Understanding Another NEP: National Electronics Policy

With many companies thinking of moving their production units out of China due to the ongoing pandemic or US-China trade war, India’s 2019 National Electronics Policy may act as a catalyst in boosting domestic electronics manufacturing at a time when it is already picking up pace. Let us understand how this policy works and what it has in its bag for electronics manufacturers.

Crux of the Matter

Amidst US-China trade war and the ongoing Covid-19 pandemic, electronics manufacturing companies like Taiwan’s Foxconn are shifting their production units out of China. India’s National Electronics Policy 2019 (NEP) also comes into effect at an opportune time. Under NEP companies are offered various kinds of direct and indirect incentives to set up manufacturing units in India. The aim of NEP is to boost India’s mobile and electronics manufacturing capacity as the Electronics System Design and Manufacturing (ESDM) sector provides a foundation for “Digital India” and “Make in India” initiatives.

National Electronic Policy
Since the ESDM sector in India was facing several problems, in 2012, the government had launched NEP to lay a foundation to expand the ESDM sector in the coming years. However, after the successful completion of NEP, 2012, the BJP government launched a NEP in 2019 with modifications. NPE 2019 has 3 schemes namely Production Linked Incentive Scheme (PLI), Scheme for Promotion of Manufacturing of Components and Semiconductors (SPECS), and Electronics Manufacturing Cluster Scheme (EMC 2.0) to overcome the bottlenecks of the ESDM sector.

The 5-year target of the government from the NEP, 2019 is to create a production value of ₹8 lakh crores, exports of ₹5.8 lakh crores, and 10 lakh employment opportunities.

What Is PLI?
Production Linked Incentive is an incentive scheme related to the quantity of mobile phones manufactured in India. Eligible companies will get a 4-6% incentive on incremental sales, i.e. sales higher than in the fixed based year (here FY 19-20). This scheme could be availed for a period of 5 years. The government is indirectly also aiming to bring investment in Research & Development, Transfer of Technology, and hi-tech equipment through the criteria set in this scheme.

What Is SPECS?
Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) aims to ramp up downstream services like the production of electronic components, semiconductor, display fabrication units, Assembly, Testing, Marking and Packaging (ATMP) units, specialized sub-assemblies, and capital goods for manufacture of aforesaid goods. Financial assistance of 25% will be provided to companies’ spending on plant, machinery, equipment, technology, and Research & Development for the mentioned products.

What Is EMC 2.0?
Electronic Manufacturing Clusters 2.0 was launched to remove one of the bottlenecks of ESDM of domestic supply chain and logistics. It aims to develop a robust infrastructure to aid electronics manufacturers and Common Facility Centres (CFC) and amenities, including Ready Built Factory (RBF) sheds, plug and play facilities for attracting major global electronics manufacturers along with their supply chain to set up units in India. As the name suggests, it eventually aims to set up electronic manufacturing clusters. Under this scheme, financial assistance of a maximum of 50% of the project cost, subject to a ceiling of ₹70 crores for every 100 acres will be given to developing EMCs. Moreover, to develop CFC, financial assistance of a maximum of 75% of the project cost, subject to a ceiling of ₹75 crores will be given.

Curiopedia
  • Gordon Moore is an American businessman, engineer, and the co-founder of Intel Corporation. He is the author of Moore’s law that is an observation that the number of transistors in dense integrated circuit doubles about every two years but the cost halves.
  • In line with the Make in India, individual states too launched their own local initiatives, such as “Make in Odisha”, “Tamil Nadu Global Investors Meet”, “Vibrant Gujarat”, “Happening Haryana”, and “Magnetic Maharashtra”.
  • The National e-Governance Plan (NeGP) is an initiative of the Government of India to make all government services available to the citizens of India via electronic media. NeGP was formulated by the Department of Electronics and Information Technology and Department of Administrative Reforms and Public Grievances.

Indian Consumer Electronics 2.0

Boost to consumer electronics in India

The Indian government recently announced schemes to boost the production of consumer electronics in the country after the lockdown. The step comes in the light of Indian electronics market being dominated by foreign firms, and leaves India posed for a potential resurgence as electronics hub.

Crux of the Matter

New Schemes
The government of India announced 3 major schemes to aid home-production of consumer electronics. The total outlay of the schemes would be ₹50,000 crores.

  • Production-Linked Incentive Scheme (PLI): Increased incentive of 4-6% for incremental sales.
  • Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS): 25% reimbursement on capital expenditure for electronic goods.
  • Modified Electronics Manufacturing Clusters (EMC 2.0): Aid in developing infrastructure for setting up manufacturing.


Mobile Manufacturing 1.0
Indian companies commanded the market for mobile phones until 2015. In 2014, smartphone sales by Indian companies amounted to 45% of the total sales, which decreased to 10% by 2019. The void was filled by Chinese companies, which saw their contribution to the Indian smartphone market rise from ~9% in 2014 to 54% by 2017.


2018 was a year of revelation as 4 out of 5 top mobile phone companies in India were Chinese. On the contrary, the combined sale of Micromax, Intex, Lava, and Karbonn (MILK), the top 4 Indian mobile phone companies, was 8% of the total market in India.


Added Legal Troubles
Besides the arrival of Chinese companies, Indian companies also witnessed legal trouble from overseas. In 2013, the Swedish company Ericsson sued Micromax for ‘Patent Infringement’, with Lava, Intex and other Indian companies being drawn in similar legalities eventually. Micromax in turn filed case on Ericsson for unfair royalty and excessive demands. Eventually, the case settled in 2018, with Micromax having to pay royalty for each sale to Ericsson. The legal trouble highlighted the economic and legal advantage of large companies over the Indian ones.

What Next For Indian Phone Manufacturers?
Despite increased Chinese sales, there has been a steady increase in the production of phones in India. While the value of phones produced in India was ₹19,000 cr in 2014-15, it increased to ₹90,000 cr in 2016-17.

From just 2 factories, we now have 200 manufacturing units. India’s electronic manufacturing was worth Rs 1,90,366 crore in 2014, today it’s Rs 4,58,000 crore. India’s global share in electronics has risen from 1.3% in 2012 to 3 per cent in 2018. Electronic production has surpassed exports.

Ravi Shankar Prasad, Minister of Communications, Electronics and IT

Due to China’s actions at the border and its opacity in controlling the Coronavirus, there has been an increase in the boycott of Chinese products in India. Combined with the aid of government schemes, one can possibly witness an enhanced Mobile Manufacturing 2.0 in upcoming times.

Curiopedia
  • Micromax is an Indian Smartphone manufacturer and consumer electronics company headquartered in Gurugram, Haryana, India. At its peak in 2014, Micromax’s sales in India exceeded those of Samsung. It became the mobile telephone manufacturer to ship the most telephones in one quarter in India. Hugh Jackman was the brand ambassador of Micromax and appeared in a commercial in 2013 for its first flagship smartphones.
  • The Statute of Monopolies (1624) and the British Statute of Anne (1710) are seen as the origins of patent law and copyright respectively, firmly establishing the concept of intellectual property. The first known use of the term intellectual property dates to this time, when a piece published in the Monthly Review in 1769 used the phrase.
  • Make in India, a type of Swadeshi movement, was launched by the Government of India on 25 September 2014 to encourage companies to manufacture their products in India. After the launch, India gave investment commitments worth ₹16.40 lakh crores ($230 billion) and investment inquiries worth of ₹1.5 lakh crores ($21 billion) between September 2014 to February 2016.

Reversal of Globalization – Impact on Manufacturing

As countries continue to extend lockdowns to curb the spread of the virus, the manufacturing sector also continues to increasingly suffer from disrupted supply chains, collapsed global demands, closure of international trade routes, and corridors leading to a slowdown in production. Is the definition of globalization witnessing a paradigm shift?
Complete Coverage: Coronavirus

Crux of the Matter

What Should We Be Prepared For?
According to a recent study, the overall impact of COVID-19 on India’s economy is an estimated GVA loss of over 9%. The estimated impact on the Manufacturing sector is more than -6%. As seen in the chart below other sectors like Real estate, Construction, Tourism, Mining, Agriculture, etc also are estimated to have a major negative pushback due to the pandemic.

Source: Statista

As per the estimation by the United Nations Conference on Trade and Development, the COVID-19 outbreak could cause global FDI to shrink by 30% – 40% due to the downfall in the manufacturing sector. COVID-19 has brought us at a point where the world now needs to strike the right balance between national self-interest and global collective survival to face the never seen problems and challenges.

Reducing Dependency on China
While China is considered ‘the world’s factory’ and remains the leader in manufacturing, a slow shift in this after the coronavirus pandemic began in Wuhan in China. Evolving business practices, consumer demands, and other factors have many companies moving to other Asian countries for manufacturing.

Political tensions with China are leading to uncertainty in trade policies as a lot of countries are heavily dependent on China for a number of commodities like medicines, clothing, the raw material for electronics, smartphones, industrial equipment, etc. Many of the companies like Apple, Microsoft, Google are even planning to move out of China and shift to countries like India, Japan, Thailand, and Vietnam.

Migrant Workers and Unemployment Rates
The problems for the manufacturing companies would not come to an end as soon as the lockdown restrictions are lifted. This is because the sector heavily depends on millions of migrant workers and daily wage laborers who are either stuck or have returned to their home states and bringing them back is going to take a lot of time. So there will be a major shortage of workers once the lockdown is lifted up.

Following the nationwide lockdown from March 25, India recorded a historic unemployment rate of over 26% in the month of April 2020. Even before the pandemic, the Indian economy was going through a severe slowdown with a growth rate of a mere 4.7% in the last quarter of 2019. Now with the shock of the coronavirus pandemic India’s manufacturing activity reached a 4-month low in March 2020 disrupting all demand and supply chains.

The MSME Sector
COVID-19 is an unprecedented challenge for the Indian MSME sector which is regarded as the backbone of the economy, employing over 40% of the country’s workforce. With no production and drop in demand, the revenue generation for MSMEs remains on hold with a number of expenses that the companies can’t get their hands off such as salaries of employees, rent, bank interest, etc.

Even just before the pandemic, this sector was facing harsh challenges and now as the COVID-19 crisis unfolds, the exodus of migrant workers, restrictions on import/export, restrictions in the availability of raw materials, travel bans, and numerous such factors are only going to massively hamper the MSME businesses.

Coronavirus will not end globalization, but it is going to surely change it. Manufacturers will have to adapt to succeed. In these highly uncertain times where we still do not know how and when the virus would be contained, the manufacturing sector should get ready for tough times and a long recovery path ahead.

Curiopedia
  • Theodore Levitt was an American economist and a professor at the Harvard Business School. He was editor of the Harvard Business Review, noted for popularizing the term globalization.
  • The Timeline of Globalization is divided into 3 phases i.e. Archaic Globalization (From the period of earliest civilization to 1600s), Proto Globalization or early modern globalization (1600-1800), and Modern Globalization (1800-present).

From Reviving Economy in Feb to Staring at Recession in April

Indian Economy hit by Coronavirus

India’s Industrial Production numbers are out and they suggest that India’s dragging economy could have been on a revival mode before the pandemic hit us, with the manufacturing activity almost doubling. Meanwhile, RBI’s Monetary Policy Committee meeting was held on 9th April and it said that collecting data due to lockdown was difficult, hence making projections even more so.
Complete Coverage: Coronavirus

Crux of the Matter

Potential of Industrial Sector
As per the Index of Industrial Production (IIP), India’s Industrial growth in February 2020 soared at 4.5%, a hint at the reviving Indian economy. Industrial growth in February 2019 was only 0.2%. In February, the Indian manufacturing sector saw a 3.2% growth against 1.5% in January. Mining and Primary Goods also saw a sharp rise in the month of February before the pandemic Coronavirus hit the world. Whereas, capital goods and consumer durables declined further from the negative growth it witnessed in the month of January.

Perplexed RBI
The Reserve Bank of India (RBI), in the Monetary Policy Committee meeting on 9th April 2020, said that it overestimated India’s GDP growth. It had estimated GDP growth of 5.3% and 6.6% for July-September (Q2) and October-December (Q3) of 2019-20 respectively. However, India’s GDP growth rate in Q2 was 5.1% and in Q3 it was 4.7%, thereby RBI’s estimation was 0.2% (20 basis points) and 1.9% (190 basis points) more.

The downward surprise in Q2 stemmed from a stronger-than-anticipated drag from gross fixed capital formation and marginal weakness in private final consumption expenditure. In Q3, projection errors emanated mainly from a steep unanticipated contraction in gross fixed capital formation, which was the deepest in the new series of GDP.

Reserve Bank of India

In the Monetary Committee Report, RBI stated that the Coronavirus is looming over the Indian economy like a spectre. It has estimated that the rupee would hover around 75 per dollar and Indian basket for Crude oil would be at around $35/barrel. It also estimated the Inflation to be at 2.4% in Q4. The hardest hit would be the fall in aggregate demand.

Goldman Sachs projected India’s GDP growth to fall to 1.6% due to the effects of the pandemic. It had already projected India’s growth to be below 5% without the pandemic. Goldman also said that consumption activity that contributes 60% to the GDP will be badly hit because of the nationwide lockdown. In comparison, Goldman Sachs expects USA and Europe’s GDP to shrink by 6% and 9% respectively in the pandemic’s fallout.

Curiopedia
  • DJIA (Dow Jones Industrial Average) traded for all-time high on 12th Feb 2020, hitting 29,551 points, although it is trading at 23,719 as of today.
  • While SENSEX also traded at its all-time high on 16th January at 42,059 points and then dropping to its 52 week low on 23rd March at below 26,000 points.
  • Pharmaceutical companies like GlaxoSmithKline, IPCA Laboratories, Cadila Healthcare, and Cipla Ltd. reached there 52 week’s highest price during the pandemic.

India Preps to Challenge Chinese Manufacturing in a Post-Corona World

Mobile Manufacturing

In the Budget session of the Parliament, the Cabinet approved two schemes associated with electronics manufacturing in India. Production Linked Incentive Scheme (PLI) for Large Scale Electronics Manufacturing and Modified Electronics Manufacturing Clusters (EMC2.0) schemes were passed in the parliament.

Crux of the Matter

EMC2.0 as the Support System
Through the development of infrastructure and common amenities, this scheme would help in the development of the Electronics System Design and Manufacturing (ESDM) sector and an entrepreneurial environment in electronics manufacturing.

It will aid in setting up Electronics Manufacturing Clusters in certain geographical areas, and Common Facility Centre (CFC) in industrial parks, etc at a cost of ₹3,762.25 crores. The following benefits can be yielded out of the Scheme:

  • It will create a robust infrastructure with Plug & Play offices.
  • It will bring new investment in the electronics sector.
  • It will create new job opportunities in the electronics manufacturing sector.
  • It will generate revenue, in the form of taxes, for the government as well.

“Assemble in India for the World”
PLI scheme is aimed at boosting domestic manufacturing and investment in specified electronic components including ATMP (Assembly, Testing, Marking, and Packaging) units and mobile production. It will achieve this through a production linked incentive in which it will extend a 4-6% incentive on incremental sales of Indian-made goods over a period of 5 years. It is likely to benefit 5-6 global players and a few domestic electronics manufacturers.

The government has set aside a sum of ₹40,995 crores for this scheme. It is estimated that the scheme will generate 2 lakh direct jobs. India produced ₹1.70 lakh crores worth mobile phones in 2018-19. With the conflux of this ‘Assemble in India for the World’ and ‘Make in India’, India aims to boost its electronic production.

New World Leader
Coronavirus may have hampered the growth of Chinese manufacturing as many world nations are mulling over sanctioning China. After the USA-China Trade War, now Coronavirus may have a lasting impact on the Chinese industry. India’s production boost, especially in the electronics and mobile manufacturing, can put India abreast of China. India can see this as an opportunity to become a manufacturing hub for multinationals, besides definitely encouraging domestic production.

Curiopedia

The electronics industry in China grew rapidly after the liberalization of the economy under the national strategic policy of accelerating the “informatization” of its industrial development. Manufacturing was the sector that grew the fastest. Major Chinese electronics companies include BOE, Changhong, Haier, Hisense, Huawei, Konka, Lenovo, Panda Electronics, Skyworth, SVA, TCL, Xiaomi, Oppo, DJI and ZTE. China’s production recorded the largest world market share for its electronics exports in 2016. It also recorded high volume outputs across a wide spectrum of consumer electronics; between 2014 and 2015—according to China Daily—286.2 million personal computers (90.6% of the global supply), 1.77 billion phones (70.6% of global supply of smartphones) and 109 million units (80% of global supply of air conditioners) were produced. More Info