The electronics industry was an insignificant segment of manufacturing in India before liberalization. Only after the opening up of the economy with globalization and the liberalization were serious policy initiatives taken by the Indian state to accelerate growth in the electronics industry, particularly with the clear intension of attracting foreign direct investment and boosting exports. The Indian electronics industry is broadly classified into two categories, firstly, IT Hardware & Electronics and secondly, software. Liberalization boosted growth in IT services in general. However, the growth in electronics manufacturing was not that impressive, and it is still lags behind the growth in services.
The production of IT (hardware and software) and electronics was worth about Rs150 million in 1960, and rose to Rs 8,900 million in 1981. The impact of liberalization can be seen partly after 1980 when IT and electronics production increased to Rs 94,344 million in 1991 and fully after 1990 when it increased to Rs 35,01,300 million in 2008. During the period 1991-2008, the electronics industry experienced an overall annual growth of 23.69 per cent. However, as it was mentioned earlier, the major contribution to this growth derived from the software and services industry that grew at the annual rate of 40.63 per cent during this period. Meanwhile, electronics hardware production experienced growth of only 14.34 per cent. In fact, the production of electronics hardware as a pro-portion of total production in the electronics industry has been continuously declining. It declined from 45 per cent in 2000 to 26 per cent in 2008.
If we look at the contribution of electronics manufacturing by sector, consumer electronics, and communications and broadcast equipment are the major contributors. The share of each of these two top segments was at the level of 27-28 per cent of total electronics manufacturing output in 2009-10. The share of computers, industrial electronics, components and strategic electronics was 13.1, 12.4, 12.2 and 6.3 per cent, respectively.
As discussed in the introductory part of the paper the size and scale of operation of the majority of electronics manufacturing units in India are small compared to global standards, and therefore it leads to diseconomies of scale in terms of cost advantages in production. It also creates a limit in terms of the scope for technological advancement and also the ability to adhere to supply commitments. However, in the recent decade particularly after 1990, it seems that this picture started changing and even if not very strong, a tendency of concentration of capital appears very clearly. As we have discussed in the introductory chapter that a significant portion of foreign investment in the manufacturing sector, including electronics manufacturing, was in the nature of mergers and acquisitions, this was one of the important factors leading to the concentration of capital. Moreover, losing in the competition after the opening up of the economy were a significant number of small-scale factories which were force to close down, and this also led to the concentration of capital. In line with the above trend, the number of electronics factories in the formal sector decreased from 1,591 in 1990-91 to 1,359 in 2005-06, and in the same period the number of workers engaged in electronics factories in the formal sector in-creased from 96,770 to 103,129. Therefore, workforce-wise the average size of a factory grew from 60 workers to 76 workers.
In the period between 1995-96 and 2004-05, labour productivity rose from Rs. 188,806 per per-son engaged to Rs. 324,653 per person, and capital productivity increased from Rs. 0.32 in 1995-96 to Rs.0.71 in 2005-06. These figures also reflect the concentration of capital and growth towards capital intensive production. This is more clearly visible from the productivity index data. Basing all the productivity indexes at 100 in fiscal year 1990-91, the labour productivity index reached at 135.89 in 2005-06; the capital productivity index hit 239.45 and total factor productivity index struck at 115.64.
The production base of global electronics manufacturing is gradually shifting from the developed countries of Europe, Japan and the US. The major share of this shift is landing in China and South Korea. India’s share of global electronics production is also increasing. However, it is still an insignificant player in comparison to China and Korea. China has emerged as the world’s third largest electronics hardware production centre and its share has grown from 8.3 per cent in 2001 to 14.7 per cent in 2004. India’s share in global electronics production is still only at 0.5 per cent. It is a similar situation and dynamic in global electronic component production, where India’s share was 0.18 per cent in 2004, and China’s share was 10.1 per cent. India imports electronic components and equipment worth US$15-16 billion annually com-pared to local output of US$16 billion. This is bare-ly 1.75 per cent of our GDP compared to China where electronics hardware output is valued at more than US$300 billion which is more than 13 per cent of its GDP.
During 2009-10, India’s electronics exports were valued at US$5.48 billion, for a share of 3.1 per cent of India’s total exports. This was in fact negative growth of 19 per cent compared to the previous year. In the same period, imports of electronic goods were valued at US$20.96 billion and also registering negative growth of 9.2 per cent over the previous year. Major export destinations for Indian electronics goods include the U.S. (14.8 per cent), Singapore (8.2 per cent), UAE (8.2 per cent), Germany (6.7 per cent), Hong Kong (5.8 per cent), and the Netherlands (4.9 per cent). In the case of imports Asian countries (74 per cent) were the largest import sources for India in the year 2009-10, followed by the European Union (13 per cent), the U.S. (8 per cent) and Middle East (2 per cent). While exports dipped in 2009-10, the sector expanded exports in the following year to about US$7 billion.
Key players in the electronics industry in India are as follows:
1. Bharat Electronics: A public sector company headquartered in Bangalore, established mainly to meet the needs of India’s defence services
2. Videocon Industries: Headquartered in Gurgaon, a leading manufacturer in consumer electronics segment- TVs, DVD players, micro-wave ovens, refrigerators, washing machines, air conditioners and power backup solutions, etc.
3. LG of South Korea: A market leader in consumer durables- TVs, audio-visual solutions, computers, mobile phones, refrigerators, washing machines, microwave ovens, vacuum cleaners and air conditioners
4. Samsung of South Korea: The second largest player in consumer durables- TVs, home theatre systems, DVD players, mobile phones, digital cameras and camcorders, refrigerators, air conditioners, washing machines, microwave ovens and computers
5. HCL Technologies: Headquartered in Noida, the second largest IT hardware and software provider- including PCs, PC servers, storage solutions, display products and other electronic products.
6. Moser Baer India: World’s second-largest company in the optical storage media segment. Headquartered in New Delhi and sup-plying products to a number of branded players such as Sony, Verbatim, TDK, Maxell, Imation and Samsung. It also has a presence in the photovoltaic and home entertainment segments
7. Flextronics International: Offers high-value, high-margin design services for mobile phones and telecom/networking software. It manufactures TV tuners, set top boxes, energy meters, and networking cards among others
8. Centum Electronics, Bangalore: Offers state-of-the-art solutions for frequency control products (FCP), electronic manufacturing ser-vice (EMS) and hybrid micro circuits (HMC)
9. Jabil Circuit of U.S: Acquired Celetronix, one of the largest manufacturers of electronic equipment in India in 2006; offers printed circuit boards, enclosure integration, and distribution and repair services with in-region design services support
10. Samtel Group of Delhi: Largest Indian integrated manufacturer of a wide range of display devices, such as TV picture tubes, CRT
guns, heaters and cathodes, and deflection yokes; operates a facility in Germany to anufacture high-tech, high-resolution CRTs for demanding applications, such as aircraft avionics and medical monitors.
It is worth mentioning here that the Indian electronics market is dominated by multinationals whereas the Chinese market has large home grown companies.
The Indian state is consistently taking policy initiatives, particularly since 1980, to open the economy and attract foreign investment in the electronics sector. The Components Policy (1981) de-licensed component manufacture except for companies covered under the Monopolies and Restrictive Trade Practices (MRTP) Act and Foreign Ex-change Regulation Act (FERA). It provided for 74 per cent foreign equity to FERA companies in high tech areas, a general reduction in duty on components and liberal import of capital goods for component manufacture. The Telecommunication Policy (1984) opened telecommunication equipment manufacture to the private sector. The Computer Policy (1984) permitted entry of all Indian companies, including FERA companies, in all segments of computer industry with no restriction on capacity. The Integrated Policy (1985) de-reserved certain components which were earlier reserved for the small-scale sector. It introduced a liberal approach towards foreign companies, even those with more than 40 per cent of the equity held by the foreign party in high technology areas. The Computer Software Policy (1986) reduced the import duty on all imports required for the production of future software exports and zero duty on goods wherein 100 per cent of the plant’s out-put was exported. It also permitted foreign companies (with more than 40 per cent equity) to set up projects wherein 100 per cent of the output was exported.
The National Taskforce on Information and Communication Technology (ICT) (1998) made 104 recommendations on software and 87 on hard-ware development in the country. The Telecommunication Policy (1994) opened up the telecommunication services for the private Productivity & Competitiveness of Indian Manufacturing – IT Hardware & Electronics Sector. The formation of the Ministry of Information and Technology (MIT) in 1999 brought together different actors involved in IT to form a separate Ministry of Information Technology. The Information Technology Act 2000 was enacted to facilitate e-commerce, e-governance and to take care of computer-related offences. The Semiconductor Manufacturing (Fab Units) Special Incentive Package 2007 offered several special incentive schemes for this segment. The Electronics Hardware Technology Parks (EHTP)/ Export Oriented Units (EOU)/ Special Economic Zones provide attractive investment pack-ages for investors in the electronics industry.
With the increasing importance of electronics in Indian economy and with the growing realization of future opportunities in the electronics industry, the Indian state has come up with the National Policy on Electronics 2011, targeted at attracting foreign investment in electronics manufacturing. The role and relevance of this policy can be properly understood by keeping in mind another initiative of the Indian state for boosting manufacturing-the New Manufacturing Policy 2011 which proposes to establish a number of huge (5000 ha each) manufacturing investment zones across the country. The set up of seven such zones is already in process. These zones will be established along lines similar to the special economic zones. They are offering similar incentives to investors as in the SEZs. However, for labour they will be even worse than the SEZs. The first draft of the policy went to the extent of saying that most of the important labour laws may not be applicable in NMIZs. In the final draft this clause was removed, but the intention has not changed.