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India is set to become an alternative investment destination for electronics manufacturers, replacing China

IBEF, Knowledge Centre

Mar 24, 2021 12:49

Overview
India’s appliances and consumer electronics industry stood at Rs. 76,400 crore (US$ 10.93 billion) as of 2019 and is expected to double to reach Rs. 1.48 lakh crore (US$ 200 billion) by 2025. With such a significant growth potential, the Indian market poses a huge pool of opportunities for electronics manufacturers.

The Government of India launched National Policy on Electronics, 2019, which aims to achieve a turnover of US$ 400 by 2025. It also targets the production of a billion mobile handsets by 2025, valued at US$ 190 billion, including exports of 600 million handsets valued at US$ 110 billion. In addition, India is also witnessing surge in demand for high-end consumer electronics.

To boost electronics manufacturing in the country, the government has implemented several policy measures such as production-linked incentive (PLI) scheme, scheme for promotion of manufacturing of electronic components and semiconductors (SPECS) scheme, modified electronics manufacturing clusters (EMC 2.0) scheme and remission of duties or taxes on export products (RoDTEP) scheme.

India is the New Manufacturing Hub for Foreign Companies
Samsung relocates its factory to India from China, with an investment of ~US$ 650 million

According to a report by Economic Times, in August 2020, the company was gearing up to move a significant portion of its production line to India. This decision would impact the existing operations in other countries, including Vietnam. Vietnam is another production centre of Samsung and the second-largest exporter of smartphones after China.

The company will invest Rs. 4,825 crore (US$ 652 million) to relocate its mobile and IT display production unit from China to NCR in Uttar Pradesh.

The Uttar Pradesh (UP) government, in a statement released on December 11, 2020, stated, “The unit intends to invest Rs. 4,825 crore (US$ 652 million). It could be made possible by the sustained efforts of the UP government to create an ecosystem in NCR in sync with the intent of the Centre to make an export hub in view of the ever-increasing demand of mobile and other gadgets in the country and abroad. This is the first high-technique project of South Korea's multi-national major which is being set up in India after relocating from China and the country will become third in the world to have such a unit.”

The company will receive a rebate in stamp duty from the UP government and an investment subsidy under the central government scheme.

  • Under the ‘UP Electronics Manufacturing Policy 2017’, the company will receive an exemption from stamp duty imposed on land transfer and the state government will contribute Rs. 250 crore (US$ 33 million) to this project over five years.
  • Under the government’s scheme for ‘Promotion of Manufacturing Electronic Components and Semiconductors (SPECS)’, the company will receive financial incentives worth Rs. 460 crore (US$ 62 million).

The project will give Uttar Pradesh the global identity of an export centre and help the state attract more foreign direct investments (FDIs). The company already has a mobile manufacturing unit in Noida that was inaugurated by Prime Minister Narendra Modi in 2018. In UP, Samsung was the largest exporter, with exports worth US$ 2.7 billion in FY2019; the company has set an export target of US$ 50 billion over the next five years.

Currently, 70% of all display products used in TVs, mobile phones, tablets and watches are manufactured by Samsung in South Korea, Vietnam and China.

Nokia starts production of 5G equipment in India
In December 2020, Nokia began manufacturing new-generation 5G equipment at its state-of-the-art factory in Sriperumbudur, near Chennai.

Sanjay Malik, Senior Vice President and Head of India Market, Nokia, said, “Our Chennai factory has emerged as a benchmark of India’s manufacturing capabilities, bringing an entire range of telecom technology to operators in India and the rest of the world. From being the first to manufacture 5G NR in India to producing mMIMO, it demonstrates our innovative manufacturing capabilities and our belief in India’s skill and talent to produce the best-in-class equipment. This will enable us to support Indian Operators as they prepare to launch 5G.”

Nokia was the first to manufacture 5G New Radio (NR), in India, and is now producing Nokia AirScale massive Multiple Input Multiple Output (mMIMO) solution, which is already being exported to several countries that are at an advanced stage of 5G deployment. Massive MIMO is a key component of 5G technology that provides large capacity, especially in densely populated areas. It brings together transmitter and receiver antennas to improve spectrum velocity and efficiency.

Pegatron to invest US$ 140 million to set-up its first manufacturing unit in India
The company will invest Rs. 1,100 crore (US$ 140 million) to manufacture or assemble high-end Apple iPhones at the new facility, in the Casa Grande Industrial Park of Perungalathur town, on the outskirts of Chennai. Production is expected to commence in late 2020 or the first-half of 2021 and provide 14,079 job opportunities

In February 2021, the Tamil Nadu government approved a special programme and incentives for the company. A top government source stated, “Pegatron has already leased space at the Casa Grande Industrial Park for its production unit. A formal Memorandum of Understanding (MoU) will be signed between the Tamil Nadu government and Pegatron Technology India Private Ltd. in the next few weeks.”

Foxconn plans to invest US$ 1 billion in India, amid Apple’s gradual production shift from China
Currently, Foxconn has two plants in India, Tamil Nadu and Andhra Pradesh, where it assembles Apple and Xiaomi smartphones. The company plans to invest US$ 1 billion to expand its factory in Sriperumbudur, Tamil Nadu, where it assembles Apple iPhones and expects to add 6,000 jobs under the plan. Some of Apple's other iPhones models, made by Foxconn in China, will be made at the plant.

According to Reuters, Apple is urging its clients to move part of iPhone production out of China due to Beijing–Washington trade war and COVID-19 crisis.

Liu Young-way, Chairman, Foxconn, in an annual general meeting 2020, said, “India was a bright spot for development even though there was a certain impact at present due to the virus. We are fully pushing ahead with the next steps there, and maybe in a few months’ time, we can reveal on our website the next steps and report back to everyone. We’ll have a further investment there.”

In December 2020, the company announced that its plant in Chennai will begin trial production
of iPhone 12, with the first batch of ‘Made in India’ iPhone 12's expected to be released in early 2021.

In February 2021, the Indian division of Foxconn Technology Group announced plans to launch an initial public offer (IPO) worth Rs. 5,000 crore (US$ 676 million), after consolidating the group's entities in the country.

Amazon announced a partnership to set-up first device manufacturing line in India
This is the first time Amazon will be manufacturing its devices in India. The company partnered with Cloud Network Technology, a Foxconn subsidiary in Chennai, to manufacture Fire TV Sticks (which is a streaming device for Smart TVs) locally. The Chennai manufacturing facility is expected to be operational in the second-half of 2021. Initially, Amazon sourced its Fire TV Sticks from China and Taiwan for the India market. According to Amazon, the Chennai facility will be able to manufacture hundreds of thousands of devices each year, starting with the Fire TV Stick, and the company will assess its scaling capacity to other markets/cities based on the domestic demand.

Amit Agarwal, Global Senior Vice President and Country Leader for Amazon India, in a blog stated, “Amazon is committed to partner the government to advance the vision of an Aatman Nirbhar Bharat. We have pledged to invest US$ 1 billion to digitise 10 million small and medium businesses and help Indian businesses sell worldwide, thereby enabling US$ 10 billion in cumulative exports and creating an additional 1 million jobs by 2025. We are delighted to announce Amazon’s first manufacturing line in India to produce hundreds of thousands of Fire TV Stick devices every year, catering to the demands of Indian customers. This further reiterates our commitment to the Government of India’s ‘Make in India’ initiative.”

Ravi Shankar Prasad, Union Minister for Communications, Electronics & Information Technology, and Law & Justice, in a blog post dated February 16, 2021, said, “India is an attractive investment destination and is poised to become a major player in the global supply chain in the electronics and IT products industry. We welcome Amazon’s decision to set up a manufacturing line in Chennai, as it will enhance domestic production capacities, and create jobs as well. This will further our mission of creating an Aatma nNirbhar Bharat, which is digitally empowered.”

Conclusion
The massive investments in India are further proof of the country's growing importance as a prime market for Western consumer electronics and as a manufacturing centre that can compete with China and other fast-growing production hubs. The country is striving to garner a greater share of global electronics manufacturing market by seizing opportunities arising from global supply chain reconfiguration and growing local demand.

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