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Electronics System Design & Manufacturing (ESDM)
The ESDM sector plays a key role in the government’s goal of generating US$ 1 trillion of economic value from the digital economy by 2025

Electronics System Design & Manufacturing (ESDM) Industry in India

    Last updated on Jan, 21 2021

Introduction

India witnessed a substantial spike in demand for electronic products in the last few years; this is mainly attributed to India’s position as second-largest mobile phone manufacturer worldwide and surge in internet penetration rate. The Government of India attributes high priority to electronics hardware manufacturing, as it is one of the crucial pillars of Make in India, Digital India and Start-up India programmes.

The Electronics System Design & Manufacturing (ESDM) sector plays a vital role in the government’s goal of generating US$ 1 trillion of economic value from the digital economy by 2025. With various government initiatives aiming to boost domestic manufacturing, India has already started witnessing initial movement with increased production and assembly activities across products such as mobile phones and other consumer electronics.

Market Size

  • Electronics market has witnessed a growth in demand with market size increasing from US$ 145 billion in FY16 to US$ 215 billion in FY19—the market witnessed a growth of 14% CAGR from 2016-19
  • In FY19, imports accounted for US$ 75 billion, which was 35% of the electronics market demand; is expected to decrease to 12.6% (US$ 68 billion) of the total electronics market by FY25
  • India's smartphone shipments grew 9% y-o-y to reach over 53 million units between July and September 2020, the highest-ever shipment in a quarter for the Indian smartphone market.
  • The Electronics System Design & Manufacturing (ESDM) is broadly segregated into—electronics system and electronics design
  • Electronics system market is expected to witness 2.3x demand of its current size (FY19) to reach US$ 160 billion by FY25
  • Electronics design segment, growing at 20.1%, was 22% of the ESDM market size in FY19; it is anticipated to be 27% of the ESDM market size in FY25
  • In FY20, the production value of mobile devices reached US$ 30 billion from US$ 3 billion in FY15
  • The consumer electronics and appliances industry in India is expected to become the fifth-largest in the world by 2025
  • LCD/LED TVs witnessed more than 2x growth (by volume) in the past five years, with the total volume reaching 12 million units in 2018-19 from ~ 5.2 million units from 2014-15

Investments

According to the Department for Promotion of Industry and Internal Trade, from April 2000 to June 2020, FDI inflow into the electronics sector stood at US$ 2.91 billion.

The following are some recent investments and key developments in the Indian electronics and ESDM sector:

  • In October 2020, Tata Group announced plans to invest Rs. 5,000 crore (US$ 673.20 million) to set up an Apple phone component plant in Hosur, Tamil Nadu.
  • In October 2020, Sahasra Electronics announced plans to invest Rs. 350 crore (US$ 47.13 million) over the next four years to assemble mobile phone memory chipsets, laptop hard drives and motherboards in India with two new manufacturing facilities in Rajasthan and UP.
  • In October 2020, Aequs committed to invest Rs. 3,500 crore (US$ 476.27 million) to set up a consumer electronics cluster in Karnataka.
  • In September 2020, Foxconn, Wistron and Pegatron—Apple’s leading suppliers—committed to invest US$ 900 million in India over the next 5 years. The investments are being made to add capacities and ramp up domestic production of mobile phones for Apple and other brands.
  • In September 2020, Larsen & Toubro (L&T) announced the closure of its deal to sell its electrical and automation business to Schneider Electric. The deal was announced in May 2018 for US$ 1.9 billion (Rs 14,000 crore).
  • Tamil Nadu unveiled the Electronics and Hardware Manufacturing Policy, targeting US$ 100 billion output by 2025 and contributing 25% to India’s total electronic exports by 2025.
  • In August 2020, Samsung Electronics Co. and Apple Inc.’s assembly partners pledged investments worth Rs 110 billion (US$ 1.5 billion) to establish mobile phone manufacturing units in India.
  • In August 2020, the Uttar Pradesh govt. unveiled a new electronics manufacturing policy to attract international investors looking to shift their bases to India. This policy aims investments worth ~US$ 540 billion (Rs 400 billion) in five years.
  • Foxconn, one of Apple’s leading suppliers, plans to invest US$ 1 billion and is expected to ramp up production at its Sriperumbudur plant in Tamil Nadu over the next three years and create 6000 additional jobs.
  • In May 2020, Philips announced an investment of Rs 250-300 crore (US$ 35.47-42.56 million) to boost its manufacturing and R&D facilities in India.
  • In January 2020, Godrej Appliances announced plans to foray into the air cooler segment and acquire a market share of 15% in the next five years.
  • In November 2019, Nokia entered into partnership with Flipkart to enter consumer durables market in India with plans to launch smart TVs.
  • In November 2019, US-based electronics manufacturer, Flex Ltd. announced that the company is keen to shift its base to India. It is interested in component manufacturing within India and is likely to invest ~US$ 50 million in the future.
  • In October 2019, Apple Inc. entered into an agreement with Maker Maxity Mall, co-owned by Reliance Industries, to open its first company-owned iconic outlet in India.
  • Micromax plans to invest US$ 89.3 million by 2020 to transform itself into a consumer electronics company.

Government Initiatives

  • As per the Union Budget 2020-21, Ministry of Electronics and Information Technology (MeitY) has been allocated ~US$ 920 million. In the allocated budget, revenue expenditure allocation is ~US$ 870 million and capital expenditure allocation is US$ 50 million.
  • In October 2020, the government approved applications of 16 electronics companies including 10 mobile phone manufacturers for reward under the product-linked incentive scheme for a total disbursement of Rs. 40,000 crore (US$ 5.44 billion). The international mobile phone manufacturing companies approved to avail incentives for manufacturing mobile phones with invoice value Rs. 15,000 (US$ 204.35) and above are Samsung, Foxconn Hon Hai, Rising Star, Wistron and Pegatron.
  • To support the ESDM sector and its growth trajectory, the Government of India (GoI) has made electronics production an important pillar of significant initiatives such as Make in India, Digital India and Start-up India.
  • These initiatives improved the country’s Ease of Doing Business Index (EoDB). In 2020-21, the total budget allocation towards the Digital India Programme is ~US$ 530 million.
  • The Government of India has allowed 100% Foreign Direct Investment (FDI) under the automatic route in the ESDM sector. In case of electronics items for defence, FDI up to 49% is allowed under automatic route and beyond 49%, government approval is required.
  • In April 2020, the Indian government approved three key schemes to position India as a global hub for electronics system design and manufacturing (ESDM). This move is anticipated to attract minimum investments worth US$ 6 billion into the country. The schemes include Production Linked Incentive Scheme (PLI), Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) and Modified Electronics Manufacturing Clusters Scheme (EMC 2.0).
  • In line with the ‘Skill India’ campaign, the Department of Electronics and Information Technology (DeitY) launched an initiative for capacity building in ESDM. As a part of that campaign, Infineon Technologies, a German semiconductor company, partnered with National Skill Development Corporation (NSDC) to enhance skill and workforce in semiconductor segment—aimed at enhancing the ESDM ecosystem in India.

Road Ahead

Fueled by strong policy support, huge investments by public and private stakeholders and a spike in demand for electronic products, the ESDM sector in India is predicted to reach US$ 220 billion by 2025, expanding at 16.1% CAGR between 2019 and 2025

Note: Conversion rate used in April 2020, Rs 1 = US$ 0.013123

References: Media reports, Ministry of Electronics and Information Technology (MeitY), Make in India, Invest India

Disclaimer: This information has been collected through secondary research and IBEF is not responsible for any errors in the same.

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