ey-ceama white paper_final report

Tackling structural issues for Appliances and Consumer Electronics (ACE) manufacturing to become a realityJuly 2015

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ForewordThe “Make in India” project designed to transform India into a global manufacturing hub has given a strong impetus to the entire Indian Home Appliances and Consumer Electronics sector. The Electronics sector is expected to grow steadily in the next five years. This is opening avenues for manufacturers to invest in the Indian market and companies are looking at increasing their manufacturing base here in order to serve domestic markets as well as regions like Middle East, Africa and SAARC countries. However, to ensure that this momentum keeps pace, the industry and the Government need to work together, to make the Indian home appliance and consumer electronic industry highly competitive.

This report “Tackling structural issues for Appliances and Consumer Electronics (ACE) manufacturing to become a reality” deliberates on the possible solutions to the current set of challenges and opportunities faced by the Industry and, chart out a roadmap for the success of the ‘Make in India’ initiative. EY analysis finds that increasing levels of income, urbanization, more organized retail and easy consumer financing are strong drivers of growth. However, the industry is primarily growing on replacement sales than primary sales; hence the need of the hour is to generate demand. In the current situation the Indian manufacturers are behind their global counter parts in terms of integrated value chain, under-developed component ecosystem, and infrastructure and taxation policy. In order to provide a holistic growth of the industry and create a level playing field for companies across the spectrum, there is a need to address the issues like - inverted duty structure as well as the Free Trade Agreements (FTAs) that make goods manufactured in India uncompetitive in domestic market. Implementations of the uniform Goods and Service Tax (GST) is required to lower transaction costs and make tax system simple and transparent. If the current M-SIPS notification which expires on July 27, 2015 is extended and the manufacturers are given enough time to comply with the same, it will act as a catalyst in identifying technology spill-over effects like transfer of skill personnel, growth of parts and components supplier networks and user-producer linkages. Also, broadening its scope will trigger significant growth of the sector, especially for products such as washing machines, microwaves, refrigerators and air-conditioners and so forth. To improve the efficiency of the global supply chain, the latest standards notified must blend policy along with its implementable aspect. Like other factors of production, the manufacturing industry should get level playing field in the cost of finance also benchmarking China. Reducing cost of finance by 50% from the current level will make the entire value cheaper by 20 to 25% helping the high value added manufacturing sustain even in zero customs duty environment. It will further lead to removal of all concessions/subsidies gradually and with prices of manufactured products being lower, there will be no inflation which will also lessen the threat of the appreciating rupee. Rising demand, combined with support from the Government and manufacturers’ interest in diversifying their operations in the country, will bolster the consumer durable market and boost the economy making the ‘Make in India’ initiative extremely prosperous. The white paper provides a holistic view of the current challenges which undermine the growth of Appliances and Consumer Electronic segment, and the effective solutions for it.

It is imperative to acknowledge that this report is a collaborative achievement, and we express our appreciation and gratitude to all our partners who have contributed to its compilation.

Manish Sharma President, CEAMAand Managing Director, Panasonic India & South Asia

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ForewordErnst & Young (EY), in association with the Consumer Electronics and Appliances Manufacturers Association (CEAMA), is pleased to present the report – Tackling structural issues for Appliances and Consumer Electronics (ACE) manufacturing to become a reality.

The growing consumer electronics and appliances market in India presents an attractive opportunity to manufacturers. Moreover, the Government of India’s recent “Make in India” initiative has provided fresh impetus to this sector. In this report, we seek to provide an insight into India’s consumer electronics and appliances market, focusing on the growth drivers and current supply ecosystem. Furthermore, this report delves into the structural challenges faced by India’s consumer electronics and appliances industry.

EY has partnered with CEAMA to put forward recommendations to the Government on providing an impetus to this sector’s manufacturing segment.

I take this opportunity to express my gratitude to industry members who debated the issues and helped us formulate actionable recommendations. I would also like to thank CEAMA and its Executive Committee for its involvement and support, especially for facilitating interactions with its members, which helped us significantly in gathering valuable insights and framing a point of view.

We hope you find this report both interesting and informative.

Milan Sheth India Technology LeaderErnst & Young LLP

4 | Tackling structural issues for Appliances and Consumer Electronics (ACE) manufacturing to become a reality

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About the study

Methodology

Acknowledgement

Executive summaryCont

ents

5Tackling structural issues for Appliances and Consumer Electronics (ACE) manufacturing to become a reality |

10 24

14 28

16 34

20 40

Indian electronics market overview

Indian manufacturing and supply ecosystem

Indian ACE market overview Challenges faced by ACE manufacturers

Specific product segments market overview

The way forward

Evolution of the Indian ACE industry

Glossary


Consumer Electronics and Appliances Manufacturers Association (CEAMA) is an all-India body of organizations in the consumer electronics and durables sector. A non-government, not-for-profit organization, CEAMA is the representative organization for industrial activities.

The growing consumer electronics and home appliances market in India presents an attractive opportunity to manufacturers. Companies are looking to expand their domestic manufacturing under the recent “Make in India” initiative by the Indian Government.

This report talks about the challenges being faced by Appliances and Consumer Electronics (ACE) manufacturers, while they look to set up and expand manufacturing operations in India and the support they seek from the Government.

About the study


The report focuses on six product segments in the consumer electronics and appliances sector — Flat Panel Display (FPD) televisions, room air conditioners (AC), washing machines, refrigerators, microwaves and Set Top Boxes (STB) — along with elaborating on the ecosystem, operational challenges and recommendations to the Government.

EY has adopted an iterative approach, combining both primary and secondary research to conduct this study. As a part of the study, EY conducted a secondary research to understand the market overview, key trends and drivers, local manufacturing operations and supply side overview. The structural challenges and recommendations presented to the Government in this study are an outcome of the primary interviews held with stakeholders across the ACE industry.

Methodology

Secondary research Primary interviews

► Market overview ► Key trends and drivers ► Indian manufacturing and supply

ecosystem

Research report highlighting industry’s voice on► Key issues that act as impediments to expanding the local manufacturing

base ► Recommendations and further proactive intervention from the Government

► Current manufacturing and supply chain

► Expansion plans► Challenges faced in India► Recommendations

Figure 1: Methodology of study


AcknowledgementContributors:

Manish SharmaPresident, CEAMA and Managing Director, Panasonic India and South Asia,Panasonic India Pvt. Ltd.

Sunil VachaniChairman and Managing DirectorDixon Technologies (India) Pvt. Ltd.

A.N.SehgalDirectorSuper Cassettes Industries Pvt.Ltd.

Ravinder ZutshiFormer President, CEAMA

Rajeev JainVice President - Home AppliancesLG Electronics India

K K KaulDirector, Head - SCMLG Electronics India

Shantanu Das GuptaVice President-Corporate Affairs and Strategy-Asia SouthWhirlpool of India Limited

B.S. SethiaDirectorElin Electronics Limited

Vikas GuptaDirectorPG Electroplast Limited

Radhika Kalia Head Corporate Affairs and CSRPanasonic India Pvt. Ltd.

Amit ChadhaSecretary GeneralCEAMA

Rohit Kumar SinghDeputy Manager, Corporate Affairs, Planning and strategy CEAMA


Executive summaryThe Indian ACE market has traditionally been a “high spend,” priority sector which accounts for more than 40% of end consumer spending in India. The sector has an annual turnover of more than INR500 billion, and contributes more than INR150 billion to the Center and State Government’s revenue. However, the industry has been primarily driven by imports and now looks to increase its domestic manufacturing1.

With rising manufacturing costs in alternate markets and increasing local demand, global companies have turned their attention toward India. Companies from across the world are now looking to build capabilities in India, not just to serve the local demand but also to cater to overseas markets.

However, while the Indian services sector has evolved at a rapid pace, the manufacturing sector has been slow, given the lack of supply-side ecosystem and investor friendly policies along with taxation concerns.

The study deliberated with industry leaders on the challenges they face in manufacturing in India. Some of the major challenges have been around lack of a component ecosystem, inverted duty structure, high cost of finance, infrastructural concerns such as high freight costs, logistics costs and port congestion, unclarity on GST and high tax incidence, and difficulties in doing business in India. New challenges envisage zero duty custom duty on consumer electronic products under ITA2 and RCEP going forward.

One of the major challenges that India faces is that the domestic manufacturing of electronic goods in the country is mainly a low value addition. It is focused primarily on last mile assembly due to the value chain immaturity in the country. Additionally, the country has a low penetration level of consumer appliances, which creates a significant opportunity for manufacturers to tap the population.

To overcome these challenges and encourage companies to manufacture in India, the Government has launched a flagship program, “Make in India,” in September 2014. The campaign aims to attract businesses from around the world to build a best-in-class manufacturing infrastructure in India, facilitate investment, foster innovation, protect intellectual property and enhance skill development. This initiative looks to boost the domestic manufacturing capabilities of the electronics market in India and reduce electronic imports.

However, the industry seeks more interventions from the Government to support the growth in demand and manufacturing base for the appliances and consumer electronics sector. Key recommendations given by the industry include the need for demand creation, creating a level-playing field for all companies, incentivizing the domestic component manufacturing, improving ease of doing business, and reducing the cost of finance (to match with competing countries) and infrastructure development. Most importantly, the industry seeks an extension of MSIPS, at least till 2020 and the addition of appliances in the product segments covered under the program. Additionally, there is a general consensus to focus on the SMB market development to expand the component ecosystem in the country.

1 “Study on Indian electronics and consumer durables segment,” EY-FICCI report, April 2015


Indian electronics market overview


The Indian ESDM market is anticipated to reach US$400 billion by 2020 from US$84.2 billion in 2014, while the total production of ESDM is estimated to reach US$104 billion by 2020, creating a gap of around US$300 billion2 3. Hence, the focus on growing its ESDM manufacturing industry has increased, as this gap will lead to a situation where the electronics import bill for the country will exceed the oil import costs. Moreover, the electronics manufacturing industry contributes significantly to most of the developed countries’ GDP.

The robust growth of India’s electronics industry is attributed to a multitude of factors, including growing middle class, rising disposable incomes, declining prices of electronics, and various Government initiatives such as broadband connectivity to villages, rural electrification and e-governance programs.

The electronic products segment forms the largest chunk of India’s ESDM market, with an estimated 68% share, at US$57.1 billion in 2014. The electronic products industry can be further divided into broad end-user segments of consumer electronics, automotive electronics, industrial electronics, IT systems and hardware, telecom products and equipment, mobile devices and other electronics.

However, domestic production lags far behind the demand, as domestic manufacturing of electronics products was valued at US$19.5 billion, compared to the US$57.1 billion market demand in 2014. Hence, this sector provides a significant opportunity to improve domestic manufacturing capabilities.

GoI initiatives to boost manufacturing in electronics sector:Recognizing the need, the GoI has initiated multiple initiatives and policies to boost domestic manufacturing and has treated the electronics sector as a focus area under the “Make in India” program. These policies are aimed at the holistic development of the electronics design and manufacturing industry by offering specific incentives.

► Electronic Manufacturing Clusters scheme (EMC)

► Modified special incentive package scheme (M-SIPS) – incentives of �20%-25% on capex

► Tax holidays, investment allowances and subsidies at central and state level

► Electronics sector skills council – for development of skilled labor for ESDM sector

► Special Manpower Development Programme for VLSI and chip design

► Merchandise Exports from India scheme

► Electronics development fund (EDF) to promote innovation, intellectual property creation, product commercializationR&D and s

tart

-up

funding initi

ativ

es

opportunityCrea

ting Export

ecos

ys

tem

Hum

an resource

aspects

Governmentinitiatives

Figure 2: GoI initiatives

Source: EY analysis

2 “Indian ESDM market - analysis of opportunity and growth plan,” IESA-Frost & Sullivan report, January 20143 “Indian Electronic System Design and Manufacturing (ESDM) Disability Identification Study,” IESA-EY report, January 2014


National Policy on Electronics (NPE) was formulated with a vision “to create a globally competitive electronics design and manufacturing industry to meet the country’s needs and serve the international market” by attracting an investment of about US$100 billion as well as generating employment for around 28 million people at various levels to generate a turnover of US$400 billion.

Modified Special Incentive Package Scheme (MSIPS): The MSIPS aims to offset cost disabilities and attract investments in the India ESDM sector. The Government will reimburse certain taxes and duties for 10 years, amounting to 20% (SEZs) and 25% (non-SEZs) of capital investment. However, home appliances are not covered in this scheme and have been added in the Cabinet note for amendments in the MSIPS document, which is pending final approval.

Electronic Manufacturing Clusters (EMCs): The Government is offering financial support for the development of EMCs for attracting investments in the ESDM sector. For Greenfield EMCs, assistance of up to 50% of the project will be provided, cost subject to a ceiling of INR500 million for every 100 acres of land. For Brownfield EMCs, the assistance cap is 75% of the project cost, subject to a ceiling of INR500 million.

There have been large-scale initiatives to create skilled manpower to achieve a target of 3,000 PhDs in ESDM and related fields (1,500 ESDM and 1,500 IT/ITeS) per year by 2020. The scheme for setting up seven new Electronics and IT Academies has been approved and the Special Manpower Development Program for VLSI and Chip Design has also been approved. Moreover, financial assistance to the states/UTs for skill development and vocational training has been approved with a target of 400,000 individuals in the ESDM sector.

According to the Foreign Trade Policy (2015-2020), Merchandise Exports from India scheme (MEIS) has notified certain products (includes AC parts and compressors, refrigerating equipment compressors, fully automatic washing machines, color TV and STB for accessing internet) and markets for exports. Moreover, there will be a provision for better rewards under the MEIS scheme for export items with high domestic content and value addition.

Electronics Development Fund (EDF): EDF has been created to help generate an ecosystem of R&D in electronics in India to promote IP generation and large scale manufacturing. It will largely focus on the SMB market.


Karnataka West Bengal

Madhya Pradesh

Andhra Pradesh

Tamil Nadu

Gujarat Maharashtra Uttar Pradesh

Capital subsidy

Interest subsidy

Training subsidy

Stamp duty waiver

Preferential market access

Plans for ESDM specific fund

Incentives for filing patents

CST exemption

Incentives for marketing activities

Power subsidies

Land/Office space at concessional rates

Electricity duty waiver

Figure 3: State-wise incentives comparison matrix

Source: IESA-EY ESDM disability study, 2014; State level policies, DietY website


Indian ACE market overview


The Indian market for consumer electronics and appliances is around US$9.7 billion market, that has grown at a CAGR of 9.7% over the 2010-2014 period, and is poised to reach US$20.6 billion by 2020. The consumer electronics segment constituted the third-highest share in the Indian electronic products industry (17%). It covers TVs (CRT and FPD), DVD players, STBs, home theatre systems, MP3 players, audio equipment, digital cameras and other household appliances (white goods and small electric appliances such as washing machines, ACs, refrigerators, microwaves, electric irons, mixers, grinders, etc.).

According to industry reports, India is expected to rank fifth in the consumer durables market in the world by 2025. While the urban markets account for the majority share (65% of total revenues) in the consumer durables sector in India, future growth is expected to be driven by the rural market, as the Government increases its focus on rural electrification.4

Growth drivers for the ACE industry5 The ACE industry is set to witness growth, given a multitude of factors that are driving the local demand.

• Rising disposable income: Per capita income in India is expected to expand at a CAGR of approximately 6.6% during 2013-2019, from ~US$1,500 in 2013 to ~US$2,200 in 2019.

• Easy consumer financing: Retailers are providing easy financing options to the consumers by partnering with banks.

• Product variations: The consumer has a choice of products with different features and technology, new options and added advantages. The replacement cycle has reduced from 9–10 years to 4–5 years for most of the goods in the consumer durables sector.

• Organized retail: Organized retail industry is expected to cover a market share of 15%-18% by 2020, from around 3% currently, and would not only streamline the supply chain, but also facilitate increased demand for high-end and branded products.

• Rise in urban population: With increase of urban population from 31% in 2011 to 41% of the total population by 2030, the demand will increase as urban consumers perceive consumer durables as lifestyle products, and are open to pay higher prices for branded products.

• Rural electrification: India’s rural market, accounting for approximately 69% of India’s households, offers significant opportunities for the consumer durables industry. Around 50% of the rural population owns a TV (CRT and LED), 8% own refrigerators and around 1% own washing machines. Also, increasing electrification of rural areas would augment the demand. The impact of rural electrification would be much higher for the low cost small domestic appliances. The market demand for small appliances such as electric irons and mixer grinders has stagnated around 15 million units in the last few years, However, rural electrification is expected to grow the demand to 25 million units by 2020.

4 “Indian Consumer Durables industry,” IBEF report, March 2015, http://www.ibef.org/industry/consumer-durables-presentation, accessed on 8 June 2015


Figure 4: Indian appliances and consumer electronics market (US$ billion)

6.7 7.1

CAGR - 9.7%

7.6 8.6 9.7 11.0

20.6

2010

Source: IESA-FS, EY analysis

2011 2012 2013 2014 2015E … 2020P

CAGR - 13.4%

Indian ACE market (US$ billion)


Specific product segments market overview


This report focuses on six product segments in the consumer electronics and appliances sector — FPD televisions, room air conditioners, washing machines, refrigerators, microwaves and STBs.

According to CEAMA estimates, within the overall consumer durables market in India, the LED/ LCD TV market is expected to grow at the highest rate of around 20% from 2014 till 2020. The demand for LED TVs has been growing at a rapid pace and is demonstrating consistent growth in sales with an increasing preference for full high-definition TV with better image quality, audio clarity and color resolution. Introduction of new technologies, such as high definition, 3D technology, smart TV (voice recognition and gesture control), internet browsing, bluetooth connection and wireless AV in LEDs/LCDs, is driving the replacement of cathode ray tube with LCD/LED TVs.

Refrigerators are expected to grow at around 10% from 2014-2020, as the shift in lifestyles and nuclearization of families is driving the uptake of refrigerators with higher capacities. To function efficiently, frost-free refrigerators need uninterrupted power, which is available in most large urban areas. This, however, restricts the demand for the segment in areas lacking continuous power supply. Therefore, while frost-free refrigerators are largely preferred in urban areas, the direct cool segment caters to rural and semi-urban areas, which have frequent power outages.

Demand for energy efficient and split air conditioners (AC) is on the rise, given the increasing income levels and reducing price differential with window ACs, which will grow the Indian AC market at 6-7% from 2014-2020. The share of split ACs is expected to increase from 60% in 2014 to 80%–85% in 2020 due to lower noise levels, absence of security issues, aesthetic look and space. Moreover, there has been a reduction in the price differential between the window AC and split AC segments. This has encouraged consumers to opt for entry-level split ACs over window ACs.

Similarly, the washing machine market is expected to grow at 8%-9% from 2014 to 2020 as fully automatic washing machines are garnering an increasing share of the market due to a reduction in prices and higher disposable incomes. Moreover, the increasing trend of working women population is driving the demand for washing machines as these not only save time, but are far more convenient in terms of involvement and operation.

The microwave ovens segment demand has been stagnating in the Indian market due to reasons such as health scare, rising prices and emergence of lower-cost alternatives and niche cooking appliances such as induction cooktops and air fryers. However, going forward, CEAMA expects that with increasing urbanization and improved electrification, sales of microwaves will improve in the country with a growth rate of 2%-3% from 2014 to 2020. Furthermore, the decreasing the number of subsidized gas cylinders for cooking will also help the sales of microwaves.

Figure 5: Product-specific market size

2010 2014 2015E … 2020P

Market size (in million units)

FPD TV

Source: CEAMA, IESA-FS

Washing machine AC Refrigerator Microwaves Set top box

CAGR - 23.3%

3759

206

71CAGR - 12.0%


The total STB market was 18.4 million units in 2012 and is expected to grow at a CAGR of 28.8% to reach 39.4 million units by 20156. This phenomenal growth is being driven by the Government’s directive to digitize the entire pay-TV network, including the cable TV platform which is mainly analog-based. The early growth of STBs in India was driven by direct-to-home (DTH) subscribers, with satellite STBs leading the market in terms of value and volume. The number of DTH subscribers in India is expected to increase from 73.1 million in December 20147 to 200 million by 2018. Furthermore, the market for digital TV viewing is expected to increase significantly due to the introduction of HD channels and smart TVs. The other key drivers for growth in this segment are as below 8:

• STB replacement market: Considering that STBs have a product lifespan of five to seven years, there is expected to be a huge replacement market in the next two to four years for around 45 million STBs that are already installed for various digital platforms throughout homes in India.

• Digitization of the terrestrial TV network: In addition to the cable TV digitization program, the Government has also initiated digitization of the terrestrial TV network operated by Doordarshan through the Ministry of Information and Broadcasting. This program, which is to be completed by the end of 2017, is expected to result in shifting of millions of customers to a digital network. This opens up an opportunity for STBs, based on DVB-T or higher standards.

• Advanced national networks: The Government’s rollout of the National Optic Fiber Network and the National Knowledge Network will be used for various content delivery- and interactivity-related activities by the Ministry of Human Resources Development, other ministries and departments of education, edutainment, health services and large-reach programs. STBs are essential for the secure delivery of digital content as well as to ensure interactivity over national networks. Cumulatively, these two initiatives entail an investment of INR320 billion.

6 “Indian ESDM market - analysis of opportunity and growth plan,” IESA-Frost & Sullivan report, January 2014

7 “The Indian Telecom Services Performance Indicators October - December, 2014,” TRAI press release, 8 May 2015, http://www.trai.gov.in/WriteReadData/PIRReport/Documents/Indicator_Reports%20-%20Dec-14=08052015.pdf, accessed 26 June 2015

8 “Indian ESDM market - analysis of opportunity and growth plan,” IESA-Frost & Sullivan report, January 2014 “Indian Electronic System Design and Manufacturing (ESDM) Disability Identification Study,” IESA-EY report, January 2014

9 “Poor demand hits sales of microwave ovens,” The Economic Times website, http://articles.economictimes.indiatimes.com/2015-03-13/news/60086490_1_microwave-godrej-appliances-kamal-nandi, accessed 7 July 2015; Indian Consumer Durables industry,” IBEF report, March 2015, http://www.ibef.org/industry/consumer-durables-presentation, accessed on 8 June 2015; “Study on Indian electronics and consumer durables segment,” EY-FICCI report, April 2015


However, it is important to note that due to the low demand base of the product segments, the growth rate projected looks on the high side. One of the major concerns of the industry is that the Indian consumer durables market is highly under-penetrated. According to industry estimates, the penetration level of TVs in India is around 60%, with flat TV penetration being currently low at 18%. Refrigerator penetration is at 21%, washing machines at 8.8%, while AC is at 3% and the lowest is microwave with less than 1% penetration. The penetration level of DTH is around 7% currently9. Additionally, the customer acquisition is majorly through consumer finance (35% of sales), the cost of which is borne by companies. Also, the domestic market is currently driven primarily through replacement sales, especially in the urban markets.


Evolution of the Indian ACE industry


India has since long been a manufacturing hub for consumer durables. There were various national and regional players in the country with local manufacturing way back in 1980s that dominated the market. Their growth was supported by the closed economy in that decade. However, things changed once the economy was liberalized and they faced competition from global companies.

In the 1980s, this industry developed with various domestic private companies entering the market and developing a manufacturing base in India, due to restriction on imports and entry of MNCs. With economic growth, there was an increasing desire for ownership and possession of assets as an indicator of social status. Moreover, the Government’s initiative with the launch of color TV during the 1982 Asian Games boosted growth of the TV segment. At that time, consumer electronics such as TVs, radios, cassette recorders, etc. were manufactured in the country with indigenous components. Color CRT TVs were manufactured with local value addition of around 80%.

However post-1990, things changed when the Government gradually opened up the sector to foreign participation and lowered tariff and non-tariff barriers, enabling entry of multinational players who had internationally proven technologies (who entered Indian market either on their own or in collaboration with established India players). Free Trade Agreements further reduced tariffs for various consumer electronics and appliances and reduced custom duties on components to zero.

Figure 6: Evolution of Indian ACE market

1980-1990

1990-2000

Pre-liberalization

Liberalization

Growth and shift of market share

Increasingcompetition

2000-2010

2010 onwards

► Color TV introduced with Asian Games

► Closed market with national and regional players

► Liberalization of markets

► Influx of global players

► Custom duties drastically reduced (80% to 25%)

► Product innovation► Shifting consumer

preferences

► Increasing availability and affordability of consumer finance provided impetus to growth

► Non tariff barriers on imports removed

► Free Trade Agreements

► Various Indian and regional players lost market share

► Global companies look to consolidate market share in Indian market

► Product variation► Rising disposable

income and urbanization

Source: EY analysis


Moreover, on the demand side, economic growth was led by higher disposable incomes and aspiration levels. Consumer preferences had gone through drastic changes and they demanded higher technology and quality products with good after-sales service. Rising disposable income with the growth in the Indian services sector and double income families drove customer demand. Also, the increased exposure of to global consumer products market as a result of a strong surge in global travel also broadened the horizons of the Indian consumers, and they got high-tech products from abroad. Factors such as easier availability of financing schemes and new variants of products supported demand from the market. Another demand influencing factor had been improved infrastructure conditions such as regular power supply and running water.

When MNCs entered India, there were national and other regional brands present, which were offering products of obsolete technology and lower quality compared to global standards at that time. Global companies captured the market share by introducing global level new technology products at similar price points and gave strong emphasis to after-sales services. These companies brought the latest products and customized them to Indian conditions, for example, reducing the size of the freezer in refrigerators. This led to a rapid shift in the market share and the growing demand helped MNCs increase their investments in manufacturing and brand promotion, and scale up their production facilities in India.


Since the national and regional companies did not have the wallets to scale to the level of MNCs, they lost their position and had to close their manufacturing operations in the country. Moreover, the technological evolution of products required companies to continuously invest in R&D and technology to keep their manufacturing up-to-date, which the Indian companies again lost to. The local value addition in LED TVs reduced drastically to 7%-8%. For example, the TV segment shifted from black-and-white TV to color TV and within color TV, from CRT models to Plasma to LCD to LED to HDTV. Similarly, there were new technologies such as fuzzy control system introduced in washing machines for automating wash cycles for the optimum utilization of power, water, and detergent, and magnetic refrigeration for green cooling in refrigerators and the latest “smart technology” for interoperability of devices.

In the evolution of this industry, the country could not also build the next level of component ecosystem as imports of components from China and SE Asian markets dominated the supply side. Availability of the final product at a lower cost due to FTAs reduced the demand for component manufacturers. This led to a downfall of indigenous manufacturing and low value addition in the country. This is further discussed in the next sections.


Indian manufacturing and supply ecosystem


India houses a number of growing companies which have developed a large local manufacturing base and are manufacturing through a mix of local production and assembly. While most of the manufacturing happens in CKD/SKD form with some level of localization, high-end products are imported in CBU form. Most of the localization takes place in the last mile assembly stage, which is of not much value addition.

India lags behind in the value chain maturity and does not have an integrated value chain capabilityIn terms of supply ecosystem, there is a good base of contract manufacturers and OEM/ODM’s, which carry out processes such as plastic injection moulding, sheet metal assembly, PCB assembly and box building assembly in-house in India. However, it is important to note that most of the EMS and OEMs are mainly undertaking last-mile assembly, and not much designing (ODM/ R&D) is undertaken in the country. The supplier and contract manufacturer base in India is limited with a majority of high value and critical components being imported. Some of the locally-sourced components are injection moulding parts, metal castings and stampings, motors (low end), compressors (limited volumes), electrical components (wiring, plugs, etc.), smart cards, RCA cables and packaging material.

Figure 8: Indian supply chain maturity

Component-level assembly

Fabrication

R&D, IP ownership

Design services/ ODMs

Low High

Sub-assembly

Raw materials/ components

Configuration and testing

Last mile assembly

EMS services

Distribution and repair services

Marketing and sales

Domestic capabilities

Source: EY analysis

Figure 7: Supply value chain

► IP reusability management

► New IP / architecture development

► Form factor design

► Device architecture

► Specification assessment

► Printed circuit board fabrication

► Component sourcing

► Manufacturing /assembly of the final product

► Complex mechanical assembly

► Configuration of the final product

► Systems integration

► Testing ► Software

loading

► Packaging► Logistics► Fulfilment► After-sales

services

► Product / IP marketing

► Sales and channel management

► Branding and campaign management

R&D, IP ownership

Sourcing and fabrication

Manufacture /system assembly


Distribution and repair services Customers

Marketing and sales

Design services

OEMs / ODMs ODMs Plant equipment

suppliersTesting equipment

suppliers

EMS provider / OEMs

Distributors

Distributors/ OEMs

Suppliers (Raw material,

component)

Key stakeholders

Activities

Source: EY analysis


According to industry estimates, majority of the parts going into locally manufactured products come from markets such as China, Japan, Indonesia, Malaysia and Taiwan. Also, high-end products are completely imported from abroad. Components that are predominantly imported include high-quality steel finishes for refrigerators, compressors, evaporator coils, condenser coils for AC and refrigerators, chemicals (refrigerants) for ACs and refrigerators, motors for washing machines, LCD or LED glass and LED panels and the chips for TV, and semiconductors and electronic components.

Microwave ovens manufacturing in India is limited. Magnetron, which is the largest contributor to BOM, is not available in the domestic market and is 100% imported from China and other SE Asian markets. Only the microwave cabinet is manufactured in India, while the doors and glass trays are imported.

For STB manufacturing, there are contract manufacturers developing the core chips and components, and software applications. However, there is limited expertise in making the conditional access systems (CAS) boxes. While the ecosystem for STB manufacturing is fairly developed with nearly 40% of components being locally procured and fair amount of localization, the manufacturers face challenges in terms of cost of production, wherein they face competition from global companies. Components that are pre-dominantly imported include ICs, PCBs, CAS, remote controls and passive components.


Product % of maximum domestic localization possible

Parts majorly imported

AC 30-40%

• Sheet metal

• Compressor

• Coil

• Motor

• Refrigerant

• Electronic components/ semiconductors

Refrigerator 70-75%

• Sheet metal

• Compressor

• Condenser

• Motor

• Refrigerant


Washing machine

60-70%

• Sheet metal

• Motor


TV 25-30%

• LCD or LED glass

• LED panel


STB 35-40%

• ICs and PCBs

• CAS

• Remote controls

• Passive components

Going forward, in order to capture the highest share of value addition, the focus needs to be on indigenous product conceptualization to manufacturing. The creation of the entire manufacturing value chain is a must for having end-to-end capabilities to bring the real essence of “Make in India.”

Figure 9: Product wise domestic localization level

Source: Primary interviews


Challenges faced by ACE manufacturers


Companies are looking at tapping the opportunity presented by the current Government under the “Make in India” campaign. Major Indian and global consumer electronics firms have announced manufacturing expansion plans over the coming years in the country. However, there have been certain challenges for companies to grow local manufacturing in India.

For any company to take a decision on a manufacturing location, the following key considerations across the value chain are critical during the overall investment decision.

Figure 10: Key considerations across the value chain

R&D, IP ownership

Sourcing and fabrication

Manufacture/system

assembly


Distribution and repair services

Marketing andsales

Design services

Availability of landLocal supply of components

Skillavailability

Sales and marketing

support

Preferential market access

Tax on sale of goods

Direct tax benefits

Inter state taxes, tax refunds

Connectivity to major airports/

sea ports

Infrastructure availability

Taxes on components /

CapEx

Location of component hubs

Connectivity to major airports/

sea ports

Land price

Ease of acquiring land

Skill availability

Labor cost and reforms

Cost and availability of power

Cost and availability of water

Cost of Finance

Government funds / subsidies

Source: EY analysis


Companies face a multitude of challenges in the Indian market, right from the start of procuring land for manufacturing site to running the business to exports. Below are the various challenges elaborated by the industry stakeholders in manufacturing in India.

Figure 11: Industry challenges

Under-developed component ecosystem

Concerns in running the business

Infrastructure bottlenecks

Taxation concerns

Difficulties in setting up and doing business

“There has been an erosion in the supply base for appliances. This has led to companies being forced to import materials and components and manufacturing has been reduced to assembling products in India. Further, it is more viable to import from ASEAN countries under FTA than incur fixed costs in manufacturing,” American home appliance manufacturer

“15% average cost of finance in India (12% for borrowed funds and 18% for own fund) is very high compared to 7%-8% in China (5% borrowing cost and 10% cost of own fund). Hence the risk of investment is perceived to be very high by domestic investors despite the incentives provided by the National Manufacturing Policy of 2012.,” Indian EMS provider for domestic appliances

“Bank lending rates are too high for SMBs to invest in manufacturing set-up,” Indian EMS and ODM company

“Freight costs are very high – one Indian container company has a monopoly for movement of goods,” South Korean consumer electronics firm“India lags significantly behind other countries in terms of ease of doing business,” Indian EMS and ODM company

“Need to simplify and create a uniform tax structure, e.g. If GST is implemented, then state governments should not levy additional taxes or octroi)… and appliances should be in lowest GST bracket. MSIPS should include home appliances”

American home appliance manufacturer

“CST and other various taxation levels are a major hurdle which make products less competitive to imports,” Indian EMS provider for domestic appliances

“Bad road infrastructure leads to increasing logistics costs by 25%,” South Korean consumer electronics firm

“We face port congestion due to unavailability of containers and long documentation process ,” South Korean consumer electronics firm


Under-developed component ecosystem10 India is party to the ITA agreement, WTO treaties and Foreign Trade Agreements (FTA), which have resulted in the cost of imports becoming lower than the local cost of manufacturing, and the Government has not taken enough steps to compensate the domestic manufacturers.

Due to the implementation of FTAs, consumer electronics and home appliances sector is facing an inverted duty structure, where the final product is being imported at 0% concessional import duty, whereas components import attracts around 7.5%–10% customs duty, thus making the final product costlier than the imported product. Hence, these FTAs resulted in the erosion of the component supply base in India, since there was not enough domestic demand to be catered to by the component manufacturers and they could not reach economies of scale. Currently, around 60%–70% of inputs in



major appliances are imported due to low supplier base in India. Although there is some manufacturing activity in the country, it is limited to a few parts of its component ecosystem. However, the cost of components available in the Indian market is uncompetitive to the Chinese and South East Asian markets, which have a considerable supply base and installed capacities. Moreover, the Government of China provides numerous subsidies for manufacturing units’ development. For example, export subsidy between 4% to 8% of FOB (Free on Board) price (for value addition ranging from 25% to 50%).

The Government is negotiating on the ITA2 and RCEP (Regional Comprehensive Economic Partnership) treaties, which are expected to further reduce the custom duties on most of the consumer electronics and appliances to zero level. RCEP treaty would mean an indirect FTA with China, which would further reduce the cost competitiveness of domestic manufacturing.

Individual manufacturers have curtailed the import of components for their own use (in relatively small amounts) from different global component-manufacturing locations, since it entails additional effort without any cost advantage vis-à-vis getting end products manufactured in other low-cost manufacturing countries. It tends to encourage trading of end products vis-à-vis manufacturing these in the country by importing required components.

Concerns in running the businessThe high cost of working capital and capex-related financing (receivables and payables) due to high interest rates is a major challenge faced by domestic manufacturers, since it increases the overall cost of finance. Additionally, there is an increase in the cost of manufacturing (conversion costs) due to inadequate availability/reliability of power, high cost of real estate, etc. Moreover, with the frequently changing energy efficiency norms, manufacturers need to make significant investments for products with a high rating. The cost of finance has two components: borrowed money and own money. Both of these are higher in India compared to other Asian countries. The cost of borrowed capital is 12%-14% in India as compared with ~5%-7% global average11.

For the component base to develop, there is a need for SMBs and start-ups to invest in the country. However, high cost of finance becomes a major concern for SMBs since bank lending rates are also high in the country, and there is huge risk involved due to a lack of scale in the Indian market. The return on investment is very low for components and parts manufacturers due to the high cost of finance.

Additionally, the import of components from various global component-manufacturing locations creates a longer supply chain, which results in high inventory-carrying and freight costs. Even the freight costs for non-port locations are very high in the country.

Mandatory cost audits for electrical/ electronic products also increases the cost for manufacturers.

Difficulties in doing businessIndia’s position in the “Doing Business” annual reports published by the World Bank continues to be less than favorable. The latest rankings place India 142nd among 189 countries12. Procedural and regulatory clearances are time consuming and complex. According to industry sources, it takes up to a year to set up a manufacturing plant in the country and a new production line could take up to six months to become fully operational.

11 “Study on Indian electronics and consumer durables segment,” EY-FICCI report, April 201512 “ Doing Business,” World Bank Group website, http://www.doingbusiness.org/data/exploreeconomies/india, accessed 4 July 2015


Moreover, there are a number of legislations to be complied with, e.g., Factories Act, Industrial Employment Act, Contract Labor Act, Minimum Wages Act, Trade Unions Act, etc. Manufacturing units also have to comply with IPR laws and environmental laws.

Additionally, the refund processes and clearances for availing benefits under tax are highly cumbersome and time-consuming. Although there is a concessional duty applicable on many raw materials/parts/components used in manufacturing of electronics products, the procedure of availing this concessional duty is sometimes long and complex, and results in stock-outs or increased inventory-carrying costs for domestic manufacturers. The requirement for CA certificate as per a recent amendment in the Income Tax notification for releasing the payment of each consignment of imports is a major difficulty for the industry.

Taxation-related concernsIndia’s taxation system is complex, especially where indirect taxes are concerned. While income tax, excise and customs duty are set by the Central Government, states and municipalities also levy their own taxes. At present, the base direct tax incidence in India stands at around 30%, whereas the corresponding tariff in other Asian countries is between 16% and 25%. Although, the Government has proposed the implementation of Goods and Services Tax (GST) for a state-of-the-art indirect tax system to be implemented by 1 April 2016, there are concerns that the industry faces in terms of the clarity on the revenue-neutral rate, non-creditable tax on inter-state movement of goods and transition from existing taxation system to GST regime.

Moreover, the industry was expecting the revision in the excise duty on consumer durables to 10% from 12% (which was rolled back by 2% effective January 2015) in the Union Budget 2015-16. The increase in excise duty increases the product price for consumers, thus negatively impacts the demand in the sector.

Infrastructure concernsThe basic infrastructure for any industry comprises good roads, power, water, telecommunications, ports and logistics. In India, availability of these facilities is not up to the mark, even in established industrial estates. While the Government has notified Greenfield Electronic Manufacturing Clusters, they still remain un-operational due to infrastructure issues.

The lack of proper roads and sales infrastructure results in distribution challenges for consumer durables companies catering to markets in small semi-urban cities, rural areas and remote villages. Additionally, from both import and export perspective, there is port congestion due to unavailability of containers and long documentation process.

According to the World Bank, logistics costs in India are around 2-3 times higher (10%-14% logistics costs as a percentage of net sales) than international standards (3%-4% logistics costs as a percentage of net sales). Moreover, trucks in India are usually stuck at state border check-points (around 650 total in the country) for around 60% of the transit time due to the different sales and entry tax requirements of different states, resulting in higher-than-optimal inventory (around 27%) and lost sales. Moreover, transporters opt for longer transit routes to avoid delays at state borders which increases the logistics cost significantly13.

Hence, the need of the hour is for the Government to recognize the challenges in the consumer appliances sector and take initiatives to promote manufacturing in this sector.

13 “GST CAN TRANSFORM INDIA’S LOGISTICS, BOOST COMPETITIVENESS: WORLD BANK,” The Dollar Business website, https://www.thedollarbusiness.com/gst-can-transform-indias-logistics-boost-competitiveness-world-bank/, accessed 25 June 2015


The way forward


China has long been the dominant region for offshore manufacturing due to the availability of a huge and cost effective labor pool, developed supply ecosystem leading to economies of scale and preferential policies by the Government. However, due to the increasing labor costs, real estate costs, transportation and shipping costs and risk of intellectual property protection, companies are re-considering alternative locations such as India, Indonesia, Malaysia, Vietnam and Thailand.

India brings to the manufacturers benefits such as low labor costs (US$0.92 average labor cost per hour in manufacturing) and large potential consumer market. Moreover, the recent “Make in India” campaign and the Government’s thrust to increase local manufacturing is forcing companies to evaluate the opportunity.

Recommendations to make ACE manufacturing a reality:The Indian Government has been working hard to promote India as a global manufacturing base. But the fundamental reforms in labor infrastructure and investment regulations are required to be in place before India can fully capitalize on its low cost advantage. Below are a number of actions that the industry seeks from the Government of India to remove the hurdles in local manufacturing and combat the structural challenges present in the supply side. The dominant industry voice is seeking greater intervention from the Government for this sector’s growth and contribution to the ‘Make in India’ campaign. India is in a strong position to emerge as Asia’s next star in manufacturing provided the new government can accomplish such reforms.

Figure 12: Industry voice for changes

“Demand generation is the need of the hour to grow manufacturing in India. India is an under-penetrated market for appliances and there is huge potential for entry level products, such as single door refrigerators that cater to households with modest income. Government needs to look at tax incentives to grow manufacturing of these segments, which will have sustainable demand for several years. The MSIPS programme, which is focused on electronics, must include home appliances as well.”

American home appliance manufacturer

“ There is a need to include electrical and home appliances in the MSIPS policy due to electronics being used … incentivize and support SMBs to setup manufacturing since they will be backbone of component manufacturing… Govt should focus on development of critical components in the country and incentivize that.”

Indian EMS company

“Govt needs to allow 3-5 years of duty-free import when companies are initially setting up in the country so that they can start with assembly. However, once their plants and machinery are equipped and market demand is generated, then imports should be levied duties… For GST, there should be nodal offices for refund processes… Domestic taxation levels need to be reduced… Govt needs to give subsidies to drive demand.”

South Korean consumer electronics firm

“To make it easier for SMBs to set up operations, government should construct zones where it sets up buildings and facilities which can be taken on rent by SMBs… provide export freight subsidy for non-port locations… link all incentives across all schemes based on value addition done in the country.”

Indian EMS and ODM company



Government’s role in stimulating consumer demand for the ACE industryAccording to industry estimates, there is a sub-par market penetration level of consumer appliances in India. This indicates huge untapped population. One of the reasons for this is the high cost of white goods as compared with the household income. The smaller market in turn results in low scale of operations for component players and manufacturers, and hence they are not willing to scale-up production facilities in India. Moreover, the industry is primarily flourishing on replacement sales rather than primary sales and is seasonal in nature. These factors have led to a mere 60%-65% average utilization of current plant capacities of major companies in the country. Hence, the industry believes that demand generation has become the need of the hour to improve the penetration levels in the country and to drive companies to invest in manufacturing in the country, as currently, the companies have adequate facilities to service demand for the next five to six years.

The industry looks to the Government to reduce interest rates and taxes to increase disposable income in the hands of consumers, which is likely to lead to an uptake of discretionary spend on consumer durables. Some of the incentives could include incentivizing purchase of higher energy-efficient products, allowing depreciation value on appliances to be exempt in personal tax filing and introduction of 0% finance scheme.

Case study: Chinese Government initiatives to spur demand14

The Indian Government may look to follow the steps taken by the Chinese Government that led to increasing rural demand and improving penetration levels. The Chinese Government promoted growth of durables sector through various initiatives discussed below:

• By providing a 13% retail price subsidy to farmers in the three agricultural provinces of Shandong, Henan and Sichuan, as well as Qingdao City on purchase of designated brands of color TV sets, refrigerators and mobile phones from December 2007 through May 2008.

• In May 2010, the government allocated RMB400 billion to promote domestic demand for energy-efficient products including refrigerators, washers, TVs, automobiles, electric motors, and gas heaters.

• Provincial and city governments in China introduced a variety of coupon and voucher programs to stimulate short-term consumption. Some local governments paid their own employees partly in vouchers that have to be spent within specified time periods. Others targeted farmers and rural consumers with price-off coupons to boost sales of durable goods such as cars and televisions.

14 “Country Review of Energy Efficiency Financial Incentives in the Residential Sector,” May 2011, ERNEST ORLANDO LAWRENCE BERKELEY NATIONAL LABORATORY, http://eetd.lbl.gov/sites/all/files/lbnl-5033e.pdf, accessed on 17 July 2015; “China boosts rural consumption with household appliance subsidy program,” Xinhua News Agency website, 1 February 2009, http://news.xinhuanet.com/english/2009-02/01/content_10746955.htm, accessed on 17 July 2015; “How Governments Can Boost Consumption,” Harvard Business Review website, 4 May 2009, https://hbr.org/2009/05/how-governments-can-boost-cons, accessed 17 July 2015


Key recommendations to remove the structural challenges are listed below15:Area Recommendations

Component ecosystem

• Incentivize and support local component manufacturing and domestic value addition.

• Priority sector treatment to component manufacturing and providing privileges and sops such as duty benefits and tax exemptions.

• Link all incentives across all schemes based on domestic value addition

• Include some level of domestic value addition to be mandatory for critical components e.g. panels in TV

• Focus on development of critical components in the country

• Explore re-negotiating product specific rules and regulations in the trade agreements by mandating that critical components to be made in India for the products covered under FTA and sign new FTAs by excluding the products where the country doesn’t have the inherent capability to manufacture and export

• Government needs to be careful while signing new treaties such as ITA2, TPP (Trans-Pacific Partnership) and RCEP (Regional Comprehensive Economic Partnership) in terms of inclusion of product list to avoid price parity.

• Need to incentivize and support SMBs to setup manufacturing since they will be the backbone of component manufacturing

• Develop high standards requirement and anti-dumping/safeguard duty on imports to eliminate grey market

• Reform inverted duty structure or reduce customs duty on critical components for few years until local component manufacturing is developed:

• Reduce the customs duty on components to 0% while keeping the duty on finished products (which are not in ITA1) at 10% to provide a level-playing field to domestic manufacturers

• Setup duty-free component trading and warehousing zone (component FTWZ) to facilitate ease of raw material supply

• Government may allow duty-free import of raw materials and components for the initial 3-5 years when companies are setting up in the country so that they can start with assembly plants. However, once their plants and machinery are equipped and market demand is generated, then imports should be levied duties.

15 Source: Primary research


Area Recommendations

Steps to improve running of the business

• Review of MSIPS to include all consumer appliances. There is also a need to review the threshold investment amount for MSIPS applicability (since INR100 million is too high for SMBs to invest). Also, need to extend the applicability period for MSIPS from July 2015 to end of 2020.

• In order to reduce the cost and risk of investment for companies, GoI can consider picking up equity stake in the project.

• This can be done either by directly providing capital or by providing land to investors in lieu of equity stake.

• Interest subvention: Interest subvention of 2%–5% of the interest rate should be provided on interest paid on working capital. The extent of subvention provided should increase with growth in domestic value addition. This would help offset high finance cost.

• Reduce borrowing interest rates and provide and preferential financial loans in order to reduce high financing costs so that small manufacturers can thrive.

• Provide export freight subsidy for non-port locations

• Set up a venture fund focused only on high-tech product hardware start-ups

• In the newly introduced Foreign Trade Policy 2015-20, the government has introduced Merchandise Exports from India Scheme (MEIS) which provides exports benefits on the basis of country groupings. The industry expects standard incentives to be provided for exports for the product categories/components irrespective of the country of export.

• Skill enhancement: The government should focus on improving infrastructure and faculty profile in the skill training institutes (such as ITIs) so that practical training can be imparted to students passing out of these institutes that will improve their employability in the industry. The government should also consider creating a fund to providing reimbursements to companies for providing skill-gap training to their employees.

Ease of doing business

• Improvement in procedural, regulatory and custom approvals, refunds and clearances

• For tax refund processes, there should be nodal offices for one-stop location for all refunds and clearances along with faster recovery system

• Single window facilitations for approvals

• Simplification of duty drawback scheme and faster credit transfer

• Self-certification for custom clearances of zero duty components and inputs

• Simplification and faster process of BIS registration and certificate issuance

• The government should provide incentives to manufacturers for exports of identified products for identified markets

• Air conditioners, refrigerators, mixers grinders, electric irons, toasters, etc. are some of the ACE products which will find good markets in the countries such as Bangladesh, Myanmar, Saudi Arabia, Nigeria, Rwanda, etc. The government should provide line of credit for export of such ACE products.

• Relaxation of labor laws: The government should relax restrictions on overtime work and allow women employees to work in night shift in the manufacturing sector (in line with the provision in Services sector), without compromising on safety and health aspects.


Area Recommendations

Taxation • Govt. needs to provide clarity on the revenue-neutral rate, non-creditable tax on inter-state movement of goods and transition from existing taxation system to GST regime.

• GST is expected to be at revenue neutral rate of 26% with additional 1% levied for inter-state movement of goods, which would be too high. Government needs to discuss the GST rate with the industry before implementation and not include other levies over-and-above that.

• There needs to be CST exemption for any inter-state purchase of components or raw materials, else the benefit of having a national rate of GST would not be met.

• Provide VAT and CST exemptions for initial years to incentivize new players to set up operations

• Roll back of excise duty: It needs to be reinstated at 10%, instead of the current 12%, as the industry is still struggling and needs reduced price tag for the consumer so that demand can be revived.

• Deferred payment of excise duty: Govt. should allow deferred payment of excise duty for 7 years to manufacturers (threshold value addition).

• Excise duty relaxation on manufacturing of higher-energy efficiency rated home appliances to encourage manufacturing of more energy efficient products, at a time when energy standards are undergoing a severe upward revision.

• Govt. should look into entry-level products in each segment (e.g. TV panels less than 20 inch) and give tax incentives to promote manufacturing of these entry level products which have higher demand in the market.

Infrastructure improvement

• Construct zones where GoI sets up buildings and facilities which can be taken on rent by SMBs which will support their cost structure as the current high cost of land and construction is a limiting factor for them.

To really make a mark in the global map as the favourable manufacturing destination, it is important for the country to realize the potential of investing in R&D for new products and bring the real ‘Made in India’ product. There is a need to invest in manufacturing innovative and high-margin products such as high-end built-in appliances and newer water filtration technologies (bulk of the manufacturing for which takes place in the US or European regions) since India can bring in cost benefits. However, the Government would play a key role in incentivizing companies to set up facilities for designing, engineering, testing and R&D of such innovative products.

The industry feels that if this sector is given the desired support and thrust from the Government, India can rise from twelfth to fifth largest position in the consumer durables market in the world by 2025 and become the manufacturing and exports hub with high level of local value addition. With the right impetus, the consumer durables sector can repeat the success of Indian IT-BPO sector.

In addition to the above recommendations, the industry strongly demands parity of established companies with new companies looking to set up manufacturing in the country. The Government needs to provide a level playing field in terms of land, raw materials, labor and other tax and duty benefits to both established manufacturers in the country and the new global manufacturers looking to set up plants in India. This will ensure that the current manufacturers continue to remain competitive in the market and get the same incentives as new players to expand their operations.


Glossary


ACE Appliances and Consumer Electronics

BIS Bureau of Indian Standards

BOM Bill of Materials

CAGR Compounded Annual Growth Rate

CAS Conditional Access System

CBU Completely Built Unit

CKD Complete Knock Down

CRT Cathode Ray Tube

CST Central Sales Tax

DTH Direct-To-Home

DVB-T Digital Video Broadcasting — Terrestrial

EDF Electronics Development Fund

EMC Electronic Manufacturing Clusters

EMS Electronic Manufacturing Services

ESDM Electronic System Design and Manufacturing

FPD Flat Panel Display

FTA Free Trade Agreement

GoI Government of India

GST Goods and Services Tax

ITA Information Technology Agreement

MEIS Merchandise Exports from India scheme

MNC Multi National Company

MSIPS Modified Special Incentive Package Scheme

NPE National Policy on Electronics

ODM Original Design Manufacturer

OEM Original Equipment Manufacturer

PCB Printed Circuit Board

SKD Semi Knock Down

SMB Small and medium business

STB Set Top Box

VAT Value Added Tax

WTO World Trade Organization


EY team

Milan ShethPartner and Technology Industry LeaderAdvisory ServicesEmail: [email protected]

Malay ShahDirectorAdvisory ServicesEmail: [email protected]

Samyak ChakrabortyManagerAdvisory ServicesEmail:[email protected]

Nishant BansalManagerStrategic Market IntelligenceEmail: [email protected]

Amit MahendruAssistant ManagerStrategic Market IntelligenceEmail: [email protected]

Neha GoelSenior AnalystStrategic Market IntelligenceEmail: [email protected]

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About CEAMAConsumer Electronics and Appliances Manufacturers Association (CEAMA) established in 1978, is the apex Industry Chamber for the Consumer Electronics and Home Appliances Industry, CEAMA acts as a catalyst in the promotion of Industry, trade, technology and entrepreneurship. CEAMA has about 100 member companies from every segment of Consumer Electronics and Home Appliances Industry, providing information, representation and chance to grow in the most vibrant and exciting industry.

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