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The Indian Electronics Manufacturing Industry – Performance, Problems & Proposals

by Aparna Ravikumar

The electronics market in India has grown immensely – but the country’s production capacity lags far behind.


India has emerged as the world’s third largest market for electronics. The demand for electronics goods has cut across classes.  The smart phone market, for example, has seen tremendous growth; Indian smart phone makers are making healthy margins of profit and creating a strong customer base. The overall Indian electronics industry is expected to grow at 9.9% CAGR, to touch $94.2 billion by 2015, according to the IESA-Frost & Sullivan report.

The country, however, has been unable to scale up its production to meet these burgeoning demands. Electronics imports now stand in the third position, behind oil and gold, and are expected to reach $42 billion by the end of next year, according to Frost & Sullivan estimates. Advisor to the Former Prime Minister Dr. Manmohan Singh, Sam Pitroda warned that electronics imports could surpass the oil import bill.


Manufacturing needs are currently outsourced to facilities in China. Electronics goods sellers in India, like Micromaxx and Karbonn Mobiles, draw out specifications of their goods, which are then manufactured by contract manufacturers in China, shipped to India and then sold in the Indian market. The Indian market also relies heavily on imports for most of the building blocks of  finished electronic goods known as Integrated Circuits (ICs). The current Indian electronics manufacturing sector does not have major chip fabrication centers (Fab centres), forcing the market to rely on imports. Despite generating immense demand and providing a pool of cheap labor supply, India’s electronic manufacturing sector has been unable to serve the needs of the electronics market. There are several challenges that the electronic manufacturing industry faces.

The first is lack of capital.  Fab centres specifically are highly capital intensive. They require heavy capital to carry out the manufacturing of ICs .The manufacturer needs to ensure that their unit produces a competitive volume of finished goods, and not prioritize quality alone. This raises capital requirements.

The second is a lack of availability of raw materials. The manufacturing industry, especially the fab centres, require the supply of semiconductor grade materials and gases (nitrogen, argon, etc). There is no supply of these materials in India because there are no major Fab centres that generate demand – the classic chicken and egg situation. In contrast, in the city of Hschinchu in Taiwan, pipelines of semiconductor gases have been set up, which allows any manufacturer to tap into the supply.

The third major challenge is irregular power supply. In most parts of the country, power outages are a daily or hourly occurrence – steady power supply is hard to come by, causing expensive delays in the manufacturing process.

The fourth obstacle is the inefficient transport system and unavailability of a steady supply of water act as major hurdles. Deionised water is required by manufacturing units in large volumes. Poor water supply and inefficient transport force the manufacturing unit to incur unnecessary time costs.

The fifth issue is the absence of major Indian electronics players, which has prevented the industry from taking off in a big way.  Important electronics companies of the country, like Reliance and TATA, have not set up manufacturing units because of the rapidly changing face of the industry. The products that are manufactured do not have a long shelf life in the constantly evolving market, introducing the element of high risks into the industry.

From a human resources perspective, a large percentage of the electronics engineers that graduate from technical and engineering institutions are hired by non-electronics companies: the IT sector, investment banks, etc. The industry requires the expertise and insights of these highly trained engineers and managers, which can help overturn the large manufacturing deficit that the electronics industry faces.


Despite the several obstacles to electronics manufacturing in the country, there have been many attempts made at pushing up the growth of the industry. The National Electronics Policy, adapted in 2012, proposed the setting up of electronic manufacturing clusters. Clusters are being developed in Rajasthan, Karnataka, Odisha and Tamil Nadu, among others.

In an attempt to encourage the setting up of Fab centres, the previous Union government introduced the Modified Special Incentives Package (M-SIPS) scheme, under which capital will be made more easily available to electronics manufacturing sector. The government will provide a 20% investment subsidy in SEZ and 25% investment in non SEZ. The M-SIPS will serve to ease the investment bottleneck, providing the sector with much-needed capital influx.

With the government encouraging the growth of the manufacturing sector, it is important for Fab centres to not attempt to catch up with the mobile market. The mobile/Smartphone industry has raced far ahead of the manufacturing capabilities of India. Attempting to reach the manufacturing abilities of the likes of Hon Hai/Foxconn in mobile-manufacturing will have the industry playing the catch up game for many years, forcing the industry to incur heavy losses, smothering all avenues of growth. Instead, the industry can cater to the growing demands of the medical and healthcare industries. These industries need ICs which are manufactured with feature sizes greater than 45 nanometers. In contrast, the mobile industry market needs ICS manufactured at feature sizes around 10nanometers so that more circuitry is packed in the available area. As the feature sizes become smaller, costs of manufacturing increase exponentially, and not linearly. Thus, the nascent Indian manufacturing industry should not set its sight on the mobile market right away.

A robust electronics manufacturing sector in India will bring positive externalities in the economy and put India at the forefront of electronics technology.

 Aparna is an intern with the Takshashila Institution

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