Though in its development phase, the Indian Electronics and Information Technology is the fastest growing segment of Indian industry both in terms of production and exports. The Indian electronics and IT industry is completely delicensed with the exception of aerospace and defence electronics, and alongwith the liberalization in foreign investment and export-import policies of the entire economy, this sector is attracting considerable interest not only as a vast market but also as potential production base by international companies.

In recent times, ‘software development and IT enabled services’ have emerged as a niche opportunity for India in the global context.The Government of India has announced promotion of Information Technology as one of the five top priorities of the country and constituted a National Task Force on Information Technology and Software Development However, India has so far been able to capture only a minuscule share of the global electronics hardware as compared to her neighbouring Asian countries like the People’s Republic of China, Taiwan, South Korea etc. and therefore is a large untapped potential for exports growth in this industry

The output of the Electronic Hardware Industry in India is worth $11.6 bn at present. The breakup of production in various segments the industry is as shown below:

The software and services industry continue to be the dominating factor in the overall growth of the Indian industry. In 2005-06, the Indian software and services industry exports witnessed a healthy growth, its total exports reaching Rs. 104,100 crore (US$ 23.6 billion), an increase of 33 per cent in dollar terms and 30 per cent in rupee terms over the previous financial year. The total value of software and services export is estimated at Rs. 141,800 crore (US$ 31.3 billion) in 2006-07, an increase of 36 per cent in rupee terms and over 32 per cent in dollar terms. The Business Process Outsourcing (ITES-BPO) sector has emerged as a key driver of growth for the Indian software and services Industry. As export revenues from ITES-BPO estimated to grew from US $ 6.3 billion in year 2005- 06 to US $ 8.3 billion in year 2006-07, a year-on-year growth of over 31 per cent was achieved.

Consumer electronics sector is estimated to achieve a production level of Rs. 20,000 crore during 2006-07, as compared to Rs. 18,000 crore in the year 2005-06, thus achieving a growth over 11 per cent. The fast growing segments during the year were colour TV, DVD players and home theatre systems. The colour TV production has shot up to over 12 million units during the year 2006-07. The PC sales are expected to cross 6.5 million units during the year 2006-07.

Control, Instrumentation and Industrial Sector continues to be a major one for application of electronics and information technology. Manufacturing of related hardware in technology areas like PLC, Distributed Control Systems, UPS, various Power Electronic equipment and systems has been increasing. Newer technologies involving wireless sensors and sensor networking are rapidly emerging as potential application in the field of industrial automation technologies. However, still there is almost complete dependence on imported hardware and software for this sector. During the year 2006-07, production is estimated to be Rs. 10,500 crore, as compared to Rs. 8,600 crore in 2005-06, showing a growth of over 22 per cent.

The communication technology has taken a big leap forward. The gross telephone subscribers in the country reached to about 190 million as of December 2006. (Mobile telephone subscribes about 150 million).  Broadband connections in the country have reached 2.10 million by December 2006. A target of 250 million telephones (tele-density of about 22%) and broadband connectivity of 10 million subscribers have been set to be achieved by end of 2007 & is expected to be around 20 million by 2010.

Strategic electronics production is expected to be about Rs. 4, 500 crore during the year 2006-07. The total production of components is expected to be Rs. 8,800 crore during 2006-07.

During the year 2006-07, electronics and IT exports are estimated to be Rs. 153, 300 crore, as compared to Rs. 113,725 crore in 2005-06, showing a phenomenal growth of about 35 per cent.

Size

• The Indian electronic industry just 0.7 % of the global electronic industry. India remains a major importer of electronic materials, components and finished equipment amounting to over US$12 Billion (2005).
• Electronics Hardware is a $11 billion (by revenue) industry in India
• Includes design, manufacture and assembly of products related to: Consumer Electronics (TV, DVD, Audio systems): about $3.9 billion, Industrial Electronics: about $2.1 billion, Computers (PC, Servers, Laptops): about $1.4 billion, Telecom Equipment (Phones and Network Equipment): about $1.6 billion, Electronic Components: about $1.6 billion 

Structural Characterstics 

• Availability of high skill, low-cost technical manpower
• Rapidly expanding domestic market.
• India is becoming a manufacturing base in the areas of consumer electronics and telecom equipment
• Major international players like Siemens, Texas Instruments, Matsushita, Alcatel, LG, Samsung, Sharp and Lenovo have already set up manufacturing operations in India. Many more have R&D centres
• International contract manufacturers like Flextronics, Solectron and Jabil Circuit have set up base in India
• India’s lack of success in exporting electronics hardware to the global market is deeply rooted to a variety of structural reasons which range from market dynamics to inadequacy of support policy initiatives:

»       Low level of technology

»       Poor basic infrastructure

»       Long business cycles

»      Inadequacy of domestic investment, inability to attract foreign investment, mega investments from multinational companies

»       Lack of large scale manufacturing, and competitive product pricing

»       Lack of initiatives for new product development

»       Inadequate investment in research and development

»       Lack of global strategic partnerships

Policy 

• 100% FDI is allowed under the automatic route with a few exceptions:
• Aerospace and defence equipment manufacturers require an Industrial licence
• The National Electronics Hardware Manufacturing Policy is proposed to resolve tariff and duty related issues and set up hardware manufacturing clusters/ parks
• Electronic Hardware Technology Parks set up to encourage investment in the sector in several cities e.g. Bangalore and Cuttack
• New SEZ Act with duty-free imports and income-tax concessions will facilitate creation of large-scale manufacturing units for the world market
• Peak rate of customs duty is 10%.
• India is a signatory to the Information Technology Agreement (ITA-1) of the World Trade Organization and w.e.f. 1st March, 2005, the customs duty on all the specified 217 tariff lines has been eliminated.
• All goods required in the manufacture of ITA-1 items have been exempted from customs duty subject to Actual user condition.
• Customs duty on specified raw materials / inputs used for manufacture of electronic components or optical fibres / cables is 0%.
• Customs duty on specified capital goods used for manufacture of electronic goods is 0%.
• Excise duty on computers is 12%.
• Microprocessors, Hard Disc Drives, Floppy Disc Drives, CD ROM Drives, DVD Drives / DVD Writers, Flash Memory and Combo-Drives are exempted from excise duty.
• Parts, components and accessories of mobile handsets including cellular phones are exempted from excise duty.

Outlook 

• The Electronics Hardware industry is expected to grow rapidly in the coming years
• Projected $62 billion in 2010 from about $11 billion today
• 33% CAGR in domestic consumption
• Higher growth in exports
• Domestic market provides opportunities in manufacture of consumer electronic goods and mobile handsets
• Electronics Hardware is one of the largest and fastest growing industries globally
• Global market opportunities in Electronics Manufacturing Services
• Contract Manufacturing: $500 billion outsourcing opportunity by 2010 of which India can tap $11 billion
• Design Services: $7 billion projected by 2010
• Component Exports: $5 billion projected by 2010
• Nokia and Elcoteq Network have expressed intentions to set up manufacturing base for mobile handsets in India

(References:
http://www.investmentcommission.in
http://www.elcina.com/
http://commerce.nic.in/Electronics_Hardware_Export_Study.pdf)
http://www.mit.gov.in/download/annualreport2006-07.pdf