Since 2014 the government of India has been motivating manufacturing sector to increase their share in GDP in the form of various policies….
There are many studies in India with respect to its consumption of locally manufactured products making India a high-potential market for retail and consumer goods due to high affordability for consumer durable and electronics goods. Hence, it is anticipated that the consumer electronics and appliances industry in India will boom to reach $400 billion, making India the fifth largest in the world by 2025. The recent COVID-related disruptions laid bare the issue of this industry’s extreme supply chain dependence on China.
India’s economic dependence on China for electronics and electronic components is about 70-80 per cent. A wide range of raw materials, components, and related goods for the electronics industry used in smartphones and televisions are imported from China. As per the statistics in 2015-16, around 55 per cent of India’s total hardware imports were from China alone, standing at the value of INR 1.48 lakh crore. A spike to INR 1.59 lakh crore was witnessed in 2018-19.
With the second wave of the pandemic, there was a surge in digital services which led to an increase in demand for entertainment and work-related devices in the domestic market. Most of the manufacturing units in China had either closed or were working with reduced capacities and several Chinese component makers also hiked prices due to supply shortages. As one country after another went into lockdown in 2020, the global supply chains were swiftly and effectively dismantled. The efforts toward strengthening domestic manufacturing gained momentum and triggered an acceleration of India’s local manufacturing capabilities to curb the impending risk of a supply crisis.
However, the dependence on China for electronics components remains and cannot be reduced overnight. The fact that India is home to over 1,535.36 million mobile phone users currently is an added dimension to the digital economy. This has encouraged global smartphone and other electronic device manufacturers to set up assembly-manufacturing units in India.
Vital boost; seizing the opportunity
The government has been taking active measures to increase the manufacturing sector’s share in GDP over the past two decades in the form of various policies. However, the key drivers for policy changes in 2021 are different. The critical need for India to reduce its import dependence and the emphasis on supply chain realignment by global companies stimulated the launch of ‘Atamanirbhar Bharat’.
Government Policies and initiatives to support Make in India
While Make-in-India 1.0 started the manufacturing movement in India, Make-in-India 2.0 is expected amplify the momentum, the results of which we will see in the long run. With the introduction of the INR 1.97 Lac Crores Production Linked Incentive (PLI) scheme and Phased Manufacturing Programme, the government initiated important measures to encourage local manufacturing resulting the reduction of the import dependency. Upward revision in custom duties on imports of finished products will encourage domestic production of consumer durables (AC, television), toys and networking products.
Cost Competitiveness for Make in India
With the EMC 2.0, an increase in manufacturing productivity can be expected once businesses invest in technological infrastructure and processes. However, to reap the benefits of productivity gains, it is crucial that costs related to operations, logistics, supply chain, and sourcing do not offset the benefits.
Providing easier access to land for setting up manufacturing units, incentivizing research and development, boosting legal infrastructure and increasing the efficiency in testing and certification to investment in re-skilling efforts are a few of the prerequisites for India to achieve its goal of becoming a global manufacturing hub. Few states have initiated or announced “Plug-and Play” industry space, which will definitely encourage MSME to set-up new units. The entire concept of “Plug-and Play” project must be funded by Government or create a PPP Model.
The above measures are adopted with the vision to make domestic manufacturing competitive, create economies of scale, attract investments and extend ‘Made in India’ products to global consumers will be leading to ‘Atamanirbhar Bharat’ or self-reliant India.
Supply chain re-alignment at a global scale
The continuous shift in the geopolitical landscape over the last few years combined with the outcome of the COVID-19 situation in 2020 and the second wave currently have left global manufacturers seeking more diverse, resilient, and economically viable supply chain partners other than China. As businesses resume operations, they must move out of these increasingly challenging complexities such as risk exposure, tax, and regulatory compliances, digital and analytical capabilities, etc. to sustain and thrive in this new regime.
While the pandemic has propelled the growth in India’s domestic manufacturing ecosystem, the journey has just begun. The Electronics Industry needs to leverage the opportunities posed by the Make in India initiative in strengthening India’s position as a global manufacturing hub as it becomes more urban, industrialized, and connected.