Time for India to focus on becoming global electronics manufacturing powerhouse

Several global electronics companies (from consumer electronics to aerospace) have embarked on a China+1 and even a China replacement strategy for manufacturing.

India has witnessed significant interest from global companies in electronics manufacturing

Commerce minister Piyush Goyal recently said that Apple has a target of moving 25% of their phone manufacturing to India. Several global electronics companies (from consumer electronics to aerospace) have embarked on a China+1 and even a China replacement strategy for manufacturing. Hence, India has witnessed significant interest from global companies in electronics manufacturing. In addition, India’s domestic demand for consumer electronics/appliances is seeing significant growth and is expected to touch USD 21.18 billion by 2025 (from USD 9.8 billion in 2021).

Can we capitalise on this demand? India needs to implement a multi-pronged strategy to emerge as a global powerhouse in electronics manufacturing. Before we delve into this, a quick look at the global electronics manufacturing services (EMS) scenario. The industry has evolved over the past 30 years as global brands found it beneficial to outsource the manufacturing of their products to EMS companies.

A recent report indicates that the global EMS market is projected to reach USD 1145 billion by 2026, at a CAGR of 5.4% during the forecast period 2021-2026. Although there are over 1000 EMS companies globally, over 53% of the market is held by ten companies based in China, Taiwan and the USA.

China leads the EMS market with 47% market share, while India stands at 2%. Southeast Asia accounts for about 7%, with Vietnam, Cambodia, Malaysia, Thailand and Indonesia aggressively growing their market share. India is estimated to grow fourfold to USD 80 billion by 2026. China has witnessed rising labour costs and labour shortages due to increasing aspirations amongst workers to pursue high-tech jobs.

India should capitalise on the challenges faced by China and emerge as a credible alternative. The government’s “Make In India” and Atmanirbhar Bharat initiatives have certainly given the much-needed impetus for electronics manufacturing. The Production Linked Incentive scheme, Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors, Merchandise Exports from India Scheme, Modified Electronics Manufacturing Clusters Scheme, among others, are important steps.

A recent study conducted to assess the feasibility of manufacturing an existing consumer electronics product (that is made in China) indicates that over 75% of the components are available within India. The supply-chain ecosystem of component suppliers has to be strengthened for cost efficiency, quality and scale to meet global standards. However, it is encouraging that India has achieved much localisation. We still don’t have the semiconductor chip fabrication capability for producing high-end electronic chips that perform critical functionalities. Chip manufacturing is a crucial parameter for determining the strength of a country’s manufacturing ecosystem.

The government has established several initiatives to encourage chip manufacturing. Three companies have announced plans to establish a large chip manufacturing set-up in Karnataka, Tamil Nadu and Gujarat. It will take a few years to see “Make in India” chips. Till then, we will depend on Taiwan, China or the USA.

A recent research report comparing the total cost of production (including manufacturing and logistics) in India and China shows that India is about 7-8% costlier than China. Of this, 4% is due to the financial incentives provided by China to manufacturers. Perhaps the Indian government, too, could consider additional tax benefits to encourage indigenous manufacturing. The government would do well to extend the SPECS scheme beyond March 2023.

For electronics manufacturing to thrive, India needs a solid infrastructure for smooth logistics handling. India’s road infrastructure has significantly improved over the past decade and is comparable to China’s. India may reach 1.8 lakh km of highways by 2025. Regarding ports, China has seven of the top 10 container ports in the world. India stands 36th. India’s current capacity of 1534 million tonnes annually is a fifth of China’s port capacity. Port expansion needs considerable improvement.

India’s demographic dividend should be used for creating a high-quality, trained workforce. The government must accelerate plans to implement the National Skills Qualifications Framework (NSQF) aligned to the skill requirements in electronics manufacturing. With the current turmoil in the IT sector, we must reduce dependency on it for employment. Through a strong industry-academia collaboration, students can be attracted to pursue jobs in the electronics manufacturing industry. We must have focused courses enabling industry-ready students for technology, operations and logistics.

While electronics manufacturing is labour-intensive, there is a clear trend towards automation of repetitive jobs using robots. Even complex tasks can be managed through collaborative robots (co-bots), which coexist with humans.

A recent World Robotics 2022 report shows that the annual installation of robots in manufacturing has seen a 31% increase in 2021 compared to the previous year and is expected to touch 6.9 lakh new installations by 2025. The electronics industry had the highest annual robot installations, with 26% of all robots in 2021.

India is at the cusp of a technology revolution with 5G deployment. Artificial intelligence, extended reality and robotics would help improve productivity and overall manufacturing competitiveness. Collaborative R&D efforts between the industry and premier technology institutes could help disrupt electronics manufacturing through advanced robotics and optimise the supply chain in the country through hyper-automation. India should aim to be a leader in Next-Generation Manufacturing (NGIM) through human-cyber-physical systems (HCPSs) by using artificial intelligence, machine learning (ML), big data and IoT for the co-existence of humans and machines and to achieve high productivity.

As we aim to become a leading electronics manufacturing hub, the entire manufacturing supply chain must be encouraged to adopt sustainable manufacturing practices like zero waste reuse, recycling, refurbishing and repurposing.

How about using solar power to meet 80% of factory energy requirements? Reports suggest that Samsung has already achieved 100% renewable energy in their US and China manufacturing sites.

India should research and implement the use of low-toxic components and even biodegradable materials in electronics manufacturing. Government-led efforts around green manufacturing would propel India to become a global leader in the industry.

(G Krishna Kumar is an ICT professional and columnist. Views are personal.)