Section A: Auto Component Industry

The auto components industry is one of the fastest-growing industries in India. The industry has come a long way from merely being a supplier of components to the domestic market to turning into an auto components hub in Asia; the industry players are the most sought-after in the global automobile supply chain. India’s cost-competitiveness in terms of labour and raw material, and its established manufacturing base attract global OEMs for outsourcing components from India.

Industry Structure

The total turnover of the Indian auto components industry grew at a CAGR of 27.23% during FY03-FY08 and reached US$ 18 bn by FY08. This growth was achieved due to the increase in the standard of living and income levels, and reduction in tariff on imports. Another major reason for the growth was the rising demand from the automobile industry, which has a direct relationship with the auto components industry. The turnover of the auto components industry grew rapidly in the past 6 years. After growing at a CAGR of around 27.23% during FY03-FY08, the industry is expected to register a turnover of US$ 18.7 bn by FY10.

The Indian auto components industry is extensive and highly-fragmented. According to the Department of Heavy Industries, there are more than 400 large firms in the organised segment of the industry who cater largely to the OEMs and there are another 10,000 firms in the unorganised segment of the industry that operate in a tier-format — the firms in this segment operate in low-technology products and cater to tier I and tier II suppliers apart from the replacement market.

The auto components industry can be grouped under the following six broad categories:

•   Engine parts
•   Drive transmission and steering parts
•   Equipment
•   Electrical parts
•   Suspension and braking parts
•   Body and chassis
•   Others

The auto components imports have been always higher than the value of exports. The large-scale import by the Indian auto components industry signifies the high demand in the domestic market. In the initial years, there was a small gap between the import and export values but during FY07 and FY08, the gap increased majorly. In FY08, imports were almost 36% higher than exports. In FY08, exports rose by merely 14% over FY07, whereas imports rose by 35% in the same financial year. The government plans to adopt various measures, like imposing anti-dumping duties, to protect the domestic auto components industry from inexpensive imports.

Investments in this sector have been growing at 19% in the past few years, and they grew by 33% in FY08. The industry attracted investments worth US $7.2 bn during FY08, at a CAGR of 22.59% from FY03-FY08. Most of these investments were made by the domestic companies by expanding their manufacturing capacities.

India is a hub for outsourcing auto components for major global players. There has been a rapid increase in the demand for components by global players due to India’s cost-advantages arising from availability of inexpensive labour and raw materials, and an established manufacturing base. The Indian government also has taken many initiatives to attract FDI; for instance, it has lowered the restrictions on imports of auto components and has approved 100% equity investment from foreign companies.

The key growth factors of the industry are as follows:
•    Strong engineering skills, high quality, and relatively low cost
•    Adaptation of modern technology
•    Increased competitive pressures on global automakers that lead them to diversify to countries like India
•    Opening up of the Indian economy, liberalisation of import-export policy, government initiatives such as setting up of NATRIP, reduction of peak rate duty, reduction of customs and excise duty on small cars
•    Fast developing infrastructure
•    Increased per capita income of Indians and easy financing options boost domestic demand for automobiles.

Some of the challenges that confront the Indian automotive industry are:
•     Currency risk and increasing competition from other emerging countries (particularly China, Vietnam and Malaysia)
•     Unprecedented increase in cost of raw materials
•     Lack of good infrastructure and poor power supply
•     Counterfeit components
•     Low level of productivity aggravated by lack of labour reforms
•     Slow delivery of reforms by the government
•     Lack of a single window for quick clearances, multi-layered authority and the cost of democracy – lobbies, NGOs,
       legal framework, over-activism of the judiciary.

Future Outlook

The increasing number of auto exhibitions across the country gives an indication of the rising consumer interest. Automobile manufacturers from India are seeking joint ventures, collaborations, mergers and acquisitions worldwide to compete with all their strength. Against the backdrop of such ambitious growth plans in the Indian automobile industry, the Indian auto components industry is estimated to garner a turnover of US$ 40 bn by 2016. In a nutshell, the thriving economy, strong domestic and global demand, adoption and acceptance of innovative technology will help the Indian auto components industry to make a mark globally.

Section B: Electronic Goods Industry

The Indian electronic industry has a 0.7% share in the global electronic industry. The Indian electronic industry mostly imports electronic materials, components and finished equipment. The government introduces fiscal, investment and trade policies from time to time that provide incentives to foreigners to invest in the sector. Electronic hardware and software exports are duty-free under the export-oriented schemes of the government.

After the economy was liberalised, massive foreign investments flowed into India, thereby aiding its emergence as a mass market for consumer electronics. Consumer electronics has the largest share in the electronic goods industry and is growing faster than the electronics segment as a whole.

During FY04-FY09, the Indian electronics industry registered a growth of 16.67% CAGR and in FY09; it was valued at Rs 946.9 bn.

The Indian electronic industry is broadly divided into five segments viz.: consumer electronics, computers, strategic electronics, communication and broadcasting equipment and electronic components

1. Consumer electronics
The consumer electronics segment includes products that can be directly used by end-users; for instance, televisions, VCD/MP3 players, and microwave ovens. The segment has a large manufacturing base and is highly competitive. During FY09, the consumer electronics industry’s total production is estimated to Rs 259.9 bn, a growth of 15% over FY08. Due to the demographic and lifestyle changes that are affecting the Indian consumers, this segment has high potential for growth.

According to the Department of Information Technology’s Annual Report FY09, colour TV has the largest share in this segment’s revenue. The domestic market of CTV is estimated to be over 13.5 mn units during FY09.

2. Industrial Electronics
Industrial electronics equipment and systems, automation technologies, networking systems and various other standalone instruments are increasingly in demand in the manufacturing industries like steel, textiles, cement, power etc. In the transportation industry for instance, the Indian Railways has used the latest power electronics equipment for its mainline electric / diesel locomotives and suburban train systems.

In FY09 the production of industrial electronics is estimated to grew by 7% in value to Rs 127.4 bn as compared with Rs 119.1 bn in FY08. In the near future, increase in industrial production is expected to drive this segment’s growth.

3. Computers
In FY08, the production of computers reached to Rs 158.7 bn registering a growth of around 24% as compared to the previous year. During FY08, the PC sales reached to 7.34 mn and are estimated to drop to 6.78 mn in FY09. In FY09, the desktop PC market is estimated to decline by 4% to 5.27 mn units and notebooks market is estimated to decline by 21% to 1.5 mn. This decline in sales can be attributed to restraint in IT purchases by SMEs, retail, BPO/IT enabled services and corporate sectors due to global economic crisis. In FY09, production of computers is estimated to be around Rs 134.9 bn.

4. Strategic electronics
The strategic electronics segment includes satellite-based communications, navigation and surveillance, underwater electronics and infrared based detection, disaster management and GPS-based vehicle tracking systems. In FY08, the production in this segment grew by approximately 27% to Rs 57 bn as compared with Rs 45 bn in 2007 and is estimated to reach to Rs 68.4 bn in FY09.

5. Communication and broadcasting equipment
Communication technology is increasingly being recognised as a key driver for the country’s growth and development. Digital exchanges, transmission equipment, microwave trans-receivers, satellite communication terminals, optical fiber communication equipment, and two-way radio communication equipment come under the purview of this segment. The segment’s production is estimated to grow by 39% to Rs 260 bn in FY09.

6. Electronic components
The electronics component segment caters to the needs of the consumer electronics, telecom, defence and information technology sectors. This industry produces TV picture tubes, monitor tubes, diodes and transistors, power devices, ICs, hybrid microcircuits, resistors, capacitors, connectors, switches, relays, magnetic heads, DC micro motors and tape deck mechanism, PCBs, crystals, loudspeakers and hard and soft ferrites. This segment’s growth depends on the consumer electronic sector and the colour television industry. In FY09, the production in this sector was valued at Rs 96.3 bn.

Exports

The Government of India views FDI as a supplement to domestic investment for achieving a higher growth rate. Moreover, the government’s new industrial, trade and fiscal policies stress on imparting greater transparency to business procedures and on integrating India with the global market place.

During FY09, the electronic goods exports are expected to reach to Rs 190 bn as compared to Rs 132 bn in FY08.

Contribution of states and Union territories
In India, Karnataka continued to be the highest exporter of electronics and computer software / services during FY08. During the year, exports from Karnataka grew by 20% over the previous year. Maharashtra was the second-highest exporter that accounted for 18.86% of the total exports during FY08. Andhra Pradesh, Tamil Nadu, Haryana, Uttar Pradesh, Delhi, West Bengal, Kerala, Orissa and Gujarat were the other states that contributed to the export of electronics and computer software / services.

Countries for export
During FY08, the UK and the US were the top 2 destinations for export of electronics and computer software / services from India and together accounted for 74.67% of the total exports. Singapore was the third top destination for export with an overall share of 3.16%. Germany came next with an export share of 2.64% followed by Japan with a share of 2.60%. Switzerland, Australia, Canada and Hong Kong were the other major export destinations.

Government initiatives
Under the National e-Governance Plan (NeGP), the Government of India has approved a scheme for facilitating the establishment of more than 100,000 broadband, internet-enabled common service centres (CSCs) in rural areas for Rs 57.42 bn. As on Mar 31, 2009, 36,485 CSCs were commissioned in 20 states.

The Government of India also introduced a Special Incentive Package Scheme (SIPS) to attract investments for setting up semiconductor fabrication and other micro and nanotechnology manufacturing industries in India. Under the SIPS, 17 proposals were received for an investment of Rs 1,570 bn over the next 10 years.

Section C: IT & ITeS–BPO Industry

The Indian Information Technology (IT) & ITeS-BPO sector plays a vital role in India’s economic growth as it has contributed substantially towards the GDP, urban employment and exports. In 2008, the IT & ITeS-BPO sector was confronted with many challenges in the macroeconomic environment in the form of substantial volatility in commodity prices, inflation, and decline in GDP rates; however, the sector maintained its growth momentum by diversifying geographically and across industry verticals, and by expanding the service offerings portfolio.

The Indian government’s liberalisation policies in the last decade have propelled the Indian IT industry towards development and prosperity. Consequently, its contribution to the country’s GDP grew significantly from 1.2% in FY98 to around 5.8% in FY09.

Key highlights of the sector

• The Indian IT and ITeS-BPO industry has been growing steadily since FY05. In FY09, the sector grew by 12% and its revenues touched US$ 71.7 bn. Software and services exports including exports of IT services, BPO, engineering services and R&D and software products reached US$ 47 bn during FY09 and contributed nearly 66% to the overall aggregate revenue of the IT-BPO segment. Services and software products were the main contributors to the sector’s exports. The export revenue from the sector increased by 30% from US$ 31.1 bn in FY07 to US$ 40.4 bn in FY08 and is estimated to grow by nearly 16% to US$ 47.0 bn in FY09.
• The domestic revenue from the sector increased by 40% from US$ 8.2 bn in FY07 to US$ 11.6 bn in FY08 and is estimated to grow by nearly 7.0% to US$ 12.5 bn in FY09.
• The Indian IT-BPO sector’s share in total exports (merchandise plus services) increased from less than 4% in 1998 to almost 16% in 2008. According to the RBI, software exports grew by 28.2% during 2008-09 (Apr-Dec) to US$ 32.3 bn.
• The software product development and engineering services supplement India’s efforts in intellectual property (IP) creation. Export revenues from these value-added services, which includes engineering, R&D, and software products, are estimated to grow by 14.4% to US$ 7.3 bn in FY09.
• The Indian IT-ITeS and BPO industry has continued to diversify geographically, and its exports have increased the most, by more than 51%, to Europe during FY04-FY08. Although the export share from America came down from 68.3% in FY05 to 60.0% in FY08, it continues to be the dominant market.

Employees
The IT & ITeS-BPO sector has a multiplier effect on the economy. It has a direct, positive effect on the national income as it employs many professionals and also is the biggest employment generator as it creates indirect jobs in several ancillary industries such as transportation and real estate. The total number of IT & ITeS-BPO professionals employed in India grew from 1.06 mn in FY05 to 2 mn in FY08 and is estimated to reach nearly 2.23 mn in FY09. The sector is estimated to create 8.0 mn indirect jobs in FY09.

Issues & Challenges
• The pace of work outsourced to India is likely to slow down in the backdrop of the US mortgage industry crisis; the collapse of some big financial firms in the US, and the bailout packages doled out to financial services companies by some countries in the European Union region. Moreover, the business from the BFSI segment is likely to be sluggish due to the slowdown in the global economy including the US and European economies, whose financial services companies
have the largest share in the business outsourced to India.

• Lack of good quality infrastructure such as power, roads, transportation and connectivity and absence of adequate physical infrastructure like roads, airports, high speed voice and data communication telecom links in tier II and tier III cities is hampering the competitive edge and the global growth prospects of the industry.

Future Outlook
According to the Ministry of Communication and Information Technology, the Indian IT and ITeS-BPO exports are likely to increase to US$ 60 bn and overall software and services revenue is likely to rise to US$ 73-75 bn by 2010. Some key factors that will drive the growth in the IT and ITeS-BPO industry will be the growing demand for global outsourcing, favourable government policies, skilled manpower, quality services and multiplying benefits of technology-led innovation.

According to NASSCOM, in the current recessionary conditions, the Indian IT & ITeS-BPO industry must focus on reducing cost and increasing productivity to boost demand for offshore services. The Indian IT and ITeS-BPO sector must also try to encourage innovation, to embrace new trends like Green IT, and deliver solutions focused on re-engineering and transformation to achieve distinction in the global market.