Assocham - Ernst & Young Report on Electronics & appliances manufacturing - the India opportunity
The electronics and appliances industry manufacturing is characterized with capital intensity, volume driven production, faster obsolescence and thin margins.
By: EY India
The electronics and appliances industry manufacturing is characterized with capital intensity, volume driven production, faster obsolescence and thin margins. Ownership of a colour television, refrigerator, air conditioner and washing machine has been a dream for the common man. Affordability has been the key concern for ownership of these durables. This situation is undergoing a change with increasing income levels supported by economic growth and unit prices coming down.
Quote by Pinakiranjan Mishra, Partner & industry leader, Retail & Consumer Product Practice, Ernst & Young
'The Assocham - EY study 'Electronics & appliances manufacturing - the India opportunity' is a comprehensive study of the sector and recommends initiative that if adopted can make
India a preferred manufacturing destination and also create significant export opportunities. A
sizeable domestic market and competitiveness in manufacturing are key drivers for companies to set up facilities in India. Adequate investments in R&D, attractive incentive packages from the government and introduction of GST will boost growth and attract international companies. Also, innovative products at penetration price points with product baskets like refrigerator, AC, TV & washing machines reaching USD 400 approx, will help
creating a huge additional untapped market amongst lower income groups. "
He further added "The sector is poised to reach USD40 bn by 2012. That said, the projection will considerably enhance with growth in domestic manufacturing by Indian or international firms. Government initiatives towards supporting rural income levels will provide stimulus to
the rural market for electronics and durable products as well."
Categorization & Market Size:
The electronic & appliances industry constitutes both household and industrial
segments. The electronics and appliances industry can be classified as follows:
1) Computers and peripherals covering desktops, laptops, printers, routers, UPS,
inverters, hard disk drives and other peripherals. Its market size in India is USD 5.39
2) Mobile phones has grown the fastest in the entire electronics and durable industry
with a market size of USD 5.38 billion In year 2009.
3) Telecommunications covering telephone instruments, EPABX, wireless
communication equipment and other telecom equipment with a market size of USD
4.83 billion in India.
4) Others include miscellaneous electronics products.
5) Electronics covering televisions, DVD players, radio sets, tape recorders, cameras,
electronic components and industrial electronics. Its market size in India is worth USD
6) Consumer durables constitutes air conditioners, refrigerators, washing appliances,
sewing machines, electric fans, watches and clocks, cleaning equipments, cooking
appliances and other domestic appliances. Its market size in India is worth USD 4.34 billion.
The market size of electronics and appliances industry is estimated at USD 27.38 billion in
India for the year 2008-09. The industry has grown 7.1% over the previous year in INR. The CAGR for the industry has been 20.3% for the period 2004 to 2009 in terms of INR.
Source : EY Research analysis ; Data sources : Capitaline, Director General, Foreign Trade,
Govt. of India
The domestic market for electronics and appliances is less than 2% of the global market.
70% of the market is served with imports from China, USA and other Asian countries. Given the small domestic market size compared to the world, negligible exports and volume driven characteristic of the industry along with a well developed electronic industry in China, Japan and reduced trend of import duty, manufacturing facilities for electronics and appliances are not well developed in India.
The manufacturing activity is limited to domestic value addition, estimated at 40% of the market size in India for the year 2008-09.
The primary employment potential is around 5500 to 6000 for every USD1 billion of
revenue. This translates to the generation of one job for every INR10 million.
Trade Balance : India is a net importer of electronics and durable goods. As on 31 March 2009, India imported USD19.77 billion worth of electronics goods and exported worth
USD3.17 billion. More than 70% of Indian electronics market depends on imports of both finished goods and components.
• India imports more than USD 7.6 bn from China, followed by USD 4.5 bn from USA,
Singapore & Malaysia
• Highest exports of electronic goods is USD 680 mn to Hong Kong, followed by USD
311 mn to UAE, USD 257 mn to Malaysia and USD 216 mn to Finland.
Source : CMIE (Economic Intelligence Services)
Key drivers for driving the domestic market:
1. Growth in per-capita income- Increasing income levels supported with government
initiatives such as NREGA and Sixth pay commission help increase the affordability of the Indian households.
2. Shift in culture - Rising incomes and evolving lifestyles have reduced the
replacement cycle, which was nearly nine years for televisions, has come down to
approximately four to five years. In addition, purchase of a second television with in a single household has also increased. A faster rate of obsolescence in technology is
bringing down the prices of products and making them affordable to the lower income
groups as well
3. Access to Credit It has been observed that credit purchases account for nearly 20%
of the overall consumer durables sales.
4. Government investment in infrastructure With a projected expenditure of more
than 4.35 lakh crore through the Bharat Nirman initiative spent towards building rural
infrastructure such as electricity, roads, housing will open up new market for consumer electronics and appliances.
5. Reduction of prices with introduction of Goods & Services Tax (GST) -The
introduction of GST in 2010 by Government to bring down the indirect tax would help
most of these savings to be passed on to end consumers. This will increase the
affordability and thus the consumption.
6. Growth of services industry -With public and private sector firms in India adopting
automation, the demand for IT equipment will continue to grow.
7. Innovative products at penetration price points - Products meeting basic needs
at penetration price points can create a market. Eg. mobile at a price less than USD
23, car at a price less than USD 2100 tried by leading firms have all met with huge success.
Strategy for encouraging electronics and appliances manufacturing
India has not been able to attract significant investments in manufacturing .There has been only USD0.75 billion of FDI in the electronics sector in India over a period of nine years (April 2000 to March 2009). In the corresponding period, telecommunications attracted USD6.4 billion of FDI while the computer hardware and software sector attracted an FDI of over USD9 billion.
Source : Dept of Industrial Policy & Promotion
An export-oriented production will provide the following advantages:
1. The export market can complement the domestic market in building production volumes,
thus making the manufacturing facilities viable.
2. It will facilitate knowledge of the market needs, across different markets.
3. It will help develop technology know-how and build technical capabilities for
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