The electronic

equipment
industry in
India
Foreword
India has been one of the world’s fastest growing economies during the last few
years. However, India has still not recovered from the effects of the former inward-
oriented policies it followed until the 1990s. Economic reforms started taking place
in the beginning of the 1990s when India started opening up gradually. The ques-
tion is whether India can implement the required policy changes effectively and de-
velop a conducive business climate for industry to grow, and thus be able to
sustain the strong rate of growth it has achieved over the past few years.
During this time there has been increasing confidence in the manufacturing sector
in India and its long term potential as a manufacturing hub. Importance of the
engine- ering industry is supreme in this regard and it also plays a crucial role in the
economic growth of the country. To understand the driving forces of India better, it
is essential to develop an understanding of prevailing fundamentals in the
engineering industry.

In this report we provide an overview of the engineering industry in India with

relevant facts regarding the structure and size, growth rates, main challenges, trends
in international trade, research and development initiatives, as well as an indication
of future outlook of the main segments in the engineering industry. It is a series of
seven different reports that includes an overview of the engineering industry, the
automotive industry, the machinery and equipment industry, the electrical machi-
nery industry, the automotive components industry, the electronic equipment indu-
stry and the fabricated metal products industry.
This series of seven different reports has been commissioned by Teknikföretagen,
the Association of Swedish Engineering Industries, to provide a detailed overview
of the Indian engineering industry covering various aspects of the main
segments. It is hoped that the reports will help identify areas of business interest
for Swedish engineering companies and give the reader increased knowledge of
the present industrial development in India.

The reports have been authored by Mr. Rahul Sanyal. He is an economist from New
Delhi in India, and has been appointed by Teknikföretagen to prepare these seven
reports. Stockholm, September 2008

Anders Rune
Chief Economist
2
Table of contents

Overview of the electronic equipment industry in India

....................................................5
A snapshot of the Indian electronic equipment industry ....................................................5
Evolution of the Indian electronic equipment industry ......................................................6
Large manufacturers of electronic equipment in India .......................................................7
Contribution of the electronic equipment industry to the economy..................................9
Growth of the electronic equipment industry....................................................................10
Pattern of development........................................................................................................
15
Large untapped potential is driving growth .......................................................................17
Size and structure of the electronic equipment industry
................................................17
Consumer electronics .......................................................................................................... 18
Computers ............................................................................................................................
20
Communication and broadcasting ..................................................................................... 21
Electronic components ........................................................................................................ 23
Industrial electronics............................................................................................................24
Strategic electronics..............................................................................................................
25
International trade scenario.................................................................................................. 26
Exports ..................................................................................................................................
26
Imports .................................................................................................................................
28
Research and development ..................................................................................................
29
Future outlook .........................................................................................................................
30
References ...............................................................................................................................
33
The Indian electronic equipment industry is one of
the fastest growing segments of the Indian industry,
but it is still very much in a developmental stage. The
electronic equipment industry is completely delicen-
sed with the exception of aerospace and defence
elec- tronics. With liberalization of foreign
investment and trade policies, this industry is
attracting considerable interest from multinational
manufacturers, not only as a vast market but also as
a potential production base for other markets.

4
The electronic equipment
industry in India

Overview of the electronic equipment industry

in India India has a relatively small electronic equipment industry. In
contrast to many newly industrialized countries, the Indian electronic equipment
industry derives most of its revenues from the domestic market. Historically, the
Indian electronic
equipment industry has grown under protection from foreign competition through
high duties. Liberalization of the industry has benefited the consumers but
weake- ned the local manufacturing industry as it is unable to compete with the
foreign manufacturing companies.

A snapshot of the Indian electronic equipment industry

The Indian electronic equipment industry constituted less than 1 per cent of the
global electronic equipment industry in 2006–2007, which is miniscule in compa-
rison to the contribution of other Asian countries such as China, South Korea and
Taiwan to the electronic equipment industry. Currently, approximately 50 per cent
of the demand for electronic equipment is being fulfilled by imports. However, it
is believed that India has a large untapped potential for exports growth.1

Production of electronic equipment is gradually shifting to Low Cost Countries

(LCCs) like India that also serve as large markets for multinational manufacturers.
Demand in the Indian market is growing rapidly and investments are flowing in to
increase manufacturing capacity. Technological advancement in recent years has
also increased with the boom in the Information Technology (IT) industry in India,
thereby improving the international competitiveness of the industry and helping
India develop into a hub for manufacturing electronic equipment.2 Development

1) This information has been obtained from The Hindu Business Line (9th November 2006) and ELCINA
Electronic
Industries Association of India (2006)
2) ELCINA Electronic Industries Association of India (2006) has been referred

5
in the electronic equipment industry in recent years has also had a profound effect
on other industries and sectors that use electronic equipment, by enabling them to
change their cost structures and increase productivity.3

Evolution of the Indian electronic equipment industry

The electronic equipment industry in India came into existence in true earnest only
in the 1960s, with an orientation towards defence and space technologies, which
of course was strongly controlled by the Government of India (GOI). Then there
followed developments in consumer electronics mainly in transistor radios, black
& white television sets and other audio equipment over the next two decades.

The landscape of the electronic equipment industry changed significantly only in

the 1980s. In fact the period between 1982 and 1990 is considered the golden
period for electronic equipment. The GOI allowed import of colour television sets
only from 1982 onwards due to the Asian Games being held in India at the time. In
the late 1980s, India also began to see introduction of computers and telephones.
Major fiscal reforms took place in the year 1991–1992, but the positive impact of
the same was diluted to some extent, due to the Gulf War. However, afterwards
during the mid and late 1990s, when the Indian electronic equipment industry
started booming, the electronic equipment industry resumed its high priority, albeit
to a limited extent.

Beginning in the late 1990s and into the 21st century, India signed a pact with the
World Trade Organisation (WTO) for reducing customs duty on electronic
equipment to zero. After this agreement, the Indian electronic equipment industry
became vulnerable to international competition and could not keep up. As a result,
several manufacturing units turned sick and had to be closed down.4
Other Asian economies with similar characteristics as India have become signifi-
cant players in the world through success in this industry and have also succeeded
in creating large scale employment directly and indirectly. Given the right
impetus,
the electronic equipment industry can also add significant economic value in India.
With global trends in the electronic equipment industry being optimistic, India is
now poised to evolve into a major electronic equipment manufacturing hub.

3) Reference has been made to Ministry of Information and Communication Technology (2008a)
4) This information has been obtained from ELCINA Electronic Industries Association of India (30th March
2008)

6
Large manufacturers of electronic equipment in India
Several multinationals with operations in India are firming up their plans to make
India a manufacturing hub for their global operations. Backed by large investments,
the companies are increasingly getting attracted to the advantages India offers in
terms of availability of skilled manpower and significant cost reduction in logistics
and raw materials. The continued growth in the domestic market has enabled a
number of companies in achieving economies of scale in production.
The industry produces a wide range of electronic equipment and can be broadly
divided into the following industry segments:

• Consumer electronics;
• Industrial electronics;
• Communication and broadcasting equipment;
• Computers;
• Strategic electronics and
• Electronic components

Most of the large manufacturers are present in two segments i.e. consumer electro-
nics and communication and broadcasting. The consumer electronics segment is
the largest segment in the industry in size and the largest number of manufacturers
in the industry is present in this segment. Foreign manufacturers such as Sony, LG
Electronics, Nokia and Samsung have established large manufacturing facilities
and
now enjoy a significant share in the growing market for products like television
sets, mobile phones, DVD players and audio equipment etc. Growth in the industry
has also attracted contract manufacturers like Solectron Centrum, Flextronics, Jabil
Circuit and Elcoteq Network that are making large investments in India.
The Indian market has substantial scope for penetration of electronic equipment.
The communication and broadcasting equipment segment is one of the largest
segments in the industry and is also expected to attract a large number of manufac-
turers in the segment. Strategic electronics does not form a significant part of the
industry in terms of turnover. However, this segment is expected to develop in both
technical and industrial terms. Since the opening up of this segment to private
players, a number of large manufacturers from the private sector are entering this
segment.

India is a net importer of electronic equipment. However there is significant untap-

ped potential in the industry and both domestic and foreign manufacturers are not

7
only producing for the domestic market but they are also using their facilities in
India to manufacture for exporting to other countries.

The table below mentions some of the largest manufacturers in the electronic
equipment industry across different segments.

L ARGE MANUFACTURERS WITHIN THE INDIAN ELECTRONIC EQUIPMENT INDUSTRY

Company descriptions and products manufactured by them have been mentioned.
The list is not exhaustive and is only indicative of some of the domestic and
foreign manufacture rs in the indust ry.

Manufacturer Company description Sectors/ Products

Philips India Has operations in India since 1930 and has Televisions, home
a large market presence. It is an indust ry theatre systems,
leader and is well known in the consumer & recorders, portable,
lifestyle product segments mobile phones etc
Sony India Started operations in 1994 and it is one of Compute rs, cameras,
India’s foremost brands. It is considered a audio
benchmark for superior qualit y, advanced & video equipment,
technology and service television sets and in-car
LG Electronics Was established in 1997, is a market Washing machines,
leader and enjoys a premium brand mobile phones, television
positioning. It is known for having the most sets, audio equipment
eco-friendly manufacturing plants & air-conditioners
Samsung Started operations in 1995. India is the Mobile phones,
India hub for Samsung in Sri Lanka, Nepal, camcorders, television
Maldives, Bangladesh and for exports to sets, audio & video
Commonwealth, SAARC countries equipment, home
Videocon Is an Indian company that started operations Television sets, DVD
in players, microwave
1987. It is a household name and now ovens, washing
has collaborations with world leaders machines, refrigerators
MIRC A company of Indian origin that was Television sets, audio &
Electronics established in video equipment,
1981. Sells its products under the name of washing machines and
Onida. It has a substantial share in the microwave ovens
Nokia The first mobile call in India was made from Has 3 main operations
a Nokia mobile phone in 1995. Nokia has – mobile phones,
played a pioneering role in the growth of multimedia and
cellular technology in India enterprise solutions
Flextronics It is one of the foremost in the electronic Equipment
equipment contract manufacturing manufacturing and
business in India. Alcatel and Nokia are device manufacturing
some of its biggest existing custome rs for wire- less mobile
IBM IBM started in India in 1951, left in 1978 and Personal compute rs,
re-entered in 1992. It is a pioneer in the laptops, computer
notebook market and is highly reputed. It accessories, storage
is also known for conducting extensive systems etc
R&D in its facilities in India
Source: Indust ryarch and analysis.
rese

8
Contribution of the electronic equipment industry to the economy
The Indian electronic equipment industry has seen relatively stable annual growth
rates in recent years at approximately 15 per cent. The consumer electronics seg-
ment has consistently remained the largest contributor to turnover in the industry.
In the year 2006–2007, the share of the consumer electronics segment in industry
turnover was more than 30 per cent. 5
The contribution of the electronic equipment industry to the GDP of the economy
was approximately 1.90 per cent in the year 2006–2007.6 This is in sharp contrast to
other Asian countries like South Korea, Taiwan, and China that contributed 15.1
per cent, 15.5 per cent and 9.6 per cent to their respective GDPs in 2006–2007.7

There is concern about the drivers for inducing growth in this industry. Countries
like Taiwan, Korea, Malaysia and of late China, have recorded much higher
growth in the electronic equipment industry and are exporting worldwide.
Presently these
4 countries account for 20 per cent of the global electronic equipment production.
This is also enabling these countries to create wealth, improve efficiency, generate
additional employment and develop better communication infrastructure.8
India, in comparison has not been able to take much needed steps to be able to en-
joy the same upward trend like these countries. As mentioned earlier, this is largely
because India has still not recovered from the effects of the inward-oriented
policies that were followed from 1947 to 1991. When India agreed with the WTO
to remove duty protection, several domestic manufacturing units closed down as
they were inefficient and were not able to match the new foreign competition.

In the 1990s, the size of the domestic market was also much smaller than it is
today. But now India has the potential to develop and manufacture electronic
equipment for the global market and gain in global share besides meeting the
country’s future requirement in the areas of information, communication and
entertainment.

5) Reference has been made to Ministry of Communications and Information Technology (2008b)
6) This has been compiled based on deductive analysis. The tu rnover and share of the software
indust ry (also a part of the electronic equipment indust ry in India) in GDP was obtained from
Ministry of Communications and Informa- tion Technology. Henceforth, the tu rnover of the
electronic equipment indust ry was used to obtain the contribution of the electronic
equipment indust ry to GDP. Refer Ministry of Communications and Information Technology
(2008b)
7) Reference has been made to The Hindu Business Line (11th February 2008)
8) Reference has been made to Ministry of Communications and Information Technology (2008a)

9
Growth of the electronic equipment industry
It is widely believed that growth of the electronic equipment industry in India has
not been consistent with the market potential. Distinct growth rates in the industry
have started only since 2000 beginning with the Information Technology (IT)
boom. The computers segment recorded the highest growth rate in the industry
growing by more than 88 per cent between the year 2003–2004 and 2006–2007,
followed by the communication and broadcasting segment which grew by
approximately 77.5 per cent during the same period. However these fast growing
segments grew over a small base. The largest segment by size, the consumer
electronics segment has also demon- strated steady growth rates of approximately
10 per cent during this period.9
With rising income levels, the demand for consumer electronics is set to expand
enormously. According to the Global Competitiveness Report, India is ranked 62
out of 131 countries in terms of technological readiness. According to the report,
India’s rankings in terms of computers, telephones, mobile connectivity among
other things are very low. However, with rising incomes and increasing urbaniza-
tion, demand for electronic equipment across segments is set to increase. This
will positively impact demand for electronic equipment across segments.10

The figure shown herewith depicts the Compounded Annual Growth Rate (CAGR)
of different segments in the electronic equipment industry between 2000 and 2007.

GROW TH OF SEGMENTS WITHIN THE ELECTRONIC EQUIPMENT INDUSTRY

The figure below depicts CAGR of segments within the electronic equipment indust ry
from the year 2000 till 2007. 11

20
18
15
11
8
5

Consum Industri Compute Communicati Strategi Electronic

er al on and c componen
electroni rs
electroni broadcasting electroni ts
cs cs cs

Segmen
t

Source: Indian Brand Equity Foundation

9) Reference has been made to Ministry of Communications and Information Technology (2008b)
10) Reference has been made to World Economic Forum (2008)
11) Reference has been made to Indian Brand Equity Foundation (2007)

10
Identification of the electronic equipment industry as one of the focus areas
The Ministry of Commerce and Industry in India has emphasised the importance
of electronic equipment manufacturing as one of the focus areas for the manufac-
turing sector and indicated that the Government of India (GOI) is prepared to take
fiscal measures and provide incentives for growth and development of the electro-
nic equipment industry. The main objectives highlighted are to:
• Make the industry globally competitive;
• Reduce the excessive dependence on imports as is the case currently;
• Attract more Foreign Direct Investment (FDI) in the industry;
• Reduce the cost of production;
• Increase volumes to be able to realize economies of scale;
• Take measures to generate an increase in demand;
• Compensate for disabilities until basic infrastructural constraints are removed;
• Move towards lower indirect taxation levels in the next 3–5 years. For example,
China’s indirect taxation levels are considerably lower than those in India. 12

Despite the late start and modest position that India has currently, it is time for
India to capitalize on the advantages it has in the manufacturing sector. In addition
to the low cost of labour, these advantages include highly-developed engineering
capabilities, presence of high-quality suppliers and relevant technology partners
with established relationships that are mutually beneficial and sustainable. On the
other hand, industry sources believe that though the suppliers are of good quality,
the network of suppliers is clearly inadequate to be able to service the large scale
expansion and demand in the industry. Many feel that the process followed in the
development of the automotive components industry needs to be replicated in the
electronic equipment industry to be able to achieve growth targets.

Increase in incomes and affordability

About 25 per cent of the Indian population lives below the poverty line, but a
large and growing middle class of 350 million has disposable income for
consumer electronic equipment. It is strongly expected that the consumer
durables market
will have strong growth in the coming years as the profile of the Indian consumer
is changing.13 There are a large number of nuclear families (changing from the
joint family system prevalent in India), higher disposable income levels and easier
access to credit with the growth of the banking and credit sector. Replacement
cycles have

12) Reference has been made to Ministry of Communications and Information Technology (2008a)
13) This information has been obtained from ELCINA Electronic Industries Association of India (2nd July
2008)

11
also increased along with a rise in the aspiration levels of the growing number of
young working professionals. So, where the higher strata is going in for premium
items such as LCD televisions and four-door refrigerators, the middle and lower
classes, with rising levels of aspiration and incomes, are going for multiple owner-
ship of durables and electronic items like washing machines, television sets and
refrigerators.

Low penetration levels

A key factor in growth is the low density of electronics in India. By global standards
India’s computer and telecom penetration are quite low. The figure below shows
the penetration levels of computers, telephones and television sets in India.
Increase
in demand for telecom products has been outstanding with India adding approx-
imately 8 million phone users each month.14 However, India ranked 114 out of
131 countries as per the Global Competitiveness Report, in terms of mobile
telephone subscribers.15 These figures demonstrate the large untapped potential
that exists in the industry in India.

PENETRATION LEVELS IN ELECTRONIC EQUIPMENT

The figure displays penetration level for the year 2005 and the expected level in 2010

214
2010 expected
2005
175

130

100

70

14

Television Telephon Personal compute rs

sets es

Source: Investment Commission of India16

14) This figure has been obtained from the book The Elephant and the Dragon. See Meredith R (2007)
15) Reference has been made to World Economic Forum (2008)
16) Reference has been made to Investment Commission of India (2006)

12
The increasing growth is not only dependent on urban demand but also on semi-
urban and rural demand. Rural India accounts for nearly 70 per cent of the total
number of households but the penetration of refrigerators is less than two per cent
and that of washing machines is just 0.5 per cent. This offers huge scope for tap-
ping the potential in the industry. Mr Sunil Mehta, Joint Vice-President, Videocon
Industries, adds, “Penetration of consumer durables is still very low and this
market is the one that almost all players are targeting.”17

Increase in investments
Large scale investments have started pouring into India. Samsung India has lined up
a USD 500 million investment for a new LCD manufacturing unit in the Sri-
perumbudur Special Economic Zone (SEZ) near Chennai. Air-conditioning and
refrigeration major Carrier Corporation said it would invest Rs 2 000 million in
India during the next three years to build a new global Research & Development
(R&D) centre, develop industry-leading products and technology for local markets
and significantly enhance the company’s manufacturing operations here. Air-
conditioning major Fedders Lloyd Corporation Ltd and Victor Company of Japan
(JVC) would be jointly investing USD 30 million to create space for JVC products
in the Indian consumer electronics market as well. Other international players such
as Siemens, Texas Instruments, Matsushita, LG, Alcatel, Samsung, Sharp and
Lenovo have already setup their manufacturing operations in India.18

Government buying from domestic production to spur demand

Government buying is known to be one of the most significant catalysts to trigger
domestic consumption. To enable manufacturers to increase production volumes,
the Government of India (GOI) has decided that procurement of electronic equip-
ment for the GOI should only consist of locally manufactured products against im-
ported goods. The GOI is one of the largest administrations in the world and thus
this decision makes a significant difference to scale of demand and thus is
perceived to be a big demand driver.19

17) Reference has been made to The Hindu Business Line (1st Janua ry 2008). Videocon
Industries is one of the largest manufacture rs of electronic equipment in India.
18) The information has been obtained from The Hindu Business Line (2nd Janua ry 2008) and The Hindu
Business
Line (29th November 2007)
19) Reference has been made to Ministry of Communications and Information Technology (2008a)

13
Electronic manufacturing services
Continuing cost pressures have led to the outsourcing of more and more elements
of manufacturing design to Contract Equipment Manufacturers (CEMs). CEMs
are companies that are hired by Original Equipment Manufacturers (OEMs) to
produce products on contract basis where the OEMs own the designs and Intel-
lectual Property Rights (IPR). The reasons why OEMs are outsourcing are the
onus of flexibility in production is transferred to the CEM, manufacturing costs
can be reduced and they can focus on product development.
Some of the world’s largest CEMs, namely Flextronics, Jabil Circuit, Elcoteq Net-
work and Solectron Centrum have presence in India. Some of the Indian CEMs are
TVS Electronics, D-Link, Celetronix and Tata InfoTech.20 The Investment
Commis- sion of India estimates that out of the USD 500 billion global Electronics
Manu- facturing Services industry, India is in a position to tap USD 11 billion in
contract manufacturing and USD 7 billion in design services by the year 2010.21

Housing boom
India is going through a housing boom. With opening up of the banking sector
there is easier access to credit, a rise in the income level and an increasing
number of people purchasing houses. This also leads to increased purchases of
electronic equipment. When people move into new houses, they buy electronic
equipment;
and with increasing incomes they tend to graduate to high-end products, which is a
major reason for growth in the industry.

Multiple increases in demand for consumer electronics during festivals

India is a very religious country with several festivals. For many festivals the tra-
dition is to buy new electronic equipment for the house among other things. The
most important festival is ‘Diwali’ during which time several people across classes
buy electronic equipment. This time of the year witnesses the maximum number of
sales in consumer electronics in a short span of time. For instance, only midway th-
rough the Diwali festival season, LG Electronics India recorded 51 per cent growth
in terms of value and 34 per cent in terms of volume in 2007. At that rate more than
25 per cent of the sales for the company for the year were made in just one month. 22

20) Reference has been made to Indian Brand Equity Foundation (2007)
21) Reference has been made to Investment Commission of India (2006)
22) Reference has been made to The Hindu Business Line (29th November 2007)

14
Pattern of development
Senior industry experts believe that growth in the industry cannot be achieved in
isolation but through clusters connected through vertical and horizontal linkages.
To further enhance India’s electronic equipment exports to global markets,
develop- ment of clusters for producing electronic equipment has begun to boost
production and drive exports. These clusters are being designed to do away with
bureaucratic hurdles, provide world class infrastructure in terms of flexible labour
laws, uninter- rupted supply of power, rail, road and sea linkages, telecom
infrastructure, income tax benefits etc.
This concept is working. For instance, two electronic equipment SEZs in the state
of Tamilnadu in South India are completely sold out. Companies like Samsung,
Nokia and Flextronics are manufacturing from the Sriperumbudur SEZ near
Chennai, Tamilnadu (one of the two SEZs). Mr. Gulu Mirchandani, Chairman and
Managing Director of MIRC Electronics, one of the largest electronic equipment
manufactu- rers said that he is also looking at investing in the state.23

Eleven major clusters have been identified. These account for almost 95 per cent of
electronics, software and services exports. The major clusters where manufacturers
are present and where SEZs are being developed are in the states of Punjab in
North India, Maharashtra in West India and Karnataka and Tamilnadu in South
India.
Some other large manufacturers are present in some other states, such as Ericsson
that has a manufacturing facility in Jaipur in the state of Rajasthan located in North
West India, Philips India is present in the state of West Bengal in East India and
Sony India has a large manufacturing facility in the state of Haryana in North India.

23) The information has been obtained from The Hindu Business Line (28th July 2007)

15
CLUSTERS WHERE MANUFACTURING IS TAKING PL ACE AND SEZ s ARE DEVELOPING
The figire displays the states where large cliste rs are developing.

•Sony India
•Alcatel
•Godrej Industries

Pinjab

•Elcoteq
Maharashtra
• Videocon
•Alcatel-Lucent
Karnataka •Solectron Centrum

•Jabil Circuit Tamilnadi

•MIRC
Electronics
•Celetronix
• Link •IBM
•LG •Flextronics
India •Nokia
•TVS Electronics
•Samsung

Soirce: Indist ry analysis and research. Company websites have been ised to obtain details of
manifactiring facilities in the states shown above

16
Large untapped potential is driving growth
India’s electronic equipment industry presents great opportunities for growth. Con-
sumer electronics, electronic components and computers are attractive segments
as they offer both size and potential. Contract manufacturing is picking up at a fast
pace and can also be used in a big way for increasing exports. Success in the Indian
market would require attaining the appropriate technology at low cost, good under-
standing of local markets and product customisation to suit local needs.
In terms of location, Tamilnadu is the most attractive state currently. A large
num- ber of manufacturers are already present in the state. It has the requisite
linkages and better infrastructure overall compared to many other states. In fact it
has already developed into a hub for the automotive industry also. Some of the
other attractive states are Andhra Pradesh and Punjab.

Size and structure of the electronic equipment

industry
Despite having a country of a large geographical area and a population in excess of
1.2 billion people, the size of the electronic equipment industry is quite small
which contributed only 1.9 per cent to the GDP of the economy in the year 2006–
2007.

TURNOVER OF SEGMENTS IN THE ELECTRONIC EQUIPMENT INDUSTRY

The table below depicts figires between 2003–2004 and 2006–2007. Valies are in
Rs. Billion and growth rate is in percentage

Segment/Year 2003–2004 2004–2005 2005–2006 2006–2007

Consimer electronics 152.0 168.0 180.0 200.0

Indistrial electronics 61.0 83.0 88.0 104.0

Compite rs 68.0 88.0 108.0 128.0

Comminication and
broadcasting 53.5 48.0 70.0 95.0
eqiipment
Strategic electronics 27.5 30.0 32.0 45.0

Electronic 76.0 88.0 88.0 88.0

components
Total annial ti rnover 438.0 505.0 566.0 660.0

Indistry growth rate 16.80 15.30 12.07 16.60

Soirce: Ministry of Comminications and Information Technology

17
The consumer electronics segment dominates the industry with a market share of
over 30 per cent in the year 2006–2007. The next largest segment in terms of turno-
ver in the industry is the computers segment with a share of 19.40 per cent in the
industry. The figure herewith shows a graphic representation of the share of each
segment in the electronic equipment industry.

SHARE OF EACH SEGMENT IN THE ELECTRONIC EQUIPMENT INDUSTRY

The figire displays the share of each segment in ti rnover for the
year 2006–2007. Share is in percentage.

30.30

19.40
15.75 14.40 13.33

6.82

Consim Indistria Compite rs Strategi Electronic

er l c componen
electroni electroni electroni ts
cs cs Comminicatio cs
n and
broadcasting

Segmen
t

Soirce: Ministry of Comminications and Information Technology

Consumer electronics
Consumer electronics is the largest segment in the industry with a turnover of Rs.
200 billion in the year 2006–2007. During the year 2007–2008, the consumer elec-
tronics segment produced worth an estimated Rs. 225 billion recording a growth
of
12.5 per cent.24

Trends analysis by Federation of Indian Chambers of Commerce and Industry

According to a survey on the electronic equipment industry in India, conducted by
the Federation of Indian Chambers of Commerce and Industry (FICCI),25 growth
in this segment has been achieved despite an unfriendly customs duty structure and

24) Reference has been made to Ministry of Comminications and Information Technology (2008b)
25) FICCI is considered one of the largest think tanks for the indist ry and has several
engineering companies as its members

18
high levels of excise duties. The survey also points out that the future of this sector
is optimistic as technological advancements, falling prices due to increased
compe- tition, and declining import tariffs will help in growth of the segment.26 It
is expec- ted that the market for white goods will increase at a fast pace in future.

Low penetration levels

A senior official of Whirlpool India has pointed out that the categories that are
growing very rapidly are the ones that are less penetrated. There is a clear trend
of the technologically advanced high-end products growing at a significantly
faster
rate than the average. For instance, the fully automatic washing machines, frost-free
refrigerators, split air-conditioners and microwaves have been growing at a very
fast rate as the penetration levels are relatively low in these product segments.27

Scenario in some product categories

The television set product segment is the largest contributor to the consumer
elec- tronics segment’s revenues. The high end products, particularly the Liquid
Crystal Display (LCD) television sets segment has been registering growth of
more than
100 per cent over the previous few years, albeit on a very small base. Production of
LCD television sets is expected to reach 10 million units by 2010–2011. The DVD
player market has also been increasing at an annual average rate of 20 per cent and
production of these players is expected to cross 7 million units in 2008–2009. With
the advent of the Direct To Home (DTH) and Conditional Access System (CAS) in
many parts of India, the demand for Set Top Boxes (STBs) has been increasing at
an exponential rate. Only 25 per cent of demand is met by domestic production.28

Advent of organized retail enabling growth of the sector

India has also been going through a revolution in the retail market. Over the past
few years, the Indian retail market has been getting ‘organized’. In India, the
concept of large shopping malls and supermarkets was limited to the reach of a
very small part of the population. Now with the opening up of several shopping
malls in seve- ral cities across India, the reach of consumer electronics has
increased. With increa- sing incomes and urbanization there is increased demand
for consumer electronics in the country.

26) The information has been obtained from The Hindi Bisiness Line (26th December 2007)
27) Reference has been made to The Hindi Bisiness Line (29th November 2007)
28) Reference has been made to Ministry of Comminications and Information Technology (2008b)

19
Boom in the luxury car market driving growth of the industry
With the growth of the luxury car market in the automotive industry there has
been a parallel increase in demand for hi-tech gizmos. The car accessories
market
is evolving with an increasing number of sophisticated devices being fitted in them
making cars not just vehicles but communication and entertainment zones. These
gizmos include television sets, DVD-players, advanced audio players, entertainment
consoles etc. The GPS systems are also new to the Indian car market and with an
increasing number of luxury cars coming into the market; the demand for GPS
systems is also going up significantly owing to the large domestic market.

Computers
The Personal Computers (PC) segment includes both desktop computers as well
as notebook laptops. In the year 2006–2007, this segment had a turnover of Rs.
128 billion registering a growth rate of 18.5 per cent. It is estimated that the turno-
ver of this segment will increase to Rs 164 billion in the year 2007–2008
registering a growth rate of 28.1 per cent. The growth of the segment was led by a
significant surge in growth of notebook sales of 59 per cent, while sales of
desktops grew by only 3 per cent in 2006–2007. PC sales are projected to increase
substantially, given
the strong macroeconomic conditions and positive buying sentiment in the market,
and increased demand from various industries for both notebooks and desktop
computers. High growth in PC sales can be attributed to increased consumption by
industries such as Telecom, Banking & Financial Services, Manufacturing, Educa-
tion, Retail and Business Process Outsourcing (BPO)/ IT Enabled Services (ITeS)
as well as major e-governance initiatives taken by the Central and State
Governments. Governments are significantly large in India. In fact India has one of
the largest bureaucracies in the world.

Another major driver of growth in this segment in the industry is the downward
trend in prices. Each year the prices for computers fall, enabling a larger
population to afford the gadgets, leading to robust growth through increased
demand from the households sector. According to the Global Competitiveness
Report, India ranked
105 out of 131 countries in terms of the personal computers market. An increasing
number of Small and Medium Enterprises (SMEs) are also generating demand for
computers. The major manufacturers in this segment include global majors like
Lenovo, Dell, Hewlett Packard, Compaq, Apple, Acer, Toshiba, Sony etc.29

29) Reference has been made to Ministry of Comminications and Information Technology (2008b)

20
Communication and broadcasting
This segment is the fastest growing segment of the electronic equipment
industry. Communication technology has been recognized nationally as a crucial
driver for growth of the electronic equipment industry. Overall teledensity is low
in India,
but despite that, due to the large size of the domestic market, it is already one of the
largest in the world in terms of number of telephone subscribers. India also enjoys
the position of being one of the largest mobile phone markets. Many of the world’s
renowned manufacturers are present in India and others are also setting up facilities
in India to meet local demands and to serve foreign markets also.
The table below shows that although this segment is developing fast, there is
signi- ficant untapped potential for this segment to grow. The segment has the
potential
to match the size of the largest segment in the industry i.e. the consumer electronics
segment.

TURNOVER AND GROW TH RATE OF COMMUNICATION AND BROADCASTING SEGMENT

Data is for the years 2004–2005 till 2007–2008. Valies are in Rs. Billion and the
growth rate is in percentage

Segment / Year 2004–2005 2005–2006 2006–2007 2007–2008*

Comminication and
broadcasting 48.0 70.0 95.0 143.5
eqiipment
Segment growth rate - 45.83 35.70 51.05
Soirce: Ministry of Comminications and Information Technology
*) These figires have been estimated by Ministry of Comminications and Information Technology

The table below shows rankings compiled by the Global Competitiveness Report
that show that India is very backward when it comes to technological readiness.
Large scale development is required in the industry to provide the requisite in-
frastructure in the segment to enable it to grow, and to tap the potential of the large
and burgeoning domestic market.30

30) Reference has been made to World Economic Forim (2008)

21
RANKINGS OF INDIA IN THE GCR IN TERMS OF TECHNOLOGICAL READINESS
The table below shows the rankings for the year 2007–2008 oit of 131 cointries

Segment description Ranking

Mobile telephone sibscribe rs 114

Nimber of internet ise rs 95

Broadband internet sibscribe rs 88

Soirce: Global Competitiveness Report 2007–2008

Telephone and broadband subscriber base scenario

India had set a target to have 250 million telephone subscribers and 10 million
broadband subscribers by the year 2007.31 The gross number of telephone subscri-
bers reached 272.88 million as of December 2007 with mobile telephone
subscribers being 233.63 million. In comparison, USA and China had 260.5 million
and 550.5 million subscribers respectively for mobile phone services in 2006 as per
a study released by the Telecom Regulatory Authority of India (TRAI).32

The overall tele-density reached the level of 23.89 per cent in December 2007,
which is a considerable improvement from a tele-density of 17.16 per cent in
December
2006. Now, India is one of the largest in the world in terms of gross telephone sub-
scribers and second in Asia after China. At the end of December 2007, the number
of broadband connections was 3.13 million. The short term target is 10 million by
the end of 2010 and the long term target is to reach 20 million by the end of
2020.33

Fast paced growth of the mobile telephony market

India is one of the leaders in the mobile handset market. With increasing penetra-
tion of the market, increase in incomes and connectivity, and conducive conditions
for engineering and manufacture of handsets, this segment has been booming at the
rate of 85 per cent per year as per a study conducted by TRAI. However, in compa-
rison to China, India is still far behind. According to the study, the subscriber base
of India in cellular lines in March 2006 was 93.04 million compared to 410
million in China.34

31) Reference has been made to ESC: Electronics and Compiter Software, Export Promotion Coincil (30th
March 2008)
32) Reference has been made to Embassy of India (April 2008). Reference has also been made
to Ministry of Com- minications and Information Technology (2008a)
33) Reference has been made to ESC: Electronics and Compiter Software, Export Promotion Coincil (30th
March 2008)
34) Reference has been made to Telecom Regilato ry Aithority of India (2006)

22
The largest manufacturers of mobile handsets from around the world are manu-
facturing in India. These include Nokia, Sony-Ericsson, Motorola, Alcatel-Lucent,
Samsung, and LG. Several manufacturing facilities are expected to come up in the
coming years, to meet local demands as well as make India a manufacturing hub
for their international markets.
Some of the achievements made by India and factors for growth in the segment are:
• India has the distinction of having the world’s lowest call rates i.e. 2–3 cents
• Record sales of 8 million phones a month
• Production of the world’s cheapest handset at USD 17.2

These factors are demonstrative of the fact that the mobile telephone market in In-
dia is booming and is set to achieve the ambitious targets set by the GOI. The
rising demand for a wide range of telecom equipment has provided excellent
opportuni- ties to domestic and foreign investors in the manufacturing sector.35

Electronic components
The major categories of components that contribute majority of the share in pro-
duction in the segment are writable Compact Disks (CDs), Colour Picture Tubes
(CPTs), Printed Circuit Boards (PCBs), writable Digital Versatile Disk (DVDs),
con- nectors, semiconductor devices, ferrites, and resistors.

Growth and turnover in the segment

The total production of electronic components during 2006–2007 was Rs. 88 bil-
lion remaining stagnant at that level since 2004–2005. However this is expected
to change and the segment is expected to grow to Rs. 95 billion during 2007–
2008 at a growth rate of 8 per cent. This is because the serviceable market for
professional
grade components such as PCBs, semiconductor devices, connectors, antennas, etc.
is likely to go up due to the increase in indigenous manufacture of mobile phones,
STBs,DVD players, etc.36

Surge in mobile handsets and CEMs widening the scope of the sector
The world’s top five mobile handset makers – Nokia, Motorola, Samsung, Sony-
Ericsson and LG Electronics have their manufacturing facilities in India.
Presence
of global CEM majors like Flextronics, Jabil Circuit and Elcoteq Network is creating

35) Reference has been made to Ministry of Comminications and Information Technology (2008a)
36) Reference has been made to Ministry of Comminications and Information Technology (2008a)

23
potential for a jump in hardware manufacturing in India. This will naturally have a
trickle down effect as demand for components will increase as production
increases.

Innovations in the sector driving growth

Developments in this segment have been driven by growth in the consumer
elec- tronics segment and more specifically the CPT segment. In view of
introduction
of flat panel colour televisions, the market for LCD panels has been rising fast.
The electronic components segment is experiencing growth in the optic fibre
segment also with technological advancements making these at par with
international standards. Most of the top global semiconductor companies have set
up their chip design centres in India. It is expected that chip manufacturing may
start in India also in the near future. One of the manufacturers of Light Emitting
Diodes (LEDs) has developed a series of high power LEDs. These LEDs were a
long time demand of the Indian lighting market and are tailor made for use in
solar lamps for home
lighting and ideally positioned to meet the Remote Villages Electrification
program. A low cost black and white television set with AM/FM radio has also
been develo- ped by a domestic company for the mass market and this can be fitted
into vehicles. Such gadgets at affordable prices are alien to the Indian market and
hence this cost competitive innovation is reasonable compared to international
models.37

Industrial electronics
This segment of the electronic equipment industry plays a very important role. It
caters to strategically and economically important industries like Steel, Power, Che-
micals, Textiles and Transportation etc by providing them customized instrumen-
tation. It is characterized by the production of state of the art industrial electronics
equipment and systems, automation technologies and networking systems. Out of
these industries, the most crucial for the industrial electronics segment is the Trans-
portation industry and more specifically the Indian Railways. The Indian Railways
is increasingly adopting the latest in power electronics equipment for their main-
line electric/ diesel locomotives and sub-urban train systems. India has the second
largest railway network in the world. Hence, this development is expected to lead
to tremendous growth in the segment.
This segment registered a turnover of Rs. 104 billion in the year 2006–2007 at a
growth rate of 18.2 per cent. During the year 2007–2008, the production in this
segment is estimated to be Rs. 119.5 billion registering a growth of 15.0 per
cent.

37) The Institition of Electronics and Telecomminication Engineers (2007) has been referred
24
Some of the largest manufacturers in the segment include Bharat Heavy Electri-
cals Limited (BHEL), Electronics Corporation of India, Rajasthan Electronics and
Instruments Limited and Masibus Process Instruments.38

Strategic electronics
This segment is the smallest in the industry but is also one of the most important,
because of the criticality of development in technology targeting two aspects, the
technology being applicable to the strategic sector for defence purposes, and the
emerging state of the art technology which is not available off the shelf and
which
is denied due to its strategically sensitive applications. Denial of this technology has
not allowed civilian and defence applications from taking place. It is believed that
due to its critical nature, the technology can generate returns much faster. Hence
technology to cater to these critical applications needs to be developed and produ-
ced on a much larger scale. Various institutions are developing strategic systems
and Public Sector Enterprises (PSEs) are the largest in this regard. Some of the
focus areas in the sector include the following:

• Secure communication and networking

• Navigational aides (air/land/un derwater)
• Surveillance systems (air/land/un derwater)
• State of the art technology development for modern warfare systems
• Naval communication systems and satellite mapping systems
• Advanced robotics

The segment has witnessed steady growth rates since 2003–2004. The turnover
for the year 2006–2007 was Rs. 45 billion growing at the rate of 40.6 per cent. The
turnover estimate for the year 2007–2008 is Rs. 61 billion. Some of the major
manu- facturers of this equipment are Bharat Electronics, Midas Communication
Techno- logies, Fibcom India and Electronics Corporation of India among others.39

38) Reference has been made to Ministry of Comminications and Information Technology (2008a)
39) Reference has been made to Ministry of Comminications and Information Technology (2008a)

25
International trade scenario
The largest segments in the industry where international trade takes place are
electronic components and industrial electronics, where these segments account for
46.8 per cent and 24 per cent of the industry exports respectively. Most manufactu-
rers in the consumer electronics segment are focusing on tapping the large
domestic market but many have begun and others plan to use their manufacturing
facilities
in India to export electronic equipment to other markets.

Exports
Exports in the electronic equipment industry increased by nearly 30 per cent in the
year 2006–2007. Despite a sudden drop in exports growth rate in 2004–2005, ex-
ports have been growing steadily since 2005–2006.Backed by big-ticket
investments, the companies are increasingly getting attracted to the advantages the
country
offers in terms of availability of skilled manpower and significant cost-reduction in
logistics and inputs. This enables the foreign companies to use their manufacturing
facilities for exports purpose also. The domestic manufacturers have also come of
age and export to the international market.40

VALUE OF EXPORTS IN SECTORS WITHIN THE ELECTRONIC EQUIPMENT INDUSTRY

Valies are in Rs. Billion and growth rate is in percentage

Sector/Year 2003–2004 2004–2005 2005–2006 2006–2007

Consimer electronics 8.25 11.50 20.00 15.00

Indistrial electronics 15.15 15.00 23.00 30.00

Compite rs 14.40 12.00 10.25 15.00

Comminication and
broadcasting 1.65 3.50 5.00 6.50
eqiipment
Electronic 37.55 38.00 38.00 58.50
components
Total exports 77.00 80.00 96.25 125.00

Growth rate of 37.50 3.89 20.31 29.87

exports
Soirce: Ministry of Comminications and Information Technology

40) Reference has been made to Ministry of Comminications and Information Technology (2008a)

26
Increasing investments for setting up hubs for exporting
Since products manufactured in India are reaching international standards in terms
of quality, many companies have started focusing on exports in addition to tap-
ping the large domestic market in India. The challenge is to supply competitively to
global markets. Some instances of this phenomenon are described below.
Haier, the Chinese durable goods manufacturing giant has acquired a facility in the
state of Maharashtra in West India to manufacture refrigerators, colour television
sets and washing machines. It is also upgrading the new facility with modern
equip- ment to create an R&D facility for refrigerators. The major reasons cited by
the
Chief Operating Officer of Haier, Mr. Pranay Dhabhai, were the easy availability of
inputs such as steel and fuel, and the logistic advantages India provides. “The freight
cost is almost 30 per cent less if one were to export from India rather than China,”
he said. Samsung is looking at its Sriperumbudur facility as a manufacturing hub
for Samsung’s global operations,” said Mr Zutshi, Deputy Managing Director,
Sam- sung India.

Chinese durable goods major TCL too plans to set up a manufacturing facility in
India, both for domestic and global operations. “We are seeking regulatory appro-
vals to set up a manufacturing unit somewhere in northern India,” Mr Sudhanshu
Bhandari, Marketing Head of TCL, said.41

Development of hubs-advantages and downstream benefits

There are immense opportunities in the segment for manufacturers and the local
population also. Manufacturers benefit because the advantages India provides in
terms of cost of production, logistical support, improvement in quality standards,
strong engineering capabilities, etc can help companies to explore other global mar-
kets as mentioned earlier.

The socio-economic benefit (downstream benefit) is that a robust manufacturing

base would have multiplier effects like generation of employment and generation
of business to local SMEs, growth of the services and maintenance sectors etc. Thus
in other words, development of hubs can serve important business and socio-
econo- mic objectives that can lead to overall growth of the economy.42

41) The Hindi Bisiness Line (2nd Janiary 2008) has been referred
42) Reference has been made to ESC: Electronics and Compiter Software, Export Promotion Coincil (25th
Jily 2005)

27
Imports
India remains a major importer of electronic materials, components and finis-
hed equipment, where imports exceed exports amounting to USD 12 Billion
in
2004–2005 according to the National Manufacturing Competitiveness Council
(NMCC). 43

The Associated Chambers of Commerce and Industry in India (ASSOCHAM)

found out after conducting a study on imports in the electronic equipment indu-
stry, that the main reason for the tremendous volume of imports and hence large
trade deficit in the industry is the current tax regime in the country that restricts
growth in domestic manufacturing.
According to ASSOCHAM, India has the potential to compete with other Asian
economies where the contribution of the electronic equipment industry to the GDP
can be much higher than 1.9 per cent in 2006–2007, and more in the double digits
range like other countries in Asia such as South Korea, Taiwan and China. Thus
changes must be effected in the duty structure to enable higher production of elec-
tronic equipment domestically.

In its report ASSOCHAM mentioned that 21 million jobs (7 million jobs directly)
can be created within the country in the next ten years if most of the demand is
fulfilled through domestic production. To curb the excess imports the association
has suggested that the GOI raise customs duty on imports i.e. protect the industry
to enable domestic production to grow.44
This strategy though has not worked in the past and is the reason for the rather
slow development of the electronic equipment industry. Hopefully, the GOI will
implement policy changes that reduce protection, invite competition and make it
easier for domestic and foreign companies to manufacture in India for the domestic
and international markets.

43) Reference has been made to National Manifactiring Competitiveness Coincil (2006)
44) Reference has been made to The Hindi Bisiness Line (11th Febriary 2006)

28
Research and development
As is the case with the manufacturing sector in general, spend on R&D is limited in
the electronic equipment industry also. However, this realization is driving initia-
tives that are being taken to promote R&D in the industry. R&D for each of the
segments in the industry is being carried out in different groups. There are projects
that cover a wide spectrum including electronic components, discrete semicon-
ductor devices, microelectronics, photonic devices, sub-systems and technologies,
equipment and systems development, nanotechnology, medical electronics,
teleme- dicine and field demonstration in different sectors of the economy like
Transport, Power, Steel and Textiles etc.

According to the Ministry of Communications and Information Technology

the following measures need to be taken:
• To promote strategically relevant R&D for developing high value added products
and services through both sponsored programs. To set up world class R&Dcen-
tres. The GOI has to take a lead role through long term investments as well as to
encourage leading global companies to set up their R&D centres in India.

• To promote knowledge-based industries and also develop efficient production

technologies for cost reduction.

• Continuous up-gradation of technologies and manufacturing process which is

essential for industry’s survival in the global manufacturing environment.

• To take initiatives for developing products and services for handicapped

India is already turning into a major destination for Foreign Direct Investments
(FDI) in the Information Communication Technology (ICT) sector. World
leaders in ICT like Intel, Cisco, Microsoft, Motorola, Ericsson, Nokia, Siemens
and LG etc have announced investment plans for R&D. Some examples are shown
below:
• Air-conditioning and refrigeration major Carrier Corporation has said it would
invest Rs 2 000 million in India during the next three years to build a new global
R&D centre, develop industry-leading products and technology for local markets
and significantly enhance the company’s manufacturing operations here.

29
• Haier, the Chinese durable goods manufacturing giant is upgrading its newly
acquired manufacturing facility with modern equipment to create an R&D facility
for refrigerators. The facility would enhance the overall capacity of Haier and
would enable it to increase its customer reach in India as well as in the global
market, including West Asia and Africa.
• Samsung also has R&D operations at its manufacturing facility in North India –
both for hardware (product customization) and software development.

Future outlook
The electronic equipment industry is one of the world’s fastest growing industries
but India has not demonstrated spectacular growth in recent years. However, as
can be seen from the turnover figures, an upward trend has started in the industry
that is expected to be sustained over the coming years as demand conditions are
only expected to get better, with the main challenge for the industry being its
capability to be able to market its products in a competitive way in comparison to
its Asian counterparts.

Based on feedback and suggestions made during the Union Budget of India as well
as by industry associations like ESC India, ASSOCHAM and FICCI, the GOI is
seriously considering steps to address the taxation issues that are highlighted to be
a major reason for India’s trade deficit in electronic equipment, slow growth and
small contribution to the GDP.
The global electronic equipment industry is driven by demand for products, which
are durable, lighter, cheaper, and better than the ones they replace. To meet the
gro- wing market demands, the large global manufacturers in the industry are
gradually shifting their base to Asia Pacific countries, which are the prominent
sources of elec- tronic components and are soon going to become primary
destinations for consu- mer electronics. There is an estimation that within 20 years,
two third of the electro- nics industry will be four times as big as today and half of
it will move into Asia.

Foreign collaborations and mergers are on a rise. A new wave of industrialization

is throwing up several business opportunities for the electronic equipment
industry. The future seems prosperous for the industry in terms of the expected
surge in global demand and upsurge in investments. Positive trends such as over-
capacity in developed markets, globalization, technology advances, regulation and
environme-

30
ntal consideration, market fragmentation and product proliferation will lead to the
accelerated growth in the industry.
The projected turnover of the industry should not be if the industry is approxima-
tely USD 62 billion or Rs. 1 500 billion in the year 2009–2010. This, it is believed,
is only possible if there is substantial growth in exports, an increase in domestic
consumption at a CAGR of 33 per cent over the next few years that is expected
to be driven by increasing demand for consumer electronics and mobile
handsets, and lesser dependence on imports. Another driver is the contract
manufacturing
business. The global market for contract manufacturing is expected to be USD 500
billion out of which the Indian share is expected to be USD 11 billion.45

45) Reference has been made to Investment Commission of India (2006)

31
32
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