lakh crore in the period remain an enabler for organic & inorganic global shortage of in normalisation this time, Introduction computer hardware and DGCI&S data, India’s exports Electronics (NPE) 2019 seeks was notified in March 2021. promote the establishment of supply chain, complex
growth for the second quarter per cent in the previous Q2FY22. Gross fixed capital April-November FY22 which growth in the current fiscal chemicals have driven the semiconductors in the prioritising economic recovery strategic electronics have grown from Rs. 38,263 to change the electronics greenfield and brownfield regulatory system, limited In this context, the recent
of the current fiscal (Q2FY22) quarter. formation (GFCF) was up translates into a healthy 61.7 bulk of the rise in export automobile sector affected even as inflation remains above Note: PLI [Production Linked Incentive], SPECS [Scheme for Promotion of Manufacturing he electronics industry, (aerospace and defence). Of crore in 2014-15 to Rs. landscape of the country by The production linked electronic manufacturing units R&D, among others. In
moderated to 8.4 per cent, 11.0 per cent in the second per cent growth in Global recovery, helped by growth in this fiscal so far. the growth of the industrial the target. The impact of Fed of Electronic Components & Semiconductors], EMC [Electronics Manufacturing Clusters] these, three segments namely 82,929 crore in 2019-20, positioning India as a global incentive (PLI) scheme for within the cluster to promote addition, the absence of an Rs.7
which is primarily attributed Having taken stock of the quarter, largely supported by year-on-year terms over the rapid pace of vaccination, has Encouragingly, the sector, especially the MSMEs. taper will not be akin to the The total production in the considered to be the communication and broadcast notching an impressive CAGR hub for domestic large scale electronics innovation and steer growth in adequate manufacturing base by the gover
central spending, taking
to waning of a favourable base economy, we now bucket the growth to 28.3 per cent in comparable period last year. boosted India’s external labour-intensive sector like This got mirrored in the 2013 taper tantrum episode, bedrock of every other equipment, industrial of 16.73 per cent. Indian manufacturing and export in manufacturing, mobile phone the sector. for different components viz, development of
of last year. movers and shakers of growth the first half of the current demand. Consequently, exports gems & jewellery has also passenger vehicle sales given India’s strong external electronics sector has almost manufacturing activity in the exporters are also gradually the entire value-chain of manufacturing and specified semiconductors, passive and semiconductors and display
into the two broad heads of Out of the key infra sectors, have emerged as a critical declining in double digits by fundamentals, especially on the country, has the potential to electronics and consumer getting integrated in the Electronics System Design electronic components as well The wide array of calibrated electromechanical compo- manufacturing ecosystem, is
DRIVERS and LAGGARDS fiscal as compared to 8.6 per Shipping, Road Transport & driver of growth in the current seen robust growth during 18.6 per cent for the third external front. doubled in 5 years Consumer Electronic hasten our quest of emerging electronics comprise around global value chain. and Manufacturing (ESDM). laudable. The scheme , which
Notwithstanding, the and analyse their performance cent in the similar period in this period. Opportunities galore amidst 75 per cent of the overall as the PLI for IT hardware, and well-crafted measures nents etc is a deterrent to
deceleration in growth noted below: 2019-20. Highways, Housing & Urban fiscal. straight month in November Electronics Components as a hub of global share of the market for The aim is to achieve a medical devices including introduced by the government investors as it increases the would cover companies
in the second quarter, it is Affairs and Railways have so far 2021 despite strong demand High global commodity 14% 13% plenty of challenges manufacturing, technology Besides, the sector is showing turnover of US$300 billion by electronics has been described together with growing dependence on imports. engaged in silicon
seen higher cumulative in the local market. This was prices pressurise and innovation. A flourishing electronics industry. remarkable growth in 2025-26. It estimates that as a game changing initiative demand, rising disposable semiconductor fabs, display
Electronics
spending during the year as the lowest sales in seven corporate margins Mobile phones cover almost Industrial Strategic electronics industry, through demand. In fact, demand for about 10 million jobs will be fabs, compound
compared to last year. years for passenger vehicles. Electronics its ability to create value and electronics hardware in India created from the for promoting local incomes, the digital India vision, Some of the constraints and semiconductors, silicon
among others would
the remedial measures to
electronics manufacturing in
Global commodity prices 50% market share 16% 6% jobs, can also contribute is anticipated to perk up from implementation of NPE. photonics, sensors fabs,
There are many factors have inched higher in the The demand for The government has significantly to bringing the country. The scheme is encourage domestic players to help the industry are
Private capex, too, has attributable for the grave current year driven by an electronic products The emergence of Rising thrust on Digital US$127 billion in 2019 to also expected to attract global make forays into the sector. elucidated below. semiconductor packaging
started showing signs of semiconductor shortages uptick in demand while supply Opportunities will rise to US$400 allowed 100% FDI in new technologies like India and technology dynamism to our reach US$300 billion by Similarly, in consonance with investments, facilitate and semiconductor design,
recovery as per CMIE’s being felt currently worldwide. has struggled to keep pace. In billion by 2025 the Electronic System AI, ML, IoT adoption development journey. What is 2025-26. This surge in demand the credo of Make in India, investments in innovation, Despite the above, the A. Encouraging High Value, would not only help to
capex data From the supply side, there 2021, commodity markets India is a leading manufacturer in Mobile Phones Computer Development and also significant is that its is huge which brings a big Digital India and Atmanirbhar technological upgradation and electronics industry is beset High volume address the global shortage
Hardware
are factors such as temporary have been impacted by 44% Maintenance (ESDM) applications are being opportunity for the industry. Bharat Abhiyan, and to realise research and make India an with numerous disabilities Manufacturing such as of semiconductors but
As per CMIE’s capex data, factory closures due to the mobile phones albeit more of an 4% increasingly utilized by almost However, unless there is a the vision of the National integral part of the global Semiconductors would also go a long way
private capital expenditure pandemic and disruptions in adverse weather conditions, all segments of the economy. Responding to the impetus huge ramp up in domestic Policy on Electronics 2019, supply chain. toward making India an
(measured by the value of supply as storms halted with droughts in some parts assembler. Domestic content High import Global sized Extremely International agreements provided by the government’s capacity, it is likely that the the government launched The country does not have electronics hub.
ongoing projects) stood at Rs production facilities in the US of the world affecting a few dependence for input Electronics competitive sector, (like ITA-1), FTAs and The electronics industry is ‘Make in India’, Atmanirbhar incremental demand would be three major incentive The Scheme for Promotion of enough presence in the
71.7 lakh crore at the end of and Japan. The demand-side agricultural commodities and addition is in the low-technology LED Products Challenges components and raw Manufacturing works on low limited scale of classified into six broad Bharat, Digital India and Smart met through a rise in imports. schemes in 2020 to support Manufacturing of Electronics indigenous manufacturing of Further, MeitY’s recent EOI
third quarter- higher than the factors include huge backlog reducing hydroelectricity materials; current Services (EMS) margins manufacturing have segments viz. communication City initiatives, the electronics It also needs to be noted that local manufacturing. These for inviting companies to set
Rs 69.27 lakh crore print seen of demand for chips due to supply while floods in other cateogry. A variety and majority of 3% shortage of companies are proven disadvantageous and broadcast equipment industry has made noteworthy the country specializes in low include the Production Linked Components and high value components such up semiconductor and display
in the same period in FY21 and the release of pent-up demand areas has impacted the supply high-tech components are imported semi-conductors missing in India (including mobile phones), progress in terms of production tech content and most Incentive Scheme (PLI), Semiconductors (SPECS), as semiconductors which are fabs is a welcome step and
Rs 69.39 lakh crore seen in the amongst others. of certain metals and coal. Sector-wise Production of Electronics (2020-21) consumer electronics, and growth in the last five years. high-tech components are Scheme for Promotion of which targets the extensively used by the should be pursued further.
pre-pandemic period of FY20. industrial electronics, This is borne out from the fact development of the electronics industry. For
21 ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY 22
QUARTERLY JOURNAL OF ECONOMICS
QUARTERLY JOURNAL OF ECONOMICS
DECEMBER 2021 DECEMBER 2021
B. Deepening the supported CAS (conditional
Component Value Chain access system) for set top
across the entire boxes.
ecosystem
Similarly, a global innovation
The domestic electronics challenge for designing of
industry is characterised by semiconductors and chip sets
lack of a component for educational tablets for the
ecosystem which leads to its masses could be encouraged.
dependence on imports. High
dependency on imported Besides, the next focus should
inputs raises cost and impedes be on maximizing domestic
competitiveness. A right mix value addition and promoting
of policy realignment coupled Design in India, besides Make
with new targets is required. in India. For this, the
know-how available with
The government has, no doubt Government owned R&D
announced the PLI scheme for laboratories should be made
components. However, the 5-6 freely accessible to industry,
per cent incentive on outsourced R&D needs to be
incremental sales, envisaged incentivized on the lines of
under the scheme, is not In-house R&D, Technology
enough to achieve scale in this Acquisition Fund be created
sector and accordingly would for liberal assistance in filing
discourage manufacturers patents and a Guarantee Fund
from indigenizing production. be created to help R&D
Hence, the government should houses to raise working
review the scheme by capital.
expanding the incentive from
the present 5-6 per cent and D. Other Suggestions
widen the eligibility criteria. A
revamped PLI would facilitate Similarly, the government
scale economies from should also look at other
domestic production and also options such as leveraging
encourage SMEs to strengthen upcoming FTAs (UK & the
the supply chain and reduce EU) towards enhancing
our dependence on imports. exports, incentivizing
manufacture of products not
C. Encouraging Design-led currently produced in India,
Manufacturing facilitating EoDB, among
others.
For ensuring that the industry
remains competitive (by To conclude, a robust policy
facilitating domestic IP environment would help the
creation), even after the PLI & country to realise the huge
other benefits expire, a push opportunity awaiting India to
to R&D is most essential. For emerge as a global hub for
this, the government should electronics and meet the
explore innovative solutions targets envisioned in the NPE
for the sector such as a model 2019.
based on the Government led
domestic manufacturers