Page 24 - CII Artha Magazine 1
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s the year 2021 draws
                                                              fiscal, which is broadly in-line
                                   state level rather than a
                                                                                            spending aided by
             to a close, it is an
                                   nation-wide lockdown of the
                                                                                            robust government’s
                                                              with our expectations.
             opportune time to
                                   previous year.
                                                                                            capex spending
                                                              In the first half
        key economic indicators in
                                                                                          4.  Strong capital market
                                   Going forward, CII expects
                                                              (April-September FY22),
        the current year and the likely
                                                                                            fund-raising that has
                                                              growth has topped 13.7 per
                                   India’s GDP to rebound to 9.5
        trends in the next year.
                                                                                            helped repair the risk
                                   per cent in 2021-22, after
                                                              cent which is expected to
        As regards our economic
                                                                                            capital that was lost
                                                              moderate to 5.6 per cent in
                                   contracting by 7.3 per cent in
        performance, the first half of
                                                                                            during the pandemic
                                   the previous fiscal. We expect a
                                                              the second half
        the current year was roiled
                                   further strengthening of the key
                                                              (October-March FY22) as per
        by the deadly second wave of
                                                                                          5.  Reforms momentum
                                   levers of the economy, as the
                                                              the first advance estimates of
                                                                                            staying intact
        the corona pandemic which
                                   government has stepped up
                                                              GDP. The waning of the
        proved to be a major
                                                              favourable base effect along
                                   public investment which, in the
        roadblock for the economy
                                                                                          Likely headwinds on the
                                                              with supply-side disruptions
                                   process, would crowd in private
                                                                                          horizon
        just recovering from the
                                   investment to rekindle a new
                                                              and the likely impact of the
        aftermath of the first wave.
                                                                                          1.  Possible third wave due
                                                              omicron variant is expected
                                   demand cycle in the economy.
        However, the economic
                                                                                            to the new mutant of
                                                              to impinge on growth in the
        impact emanating from the
                                                                                            the virus, though
                                   As per the first advance
                                                              second-half of the year.
        second wave was much
                                                                                            uncertainty still persists
                                   estimates released by CSO, real
        milder than the first wave,
                                                                                            with respect to its
                                                              Further, in 2022-23, we
                                   GDP is expected to grow by
        largely due to the imposition
                                                                                            impact as compared to
                                                              expect GDP growth to
                                                                                            the second wave
                                                              come at around 8.0-8.5
                                                              per cent, with the
                                                                                          2.  High energy prices
                                                              following drivers and
                                                                                            could inflate our import
                                                              laggards:
                                                                                            bill and pressurise
                                                                                            margins
                                                              Likely drivers of growth
                                                                                          3.  As inflation starts to
                                                              1.  Increased coverage of
                                                                                            impinge upon growth,
                                                                 vaccination which would
                                                                                            there is a risk of the
                                                                 help to mitigate the impact
                                                                                            Central Bank moving
                                                                 of the pandemic on the
                                                                                            away from its
                                                                 economic activity by
                                                                                            accommodative stance
                                                                 reducing the probability of
                                                                                          4.  Lacklustre pick-up in
                                                                 severe disease
                                                                                            key contact-intensive
                                                              2.  Continued robust
                                                                                            sectors such as travel &
                                                                 performance of exports of
                                                                                            tourism is likely to
                                                                 goods and services
                                                                                            impact jobs creation
 Sector in Focus  analyse the performance of   of localised lockdowns at the   9.2 per cent in the current   3.  Strong investment
 The monthly trends also show   B. LAGGARDS  Faster-than-expected   that the value of production in   presently imported. This is   example, the country
 that public spending is   normalisation of the US   Pioneering a  the sector has gone up from Rs.   also evident from the annual   depends entirely on imports
 progressing at a rapid clip. As   Consumption demand   monetary stimulus   1,90,366 crore (US$27.20   import bill which has   for its semiconductor needs.
 per the latest data available on   continues to move at   billion) in 2014-15 to about Rs.   escalated from Rs. 2,29,615   Already, electronics attracts
 CGA, capital spending for   snail’s pace  During the COVID-19   5,33,550 crore (US$76.0   crore 2014-15 to Rs. 3,85,081   the second highest import
 April-November FY22 stood   pandemic, the US Federal   billion) in 2019-20, exhibiting an   crore in 2019-20 marking a   bill and semiconductors
 at Rs 2.73 lakh crore, which is   The disaggregated picture   Reserve brought short-term   Robust  impressive CAGR of 23 per   CAGR of 10.89 per cent.  account for a significant
 13.5 per cent higher in   from the demand side shows   interest rates to near-zero   cent.   portion.
 year-on-year terms and   that private final consumption   and restarted large-scale
 represents 49.4 per cent of   expenditure (PFCE) continues   bond purchases, referred to   GOVERNMENT
 the budgeted spend for the   to move at snail’s pace and   as Quantitative Easing (QE). It   What is notable is that India has   There is need to incentivize
 current fiscal. Notably, it is 28.0   trails pre-pandemic levels. It   helped in sharply bringing   emerged as a leading   INTERVENTIONS   production of the high-tech
 per cent higher than the same   grew at a slower rate of 8.6   down the borrowing costs,   Electronics  manufacturer of mobile phones   CHANNELISE GROWTH   sectors such as
 period in the pre-pandemic   per cent in the Q2FY22 as   which cushioned the   in recent years. In FY20, mobile   OF ELECTRONIC   semiconductors in the
 year of 2019-20. While the   compared to 19.3 per cent in   economic recovery process  phone manufacturing   SECTOR   country. As per CII study, the
 progress so far has been good,   the previous quarter as   in the US.   accounted for 41 per cent of   development of these
 to achieve the budgeted capital   impact of a favourable base   total production of the sector,   industries entails huge
 expenditure of Rs 5.5 lakh   effect waned. With this, the   However, in his recent   Industry in  followed by industrial   In view of its pivotal role in   investments and hence need
 TAKING STOCK   heartening to note that the   A. DRIVERS OF GROWTH  crore, the capex push by the   Sectors such as Transport   In absolute terms, the   consumption spending grew   remarks, the Federal Reserve   electronics (18 per cent),   realising the US$5 trillion   significant Government
 economy dream in near
 consumer electronics (16 per
 government needs to be
 by 13.5 per cent in the first
                                                                                          support, both monetary (may
 services, Construction &
 merchandise exports have
 Chair Jerome Powell has
 real GDP in absolute terms at
 OF THE YEAR   Rs 35.7 lakh crore in the   Public investment   sustained. One of the ways to   Real Estate, Metals & Metals   reached a cumulative value   half of the current fiscal.   indicated that the Fed will   cent), electronic components   future, the government has   Manufacturing of Electronic   components’ ecosystem, is   which restrict the potential   account for more than half of
 do so is to expedite the
 However, encouragingly,
 identified electronics
 (15 per cent), strategic
                                                                                          the total project’s cost) and
 Products and Chemicals &
 of US$299.7 billion between
 continues to do the
 start tapering its bond
 second quarter of this fiscal
 has crossed the pre-pandemic   heavy lifting as the key   projects delineated under the   Chemical Products, where   April-December 2021,   private consumption is now   purchases soon in order to   India  electronics (6 per cent) and   manufacture as a thrust   Components and   again a logical step to augment   growth of the sector. Some   non-monetary (including
 National Infrastructure
 at 96 per cent of the
 sustained demand recovery is
 computer hardware (4 per
                                                                                          semiconductor-grade
 sector in policy formulation
 The GDP print during   levels of Rs 35.6 lakh crore   demand-side driver of   Pipeline (NIP), which are   visible, are driving the recovery in   which amounts to 75 per   pre-pandemic level.   keep inflation in check.  This is   cent).  to boost electronics   Semiconductors (SPECS) and   the electronics manufacturing   of the challenges include   infrastructure requirements,
 the economy
 Q1FY22 showed that the   seen in the second quarter of   nearing completion.  private investment and account   cent of the US$400 billion   likely to have repercussions on   Modified Electronics   capabilities in the country   infrastructure deficiency
 economy expanded by an   2019-20.   An analysis of the second   for nearly 62 per cent of total   export target set up by the   Supply-chain bottlenecks   interest rates globally, thus   Similarly, major strides have   manufacturing in India, reduce   Manufacturing Clusters   while the Modified Electronics   such as shortage of   land and preferential market
 government.
                                                                                          access); as has been the case
 import dependence and
 impressive 20.1 per cent -   quarter of this fiscal shows   Encouragingly, capital spending   private investment spending by   stifling growth impulses  affecting foreign inflows to   Scheme (EMC 2.0). A fourth   Manufacturing Clusters   high-quality power, deficien-
 testifying that the green   From supply-side basis, real   that public investment has   by the government across key   end of third quarter.  Industrial sectors such as   emerging economies like India.   been made towards   increase exports.  scheme, namely the   Scheme (EMC 2.0) is specially   cies in transportation/logis-  in countries which are global
 increasing exports of
                                                                                          leaders like Taiwan, South
 shoots of economic recovery   gross value added (GVA)   continued to do the heavy   infrastructure sectors has   engineering goods,   Supply-side bottlenecks   However, compared to 2013,   Production Linked Incentive   tailored to provide the   tics, high cost of finance,
 are slowly but surely   stood at 8.5 per cent in   lifting as it bounced back to   remained healthy at Rs 1.81   Healthy exports also   petroleum products and   especially related to coal and   the Fed is being more cautious   electronic components,   electronics items. As per   The National Policy on   Scheme (PLI) for IT Hardware   requisite infrastructure to   inadequacy of domestic   Korea, Israel and China.
 becoming visible. However,   Q2FY22 as compared to 18.8   the pre-pandemic levels in   lakh crore in the period   remain an enabler for   organic & inorganic   global shortage of   in normalisation this time,   Introduction  computer hardware and   DGCI&S data, India’s exports   Electronics (NPE) 2019 seeks   was notified in March 2021.   promote the establishment of   supply chain, complex
 growth for the second quarter   per cent in the previous   Q2FY22. Gross fixed capital   April-November FY22 which   growth in the current fiscal    chemicals have driven the   semiconductors in the   prioritising economic recovery   strategic electronics   have grown from Rs. 38,263   to change the electronics   greenfield and brownfield   regulatory system, limited   In this context, the recent
 of the current fiscal (Q2FY22)   quarter.  formation (GFCF) was up   translates into a healthy 61.7   bulk of the rise in export   automobile sector affected   even as inflation remains above   he electronics industry,   (aerospace and defence). Of   crore in 2014-15 to Rs.   landscape of the country by   The production linked   electronic manufacturing units   R&D, among others. In   incentive package worth
 moderated to 8.4 per cent,   11.0 per cent in the second   per cent growth in   Global recovery, helped by   growth in this fiscal so far.   the growth of the industrial   the target. The impact of Fed   T  these, three segments namely   82,929 crore in 2019-20,   positioning India as a global   incentive (PLI) scheme for   within the cluster to promote   addition, the absence of an   Rs.76,000 crore announced
 which is primarily attributed   Having taken stock of the   quarter, largely supported by   year-on-year terms over  the   rapid pace of vaccination, has   Encouragingly, the   sector, especially the MSMEs.    taper will not be akin to the   considered to be the   communication and broadcast   notching an impressive CAGR   hub for domestic   large scale electronics   innovation and steer growth in   adequate manufacturing base   by the government for the
 central spending, taking
 to waning of a favourable base   economy, we now bucket the   growth to 28.3 per cent in   comparable period last year.   boosted India’s external   labour-intensive sector like   This got mirrored in the   2013 taper tantrum episode,   bedrock of every other   equipment, industrial   of 16.73 per cent.  Indian   manufacturing and export in   manufacturing, mobile phone   the sector.   for different components viz,   development of
 of last year.   movers and shakers of growth   the first half of the current   demand. Consequently, exports   gems & jewellery has also   passenger vehicle sales   given India’s strong external   manufacturing activity in the   exporters are also gradually   the entire value-chain of   manufacturing and specified   semiconductors, passive and   semiconductors and display
 into the two broad heads of   Out of the key infra sectors,   have emerged as a critical   declining in double digits by   fundamentals, especially on the   country, has the potential to   electronics and consumer   getting integrated in the   Electronics System Design   electronic components as well   The wide array of calibrated   electromechanical compo-  manufacturing ecosystem, is
 DRIVERS and LAGGARDS   fiscal as compared to 8.6 per   Shipping, Road Transport &   driver of growth in the current   seen robust growth during   18.6 per cent for the third   external front.  hasten our quest of emerging   electronics comprise around   global value chain.    and Manufacturing (ESDM).   laudable. The scheme , which
 Notwithstanding, the   and analyse their performance   cent in the similar period in   this period.  75 per cent of the overall   as the PLI for IT hardware,   and well-crafted measures   nents etc is a deterrent to
 deceleration in growth noted   below:  2019-20.  Highways, Housing & Urban   fiscal.   straight month in November   as a hub of global   share of the market for   The aim is to achieve a   medical devices including   introduced by the government   investors as it increases the   would cover companies
 in the second quarter, it is   Affairs and Railways have so far   2021 despite strong demand   High global commodity   manufacturing, technology   Besides, the sector is showing   turnover of US$300 billion by   electronics has been described   together with growing   dependence on imports.   engaged in silicon
 seen higher cumulative   in the local market. This was   prices pressurise   and innovation. A flourishing   electronics industry.  remarkable growth in   2025-26. It estimates that   as a game changing initiative   demand, rising disposable   semiconductor fabs, display
 spending during the year as   the lowest sales in seven   corporate margins  electronics industry, through   demand. In fact, demand for   about 10 million jobs will be   fabs, compound
 compared to last year.  years for passenger vehicles.   its ability to create value and   electronics hardware in India   created from the   for promoting local   incomes, the digital India vision,   Some of the constraints and   semiconductors, silicon
                                   among others would
                                                               the remedial measures to
        electronics manufacturing in
 Global commodity prices   jobs, can also contribute   ELECTRONICS   is anticipated to perk up from   implementation of NPE.  photonics, sensors fabs,
 There are many factors   have inched higher in the   significantly to bringing   INDUSTRY HAS MADE   the country. The scheme is   encourage domestic players to   help the industry are
 Private capex, too, has   attributable for the grave   current year driven by an   US$127 billion in 2019 to   also expected to attract global   make forays into the sector.  elucidated below.  semiconductor packaging
 started showing signs of   semiconductor shortages   uptick in demand while supply   dynamism to our   REMARKABLE   reach US$300 billion by   Similarly, in consonance with   investments, facilitate   and semiconductor design,
 recovery as per CMIE’s   being felt currently worldwide.   has struggled to keep pace. In   development journey. What is   PROGRESS IN THE   2025-26. This surge in demand   the credo of Make in India,   investments in innovation,   Despite the above, the   A. Encouraging High Value,   would not only help to
 capex data  From the supply side, there   2021, commodity markets   also significant is that its   LAST 5 YEARS  is huge which brings a big   Digital India and Atmanirbhar   technological upgradation and   electronics industry is beset   High volume   address the global shortage
 are factors such as temporary   have been impacted by   applications are being   opportunity for the industry.   Bharat Abhiyan, and to realise   research and make India an   with numerous disabilities   Manufacturing such as   of semiconductors but
 As per CMIE’s capex data,   factory closures due to the   increasingly utilized by almost   However, unless there is a   the vision of the National   integral part of the global   Semiconductors  would also go a long way
 private capital expenditure   pandemic and disruptions in   adverse weather conditions,   all segments of the economy.   Responding to the impetus   huge ramp up in domestic   Policy on Electronics 2019,   supply chain.   toward making India an
 (measured by the value of   supply as storms halted   with droughts in some parts   provided by the government’s   capacity, it is likely that the   the government launched   HUGE OPPORTUNITY   The country does not have   electronics hub.
 ongoing projects) stood at Rs   production facilities in the US   of the world affecting a few   The electronics industry is   ‘Make in India’, Atmanirbhar   incremental demand would be   three major incentive   The Scheme for Promotion of   enough presence in the
 71.7 lakh crore at the end of   and Japan.  The demand-side   agricultural commodities and   classified into six broad   Bharat, Digital India and Smart   met through a rise in imports.   schemes in 2020 to support   Manufacturing of Electronics   AHEAD OF INDIA TO   indigenous manufacturing of   Further, MeitY’s recent EOI
 third quarter- higher than the   factors include huge backlog   reducing hydroelectricity   segments viz. communication   City initiatives, the electronics   It also needs to be noted that   local manufacturing. These   TURN INTO A GLOBAL   for inviting companies to set
 Rs 69.27 lakh crore print seen   of demand for chips due to   supply while floods in other   and broadcast equipment   industry has made noteworthy   the country specializes in low   include the Production Linked   Components and   HUB FOR   high value components such   up semiconductor and display
 in the same period in FY21 and   the release of pent-up demand   areas has impacted the supply   (including mobile phones),   progress in terms of production   tech content and most   Incentive Scheme (PLI),   Semiconductors (SPECS),   ELECTRONICS  as semiconductors which are   fabs is a welcome step and
 Rs 69.39 lakh crore seen in the   amongst others.   of certain metals and coal.  consumer electronics,   and growth in the last five years.   high-tech components are   Scheme for Promotion of   which targets the   extensively used by the   should be pursued further.
 pre-pandemic period of FY20.   industrial electronics,   This is borne out from the fact   development of the   electronics industry. For
 23  ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY                                ANALYSIS, RESEARCH, THOUGHT LEADERSHIP & ADVOCACY  24
                                                                                           QUARTERLY JOURNAL OF ECONOMICS
 QUARTERLY JOURNAL OF ECONOMICS
 DECEMBER 2021                                                                                       DECEMBER 2021
 B. Deepening the   supported CAS (conditional
 Component Value Chain   access system) for set top
 across the entire   boxes.
 ecosystem
 Similarly, a global innovation
 The domestic electronics   challenge for designing of
 industry is characterised by   semiconductors and chip sets
 lack of a component   for educational tablets for the
 ecosystem which leads to its   masses could be encouraged.
 dependence on imports. High
 dependency on imported   Besides, the next focus should
 inputs raises cost and impedes   be on maximizing domestic
 competitiveness. A right mix   value addition and promoting
 of policy realignment coupled   Design in India, besides Make
 with new targets is required.     in India. For this, the
 know-how available with
 The government has, no doubt   Government owned R&D
 announced the PLI scheme for   laboratories should be made
 components. However, the 5-6   freely accessible to  industry,
 per cent incentive on   outsourced R&D needs to be
 incremental sales, envisaged   incentivized on the lines of
 under the scheme, is not   In-house R&D, Technology
 enough to achieve scale in this   Acquisition Fund be created
 sector and accordingly would   for liberal assistance in filing
 discourage manufacturers   patents and a Guarantee Fund
 from indigenizing production.   be created to help R&D
 Hence, the government should   houses to raise working
 review the scheme by   capital.
 expanding the incentive from
 the present 5-6 per cent and   D. Other Suggestions
 widen the eligibility criteria. A
 revamped PLI would facilitate   Similarly, the government
 scale economies from   should also look at other
 domestic production and also   options such as leveraging
 encourage SMEs to strengthen   upcoming FTAs (UK & the
 the supply chain and reduce   EU) towards enhancing
 our dependence on imports.  exports, incentivizing
 manufacture of products not
 C. Encouraging Design-led   currently produced in India,
 Manufacturing  facilitating EoDB, among
 others.
 For ensuring that the industry
 remains competitive (by   To conclude, a robust policy
 facilitating domestic IP   environment would help the
 creation), even after the PLI &   country to realise the huge
 other benefits expire, a push   opportunity awaiting India to
 to R&D is most essential. For   emerge as a global hub for
 this, the government should   electronics and meet the
 explore innovative solutions   targets envisioned in the NPE
 for the sector such as a model   2019.
 based on the Government led
 domestic manufacturers
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