State of Electronic System Design and Manufacturing (ESDM) industry in India

Part 2/3: Understanding challenges

If India needs to achieve the aggressive ESDM goals set for 2026, important choices need to be made to set the industry on growth path. In this part 2/3 we define key metrics, that will drive discussion on the spectacular success stories of China and Vietnam, the lessons it holds for India and how it can act as a guide to the choices to be made.

Key Metrics (simplified)

• Contribution: As measured by ratio of electronics domestic production to overall GDP; indicates role and value addition to economy
• Per capita Electronics Consumption: Annual electronic goods consumption per person; indicates domestic appetite and ability to purchase electronic goods
• Domestic Value Added (DVA): Domestic content per unit of production, acts as a measure of “indigenous” nature of production
• Scale: As measured by ratio of electronics goods export to overall GDP; indicates contribution of electronics exports to overall economy

Stats

Let’s look at these metrics and it’s performance during the past year and project it to Vision 2026 goals.

All $ in USD billion

Analysis

FY 2022 was a standout year for India’s ESDM industry as it emerged out of a low base created by the COVID crises and new opportunities created by geo-political realignments. Be that as it may, the next 4 years to 2026 is extremely challenging:

• Contribution has to more than double 2.73% -> 6%
• Per capita consumption of electronics has to grow YoY at over 12%
• DVA is approximately 18% indicating low level of self-reliance or “atmanirbharta” in this sector
• Scale has to grow nearly five times from 0.47% -> 2.5%

Key Questions

1. Will Indians have the appetite and purchasing power to consume estimated production?
2. Should DVA be a strategic imperative at all?
3. Or should the focus be on achieving Scale more than DVA?

Extraordinary cases of China and Vietnam

Image Source: ICEA; Data Source: CEIC, RBI, OECD-WTO

Scale: India has a long way to go with it’s current exports at a comparatively insignificant USD 14 billion and 16th place in electronics exports. While India struggles to find an uptick in ESDM scale, China leads electronic goods export with over USD 900 billion. Also, notable is Vietnam’s progress to clock electronic exports more than USD 120 billion.

Image Source: ICEA; Data Source: OECD-WTO

DVA: China’s DVA ratio stands at a significantly higher 38% compared to India’s 18%. Even Vietnam has a higher DVA of 24%. Both countries have robust domestic contribution to electronic component production.

How did China and Vietnam achieve tremendous scale while keeping DVA also relatively higher?

Image Source: ICEA; Data Source: CEIC, OECD-WTO

It’s instructive to understand the trajectory of Scale Vs. DVA journey of the three countries.

• Vietnam:
  > Until 2000 — Scale and DVA was low
  > 2000–07 — Scale increased, while DVA fell
  > 2007–16 — Scale continued to increase, while DVA slowly rose
  > After 2016 — Scale and DVA rose rapidly
• China:
  > Until 2000 — Scale was low but DVA was higher
  > 2000–05 — Scale increased rapidly while DVA fell rapidly
  > 2005–15 — Scale and DVA rose modestly
  > After 2015 — Scale and DVA rose steadily

Image Source: ICEA; Data Source: CEIC, OECD-WTO

It is observed that China and Vietnam controlled DVA in a manner that there was a steady decline while these countries built up Scale. This inverse relationship at appropriate times should be a key objective of a successful national ESDM industry development strategy modulated through carefully crafted state trade policy.

Conclusion (Part 2)

With this background in the performance and interplay of Scale and DVA, we can examine India’s performance and chart a strategy that can work to achieve stated Vision 2026. Needless to say, policy and incentives should be in alignment with chosen strategy.

Next

In next part to this article, we will:

• Assess India’s performance vis-a-vis key metrics and highlight possible strategy options to set and execute policy imperatives for India: Part 3

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Series Links: State of Electronic System Design and Manufacturing (ESDM) industry in India

• Part 1/3: Taking stock
• Part 2/3: Understanding challenges
• Part 3/3: Setting the India ESDM strategy

Sources

RBI, World Bank, MeITY, ICEA