Has India’s electronic manufacturing turned a corner?
India’s electronic imports contracted in January for the first time since April 2014, while electronic exports turned positive for a second straight month
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New Delhi: India’s electronic imports, which account for 27% of the country’s trade deficit, contracted in January for the first time since April 2014, while electronic exports turned positive for the second consecutive month, which if sustained could change the dynamics of India’s manufacturing and international trade.
In January, electronic imports contracted 2.2% to $3.2 billion, while electronic exports rose 7.8% to $0.5 billion. In November, growth in electronic exports turned positive at 0.66%.
If these data seem one off, consider more proof. Radio, television, communication equipment and apparatus group—which also includes other electronic items, including mobile phones, in the index of industrial production (IIP)—saw positive growth for the third consecutive month and grew at a whopping 82% in December, while cumulatively it contracted 1.2% during the April-December period, signalling a turnaround in October.
M.N. Vidyashankar, president of India Electronics and Semiconductor Association, said local manufacturing of electronic items have picked up with increase in value addition. “Production of LED panels, set-top box and mobile phones has got some traction in recent months. This is a good sign and government’s Make In India initiative seems to be showing results,” he added.
The change in dynamics in electronic manufacturing holds more significance as India imports 65% of its current demand for electronic products. Electronic items are now the second-most valued category of imports after petroleum products and if the situation is left unchanged, the country’s electronics import bill may well surpass its oil import expenses by 2020.
While the demand for electronics hardware in India is projected to increase to $400 billion by 2020, the estimated domestic production could rise to $104 billion only, creating a gap of $296 billion, which has to be met through imports, according to a report by Deloitte Touche Tohmatsu India Pvt. Ltd released last year.
In the past year or so, attracted by the huge rise in domestic demand, mobile phone manufacturers have started setting shops in India which is set to become the second-largest smartphone market in the world surpassing the US.
Kiranjeet Kaur, research manager at IDC’s Asia-Pacific client devices, said: “Local manufacturing should gain further traction in 2016 as more and more vendors are willing to benefit from lower import duties and tax structures on semi-knocked down units (SKD). This year could also be the beginning of completely knocked down (CKD) manufacturing in India taking the local manufacturing to the next level,” Kiranjeet added.
In August 2015, Chinese personal computer maker Lenovo Group Ltd started assembling smartphones at its facility in Chennai run by Singapore-based contract manufacturer Flextronics International Ltd. In July 2015, Karbonn Mobile India Pvt. Ltd set up a 150,000 sq. ft plant in Noida in partnership with a mobile phone designer, manufacturer and supplier firm Water World Technology Co. Ltd. In the first half of 2015, smartphone brands Xiaomi Corp. and InFocus partnered with Foxconn Technology Group and started manufacturing devices at the latter’s Andhra Pradesh facility. In September 2015, Chinese smartphone vendor Gionee tied up with Taiwan-based Foxconn Technology Group and Dixon Technologies (India) Pvt. Ltd and started manufacturing mobile devices in October.
That’s not all. In July 2015, Lava International Ltd, which has an assembly unit in Noida, said it will invest Rs.2,615 crore over the next seven years to set up one more factory in the country by 2017. In October 2015, Chinese telecommunications equipment company Coolpad Group Ltd partnered with Videocon Industries Ltd. The company said Videocon will be manufacturing about half a million Coolpad devices at its facility in Maharashtra and the first made-in-India Coolpad phone is expected to be available in the first quarter of 2016.
According to the International Data Corporation’s (IDC) quarterly mobile phone tracker, 25.6 million mobile phones were sold in the December quarter, up 15.4% from the same quarter a year ago. IDC on Monday said almost one in every two smartphones sold in India in the December quarter were locally manufactured. “We expect this to increase further as more vendors are likely to join this bandwagon to benefit from subsidies and be more price competitive,” said Jaipal Singh, market analyst at IDC’s India Client Devices.
Hemant Joshi, technology, media and telecom leader at Deloitte India, said increase in exports and decline in imports of electronic items could be an indicator of growing competency in the sector. “But we need to see whether this trend is sustainable or not over the long term,” he added.
Jaijit Bhattacharya, partner, infrastructure and government services at KPMG India, said government policies do not have an immediate impact and the Make in India initiative will take at least a year or two for some significant manufacturing to happen that can impact electronics import or exports. “Imports in general have gone down since local domestic consumption has gone down, which is a part of a larger problem. As for exports, the nature of exports is such that it is not easily impacted and global demand is still there, which is true for all the segments including electronics,” he added.
Bhattacharya further said that even though the government has laid down the policies for attracting manufacturers and is making it easy to do business in India, the private sector needs to be convinced now to start manufacturing in the country. “We have seen some big-ticket investments happening like $5 billion investment from Foxconn and $10 billion from Chinese Wanda Group, such investments may be difficult to get; going forward there is surplus capacity available, while demand is lagging generally,” he added.
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