Académique Documents
Professionnel Documents
Culture Documents
5. Disabilities to growing
India as a manufacturing hub ....................31
6. Recommendations ...................................35
Som Mittal,
Chairman, FICCI Electronics & White
Goods Manufacturing Committee
Foreword
The burgeoning consumer electronics market in India
presents an attractive opportunity to manufacturers. Most
of the global corporations are looking at India as regional
hub for manufacturing and sales to cater to not only Indian
market, but SAARC and Middle East & African markets as
well. Government of Indias recent Make In India initiative
has provided fresh impetus to this sector.
Milan Sheth,
Partner and Technology Industry Leader,
Ernst & Young Pvt. Ltd., India
Background, context and scope
Note: The information coverage will depend on availability of information in public space and willingness of interview participants
to share the details
1.7, 5%
5.6, 17%
16%
GR=
5% pply CA
R=2 Su
nd CAG
a
Dem
125
104
87
70
30 35 40
Consumer electronics is expected to be US$29 billion market by 2020 from ~US$10 billion currently
Consumer electronics exports were projected to be ~INR64 billion in FY13 while the industry achieved
INR16 billion. Hence, there is a considerable gap to be met by the industry.
* Consumer electronics: includes TVs, DVD players, home theatre systems, MP3 players, audio equipment, digital cameras and
other household appliances
Source: DeitY reports; MoC reports; Make in India website, http://makeinindia.com/sector/electronic-systems-design/, accessed 25 February 2015
Drivers
Reduce custom
Review inverted duties on
duty structure components and
raw-materials
Roll back Incentivize
excise duty exports and give
hike Deemed export
status
Recommendations
to push manufacturing
in India
Incentivize
domestic value
Improve ease of
addition and
doing business
component
Reduce
manufacturing Expand the
borrowing costs
scope of
and providing
MSIPS to include
fYf[aYdkmhhgjl
white goods
to setup units
7%
R= 1
CAG
3.7% 1305
R=1
CAG
1077
924
782
674
735
618 231
403 514
435
223
257 96 108
77 86 93
74 81 87 262
41 68
37 87 101 122 140
2009 2013 2014E 2015E 2016E 2020P
* The document refers to AC, washing machines and refrigerators as white goods
70.0%
60.0% 60.0%
21.0%
8.8%
3.0%
Increasing levels of income, and urbanization India remains an underpenetrated market, with
sub-par levels as compared to the global average.
Improved affordability of products, with India
centric product introductions Local consumption and market penetration
f]]\klgZ]\jan]fl`jgm_`hjaeYjqkYd]k jkl
Product innovation and availability of new
time purchase), as compared to secondary
variants of products
(replacement) sales, which is predominant in the
=Ykq[gfkme]jfYf[af_Ykj]lYad]jkg^^]j urban markets.
YlljY[lan]fYf[af_ghlagfk
Reduction in the total cost of ownership remains
Rise in the share of organized retail key to growth.
AC includes Room ACs (split and window), TV includes color TV (conventional and flat), Washing machines (semi and automatic,
top and front), Refrigerators (Direct cool and frost free)
*White goods AC, Refrigerator, Washing Machines
Rise in Rise in organized Growing demand in Urbanization and Product innovation Narrowed price
disposable retail rural markets greater brand and availability of gap and increased
income awareness newer variants of affordability of
Organized Indias rural market, products products
During 201319, retailing will not accounting for The Indian urban
per capita only streamline approximately population is projected The consumer Growth in demand
income in India the supply chain, 69% of Indias to increase from 31% durables market is for products,
is expected to but also facilitate households, in 2011 to 41% of fgogg\]\oal`Y once considered
grow at a CAGR increased demand, g^^]jkka_fa[Yfl the total population plethora of products, luxuries, such as
of approximately especially for high- opportunities for by 2030. Urban each providing air-conditioners,
6.6% to around end and branded the consumer consumers have different features washing machines
US$2,200 in products. Organized durables industry. started to perceive and technology, new and high end color
2019 from retail industry is Around 50% of the consumer durables options and added LNk$akYj]][lagfg^
~US$1,500 in expected to cover rural population as lifestyle products advantages and has narrowed price gap. In
2013. Increasing a market share of owns a TV, 8% owns and are open to pay evolved from a market the case of expensive
trend of 15%18%, from refrigerators and increased prices for with limited products consumer goods,
working women around 3% currently around 1% owns branded products. and few features. The retailers are providing
population will by 2020. washing machines. replacement cycle has ]YkqfYf[af_ghlagfk
drive demand for Moreover, reduced from 910 to consumers by
home appliances increasing years to 45 years for collaborating with
such as washing ]d][lja[Ylagfg^ most of the goods in banks.
machines. rural areas would this sector.
augment the
demand.
FY10 FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14
FY10 FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14
Overall, growth in manufacturing over the 5 year period of FY10FY14 has remained fairly moderate, except
for FPD TVs. Manufacturers put their plans on hold for increasing capacity and investments that had been
announced in 200810 period, due to demand slowdown given the weak macroeconomic conditions.
Most manufacturers in India have been running their plants at ~80% capacity, and rely on imports to meet
local demand.
L`]j]`YkZ]]fYka_fa[Yflmhla[cafdg[YdeYfm^Y[lmjaf_g^YlhYf]d\akhdYq >H<!LNk\m]lgZqj]\m[lagf
on custom duties on components and primarily last-mile assembly in the TV manufacturing industry.
L`]j]akka_fa[Yflaf[j]Yk]afdg[YdarYlagfafj]^ja_]jYlgjYf\oYk`af_eY[`af]k&
Source: CMIE, Indian ESDM market - Analyis of opportunity and growth plan, January 2014, IESA-Frost&Sullivan report, http://www.iesaonline.
org/downloads/IESA-FS-report-Indian-ESDM-Market.pdf, accessed on 25 February 2015
CAGR=26% 49 48 CAGR=24% 9
8 7
39 38 6
19 3
FY10 FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14
ACs continue to be predominantly imported. Since, majority of the local production is centered
around top loading semi-automatic units (close
Critical components such as compressors are
to 70%75% of market by volume), front loading
primarily imported from China.
machines are mainly imported (less than 10% of
total market by value).
High-end refrigerators are predominantly imported. There was a marginal decline in TV imports,
since the Government reduced custom duties on
Critical components such as compressors and
components to zero and banned duty-free imports
painted sheets are primarily imported from China
g^Yl%hYf]dl]d]nakagfk]lk&
and SE Asia.
Source: CMIE, MoC trade statistics
610, 1% 753, 2%
65, 1% 24, 0%
2,168, 4% 405, 6%
670,
9%
18,921, 25,996,
39% 6,067, 84%
54%
SE Asia China EMEA Americas Others SE Asia China EMEA Americas Others
China and SE Asia have large installed capacities Washing machine imports typically consist of high-
for AC production, including a base for component end washing machines (front loaders), and fully
manufacturing. automatic units.
795,
286, 21% 58%
Asia, 32,742,
100%
For import of refrigerators, logistics costs make up China and SE Asia have a virtual monopoly in
for a large proportion of the total landed cost. exporting TVs.
SE Asia is the center for refrigerator Indias FTAs with ASEAN countries support import
manufacturing, and with the FTA, large portion of growth.
imports are sourced from here.
3 Wave 3: Shift of
manufacturing from SE
Asia to China in the late
1990s and 2000s
4 Wave 4: Shift of
manufacturing from 2 Wave 2: Shift of manufacturing
China to India - NOW!
from Japan and Europe to SE
Asia, in the 1970s and 1980s
L`akk]flae]flakj]][l]\afl`]dg[YdarYlagf\jan]
undertaken by many large companies
South Korean consumer durables major
Almost 90% of products are made locally
Large number of vendors in North and South India for raw materials; however, due to high end nature of
business, large part of components are still imported
Mix of end-to-end contract manufacturing and component manufacturing
1,459
20% 6,429 55%
CAGR= CAGR= 1,031
3,074 3,513 3,611
3,011
253 316 220
FY10 FY11 FY12 FY13 FY14 FY10 FY11 FY12 FY13 FY14
Exports of ACs from India have been on the rise, Exports of washing machines primarily consists of
particularly to the MEA top loaders and semi-automatic units
8% CAGR=3%
CAGR= 7,201
2.0
2.2
5,803 1.7 1.6
5,202
3,399
2,511
Refrigerator exports growth has been in single Exports from India have not seen much growth,
digits, given the large domestic consumption due to the strong demand for TVs in the domestic
market
Source: CMIE, MoC trade statistics
100,
7%
1,752, 335,
27% 269, 23%
18%
3,447,
54%
123, 222,
2% 534,
15%
244, 864, 37%
4% 13%
EMEA Americas Asia Oceania Others EMEA Americas Asia SE Asia Others
1,093,
15%
4,447,
583, 62%
8%
Re-export and trading activity is very robust in this region, aided by the Free Zones created in Dubai.
Majority of the African market is served through the re-export route.
Indian companies have effectively utilized the Dubai channel to reach to the rest of ME and Africa.
* FY14 data; Source: CMIE, MoC trade statistics
32
24 24
18 18 18 17
15 14 13 13 12 12 12
The demand supply gap for electronics is expected to touch US$ 300 billion by 2020
400
16%
CAGR=
Supply
R=25%
d CAG
Deman
125
104
87
70
30 35 40
The global electronics industry is at US$1.8 trillion, of which India consumes around US$125 billion
electronics.
This consumption is expected to grow to US$400 billion by 2020 with the local production of only
US$104 billion given current conditions.
=d][ljgfa[keYfm^Y[lmjaf_af\mkljq[gfljaZml]kka_fa[Yfldqlgegklg^l`]\]n]dgh]\[gmflja]k?<H&
In India it is 1.7%, while it is 15.5% for Taiwan, 15.1% for South Korea and 12.7% for China.
9.4%
of population is in manufacturing sector
US$0.92
Average labor cost per hour in manufacturing
10%
Manufacturing exports as % of GDP
Source: BMO; EY Doing Business in India 2013-14, Bloomberg BusinessWeek; FICCI report; Match quantity with quality in higher education:
President Pranab Mukherjee, The Economic Times website, http://articles.economictimes.indiatimes.com/2013-11-07/news/43776306_1_
president-pranab-mukherjee-mars-mission-higher-education, accessed 25 February 2015
Most of the EMS and OEMs mainly undertake last-mile assembly, and not much designing (ODM/ R&D) is
undertaken in the country.
The supplier and contract manufacturer base in India is limited with a majority of high value and critical
components being imported.
Some of the locally sourced components are: Injections molding parts, Metal castings and stampings, motors
(low end), compressors (limited volumes), electrical components (wiring, plugs etc.), packaging material
According to industry estimates, majority of the parts going into locally manufactured products such
as TVs, refrigerators, washing machines and air conditioners come from markets such as China, Japan,
Indonesia, Malaysia and Taiwan. Moreover, high-end products in these categories are completely
imported from abroad.
@a_`%imYdalqkl]]dfak`]k^gjj]^ja_]jYlgjk
8%
11%
Compressor
7%
30% Condensor/
Electric motor
33% evaporator
15% Metal parts 10%
Tubes/
(tube frame)
metal parts
Plastic parts
Electic motors
Circuit board
Frame/
20% Others Plastic parts
23%
21% 22% Others
16%
8% Chips & electronic
Compressor systems
27%
14% Condensor/ 6% Framework &
evaporator Structural
4% Assemble parts
Thermal
Insulation Accessories
materials & others
16% Metal 75% Display panel
18% Plastic
Others
17%
Tax and duty Limited scale and Increasing Capital intensive Ease of setting up and Infrastructure
structure quality from domestic competition from nature of business running businesses bottlenecks
suppliers Chinese and SE
Indias taxation Cost of production Indias position in Indias spend on
system is unusually Most of the suppliers Asian manufacturers in India is higher Doing Business infrastructure was
complex, especially of raw material and Indian manufacturers as compared to annual reports only 7.2% of its
where indirect taxes components in India do face strong China and other published by the World GDP in 2012. The
are concerned. not have the scale to competition from SE Asian countries Bank continues to be basic infrastructure
While income cater to the substantial Chinese and other SE \m]lg`a_`fYf[] less than favourable. for any industry
tax, excise and demand in the industry, Asian counterparts costs. Moreover, The latest rankings comprises good
customs duty are making them less cost which have a huge given the frequently place India 134th roads, power, water,
set by the Central competitive as compared supply base and changing energy among 185 countries. telecommunications,
Government, states to imports. Moreover, installed capacities. ]^[a]f[qfgjek$ Procedural and fYf[]$jYoeYl]jaYdk$
and municipalities the quality of inputs is Moreover, China manufacturers regulatory clearances components, and
also levy their own not as competitive to government provides will need to invest are time consuming logistics. In India, these
taxes. Chinese or other SE numerous subsidies substantial amounts and complex. Average facilities are not up
Asian counterparts. for manufacturing for products with high time taken to acquire to the mark even in
This has led various units development rating. a land is 14 months established industrial
global majors to scale and 27 days to start a estates.
The cost of capital at
down operations in the business (ranked 179).
~12%14% is much
country.
higher than the global
average of ~5%7%.
Source: World Bank 2013 Doing Business 2014;Indian Electronic System Design and Manufacturing (ESDM) Disability Identification Study, January 2014, IESA-EY
report, http://www.iesaonline.org/downloads/IESA-EY-report-Indian-ESDM-Disability-Identification-Study.pdf, accessed 25 February 2015
Electronics There will be subsidies on the infrastructure cost to set up special electronics
Manufacturing Clusters manufacturing zones.
Government will reimburse certain taxes and duties for 10 years, amounting to
Eg\a]\Kh][aYdAf[]flan]
20% (SEZs) to 25% (non-SEZs) of capital investment. However, white goods are
Package Scheme (MSIPS)
not covered in this scheme and are in the draft MSIPS document.
As per Foreign Trade Policy (2015-2020), the Focus Product Scheme, Market
Linked Focus Product Scheme and Focus Market Scheme are now under a single
MEIS scheme.
=phgjlg^fgla]\_gg\k af[dm\]k9;hYjlkYf\[gehj]kkgjk$j]^ja_]jYlaf_
Merchandise Exports from equipment compressors, fully automatic washing machines and color TV) to
India Scheme (MEIS) fgla]\eYjc]lk af[dm\]k[gmflja]kafDYlaf9e]ja[Y$9^ja[Y$;AK$=Ykl]jf=mjgh]
and Asia-Oceania block) will be payable as percentage of realized FOB value (in
free foreign exchange).
Moreover, there will be a provision for higher level of rewards under MEIS scheme
for export items with high domestic content and value addition.
Zero duty EPCG scheme allows import of capital goods for pre-production,
production and post-production (including CKD/SKD thereof as well as computer
Export Promotion Capital software systems) at zero Customs duty. As per the Foreign Trade Policy 2015-
Goods (EPCG) *(*($l`]kh][a[]phgjlgZda_Ylagfmf\]j=H;?k[`]e]o`]j][YhalYd_gg\kYj]
procured from indigenous manufacturers has been reduced to 75% from 90% in
order to promote domestic capital goods manufacturing industry.
Favourable climate for 100% foreign direct investment is allowed in the electronics hardware-
foreign direct investment manufacturing under the automatic route.
Duty free imports of inputs allowed for exports provided minimum 15% value
Advance Authorization
addition is achieved.
Education cess and secondary and higher education cess is being levied on
imported electronic products
End of concessions on excise duties on electronics goods, resulting in
Initiatives to countervailing duties going up another 2% and leading to imports getting more
reduce imports expensive.
L`]?gAZYff]\\mlq%^j]]aehgjlkg^Yl%hYf]dl]d]nakagfk]lkZ]_affaf_
August 2014 and imposed a duty of 36.5%, as a step to boost local
manufacturing.
LCD and LED TV panels smaller than 19 inches: Basic Customs Duty reduced
to zero
Custom duty reduction Colour picture tubes for cathode ray TVs : Basic Customs Duty reduced to zero
Kh][a]\hYjlkg^D;<Yf\D=<hYf]dk^gjLNk af[dm\af_gh]f[]dd$hdYl]
\a^^mk]j$de\a^^mk]j!2:Yka[;mklgek<mlq]p]ehl]\gfkh][a]\hYjlk
National Policy on Export Oriented Units Electronics development Large-scale initiatives Exporters /Associations
Electronics (NPE) 2012 (EOUs), Electronic Hardware fund of US$2 billion to to create skilled are entitled to utilize
was launched with an Technology Parks (EHTPs), promote innovation, manpower (2500 PhDs Market Access Initiative
objective to transform Special Economic Zones intellectual property per year in Electronics by (MAI) and Market
India into a global hub (SEZs) creation, product 2020, additional colleges Development Assistance
for Electronic System commercialization etc. for electronics education, (MDA) Scheme for
Design and Manufacturing Exemption from education incentives to students/ promoting Electronics
(ESDM) and to expand cess and secondary higher researchers etc.) and IT Hardware
the manufacturing base education cess on all Manufacturing industry
of electronic products in goods manufactured in
exports.
India. these units and cleared
in domestic tariff area MDA is for focus
Key goals for 2020 (DTA). markets such as
to attract investment Africa and ASEAN
of US$100 billion, Duty free import/domestic and MAI is for focus
enhance exports to procurement of goods for
products - focus
US$80 billion, achieve development, operation
markets
turnover of US$400 and maintenance of these
billion and create units
employment of around Exemption from Central
28 million Sales Tax, exemption from
service tax
We also recommend review of existing FTAs, which have not been in favour of the industry overall, and
fgllgka_fYfqf]o>L9k^gjl`]f]pln]q]Yjk&L`]_gn]jfe]flk`gmd\YdkgY[[]d]jYl]aehd]e]flYlagf
of uniform goods and service tax (GST) which will lower transaction costs The government needs
to provide same incentives to home appliances industry which are available to consumer electronics
industry as these products have substantial electronic parts. Therefore, there is an urgent need to
promote manufacturing of these products and its inputs within the country.
Source: Primary research; Do not to sign any new FTAs for next 5 years: Anirudh Dhoot, Business Standard website, http://www.business-
standard.com/content/budget-2014/do-not-to-sign-any-new-ftas-for-next-5-years-anirudh-dhoot-114070200236_1.html, accessed 25 February
2015; Union Budget 2105! What is CEAMAs wish list?, IIFL website, http://www.indiainfoline.com/article/news-top-story/union-budget-2105-
what-is-ceama-s-wish-list-115021600691_1.html, accessed 25 February 2015
Excise duty
Excise duty on consumer durables was rolled back by 2% effective January 2015, increasing it to 12%
Source: Opportunities and Challenges in Consumer Electronics & Home Appliances, December 2013, CEAMA-Arthur D Little report, http://www.
adlittle.com/downloads/tx_adlreports/Consumer_appliances_report.pdf, accessed 25 February 2015, Excise sops for cars, consumer durables to
end in the new year, The Financial Express website, http://www.financialexpress.com/article/economy/excise-sops-for-cars-consumer-durables-to-
end-in-the-new-year/24687/, accessed 25 February 2015
Source: Opportunities and Challenges in Consumer Electronics & Home Appliances, December 2013, CEAMA-Arthur D Little report, http://www.
adlittle.com/downloads/tx_adlreports/Consumer_appliances_report.pdf, accessed 25 February 2015
Manufacturing costs
Elevated cost of manufacturing (conversion costs) due to inadequate availability/reliability of power
(resulting in its high blended cost), high cost of real estate, etc.
?an]fl`]^j]im]fldq[`Yf_af_]f]j_q]^[a]f[qfgjek$eYfm^Y[lmj]jkf]]\lgeYc]ka_fa[Yfl
investments for products with high rating.
Other costs
The relatively poor perception of India as an electronics-manufacturing destination worldwide has resulted
in high international marketing expenses being incurred by domestic manufacturers.
To sustain demand levels, manufacturers have to incur increased interest costs of zero-interest schemes
to attract customers into buy-now-pay-later schemes.
Source: Indian Electronic System Design and Manufacturing (ESDM) Disability Identification Study, January 2014, IESA-EY report, http://www.
iesaonline.org/downloads/IESA-EY-report-Indian-ESDM-Disability-Identification-Study.pdf, accessed 25 February 2015
Weak infrastructure
The basic infrastructure for any industry comprises good roads, power, water, telecommunications, ports
and logistics. In India, availability of these facilities is not up to the mark even in established industrial
estates.
The lack of proper roads and sales infrastructure results in distribution challenges for consumer durables
companies catering to markets in smaller semi-urban cities, rural areas and remote villages.
There is port congestion for both exports and imports due to unavailability of containers and long
documentation process.
Basic Customs Duty BCD on C- Block Goods and Services As part of the To facilitate a
(BCD) of back light for compressor, Tax (GST) for a progress toward smooth transition
unit module for use over load protector state-of-the-art GST, it is proposed to levy of tax
in the manufacture (OLP) and positive indirect tax system to subsume the on services by
of LCD/LED TV l`]jeYd[g%]^[a]fl is proposed to be education cess both the Centre
panels reduced to and crank shaft for implemented by 1 and the secondary and the states,
Nil from 10%. BCD compressor for use April 2016. and higher it is proposed
for Organic LED in the manufacture education cess to increase the
(OLED) TV panels of refrigerator in central excise current rate of
also reduced to Nil compressors is duty. In effect, service tax plus
from 10%. proposed to be the general rate education cesses
reduced from 7.5% of central excise from 12.36% to a
to 5%. duty of 12.36% and consolidated rate
including the cesses of 14%
is being rounded off
to 12.5%.
1 2 3 4 5
Build local scale by Review and amend Promote and Improve the ease Dgo]jaf_fYf[]
driving domestic taxation regime, incentivize of doing business costs to improve
consumption, and duty structures component in India and attract fYf[aYdnaYZadalqg^
promoting exports and incentive manufacturing global investors doing business in
from India (drive schemes to (a) to improve local India
toward lowering make the process supplier ecosystem;
total cost of simpler (b) increase attract global OEM
production) competitiveness of and component
local manufacturing manufacturers
Recommendations in detail
Area Recommendation Responsibility
Stimulating Increase the local demand base so that companies look to Ministry of Finance
demand increase manufacturing, as currently, the companies have
Y\]imYl]^Y[adala]klgk]jna[]\]eYf\^gjl`]f]pln]lgkapq]Yjk&
Hence, the Government needs to reduce interest rates and taxes
to increase disposable income in the hands of consumers, which
is likely to lead to an uptake of discretionary spend on consumer
durables.
Afljg\m[lagfg^(fYf[]k[`]e]2 Allowing companies to offer RBI
such schemes can not only drive the sales of consumer durables
even in a weak economy, but also empower consumers looking to
buy consumer goods on easy monthly instalments without paying
any interest on the loan amount. Almost 30% of overall sales
`Yhh]fl`jgm_`fYf[af_k[`]e]k$kaf[]l`]q`]dhafaf[]flanaraf_
sales.
Malay Shah
Director,
Advisory Services
Email: malay.shah@in.ey.com
Gaurav Bagaria
Senior Manager,
Advisory Services
Email: gaurav.bagaria@in.ey.com
Ashwin Satish
Senior Consultant,
Advisory Services
Email: ashwin.satish@in.ey.com
Neha Goel
Senior Analyst,
Strategic Market Intelligence
Email: neha.goel@in.ey.com
Ernst & Young LLP is one of the Indian client serving member
firms of EYGM Limited. For more information about our
organization, please visit www.ey.com/in.
EYIN1504-037
ED None
JS