(Source: Manufacturers’ Association for Information Technology (MAIT))
Background
The Computer and related peripherals market in India is growing at a rapid pace and fast assuming global scales. In 2010-11, 9.31 million computers (including Notebooks & Netbooks) were consumed in the country registering an annual growth of 16%, a phenomenon almost consistent all through Eleventh Five Year Plan. The sales of desktops stood at 6.03 million (60.3 lakh) units registering a growth of 9%. Notebooks and Netbooks taken together recorded a consumption of 3.28 million (33 lakh) units, growing 31% over 2009-10. Given the rise in disposable income and the stability of jobs in the country, PC sales are expected to cross 12.60 million (126 lakh) units in FY 2011-12, growing about 35%.
The growth in increased sales in computers can be attributed to significant consumption in telecom, banking and financial sectors, IT and ITES, education, SOHO, retail and e- governance. The computer being the driver pulled the growth in all-round consumption of peripherals and networking products as well. With sound macro-economic conditions and signs of a robust growth in the domestic economy, the computer and related peripherals market is expected to grow at a comfortable pace of 25-30% for the next few years without any government intervention on the policies front. However, should the Government policies be made conducive towards creating a favourable eco-system for IT manufacturing and consumption, the annual growth may well exceed 40-50% in the ensuing years.
With consistent growth in consumption in computers and peripherals, and finally a streamlined duty structure on the excise front, confidence has now been restored in the IT manufacturing industry. Further, there is increased realization in the government that a robust hardware sector is not only essential for reasons of national security, maintaining the competence of the software industry without a strong hardware base will also be a challenge.
Computers and Peripherals market: 2009-10 & 2010-11
Total installs Total Revenue (in Rs. Crores) Product April 09 – March 10 April 10 – March 11 % Growth April 09- March 10 April 10- March 11 % Growth Computers Desktop PCs 5,525,992 6,030,418 9% 11,267 13,014 16% Notebooks 2,322,850 2,950,192 27% 8,868 9,440 6% Netbooks 185,714 334,324 80% 260 468 80% Servers 101,827 87,275 -14% 1,836 1,574 -14% Printers Dot matrix 383,597 384,869 0% 257 258 0% Inkjet 1,142,131 1,355,504 19% 177 203 15% Laser 971,807 1,130,658 16% 660 734 11% Line 4640 4234 -9% 54 50 -7% Other Peripherals Key boards# 5,756,923 6,171,191 7% Monitors 5,754,111 6,163,108 7% UPS systems# 2,324,480 2,384,197 3% Networking Products Network Interface Card# 3,454,721 4,440,666 29% Hub# 161,602 155,899 -4%
Current Status including production and Exports
As manufacturers seek to reduce costs, there has been a marked shift in electronics output worldwide, including that of computers and peripherals, from high cost to low- cost locations. Although Asia/Pacific-in particular, China has been the main beneficiary, Central and Eastern Europe, Mexico and Brazil have also benefited from significant inward investment. In the longer term, many of today’s low-cost locations will also offer significant market opportunities, creating the need for further investment in local manufacturing. The opportunity is knocking at India’s door as well.
IT Products being manufactured in the country include personal computers, servers, workstations, supercomputers, data processing equipment, Dot-matrix printers, digitizers, networking products such as modems, hubs, etc., and add-on cards. The production in the PC segment is dominated by i3 and i5 Processors. Other processors are gradually entering the market reflecting, perhaps, the need for low-cost computing solutions. The IT products manufacturing industry in India is essentially an import intensive one.
The industry has been essentially assembly oriented one with very low value addition. The impact of infrastructural related disabilities are significantly pronounced in the component and the sub-assembly and component manufacturing industry, as a result of which the component base in India is practically nonexistent.
Of the total Desktops market in the country, almost 85% are assembled locally. All leading global brands including HP, Lenovo, Acer, Dell, etc., have an assembly unit in
brands such as HCL, Zenith, Wipro, PCS etc account for 35% of the market. The reduction in customs and excise tariff over the years has had an adverse impact on the grey market, the proportion of which has steadily come down.
In the peripherals industry, a very high degree of value addition (to the tune of 65%) has been achieved in the manufacturing of the Dot-matrix printers. TVS electronics and WeP Peripherals, the top two leaders in Dot-matrix printers manufacturing in India account for close to seventy per cent of the Dot-matrix market. There is no indigenous manufacturing of laser or inkjet printers in the country.
Computer Penetration
Year PC Penetrations in SEC A-C Households (in %) 2006-07 19 2007-08 30 2008-09 38 2009-10 41 2010-11 43 (Source: MAIT-IMRB)
Performance in the Eleventh Plan
The Eleventh five-year plan from 2007 onwards witnessed a significant growth in the computer consumption in the country, which grew from 6.34 million units in March 2007 to 9.31 million units in March 2011. The computer penetration in the country has also witnessed a rapid growth, which stands at 40 per thousand in 2010-11.
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Total PC (Desktops, Notebooks & Netbooks) sales: 2004-2011
• CAGR(2004-11): 16 % • Growth over 2009-10: 16 % U ni ts 3,809,7245,046,558 6,341,451 7,344,306 6,796,107 8,034,556 9,314,934 0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 Technology Status
The Indian IT industry does not lag in technology in comparison to its global counterparts. Most products are launched simultaneously across the globe and so in the Indian market. However, very few companies spend resources in designing products for the Indian market, while those who did take up the challenge have not been successful due to their inherent disabilities of scaling up and other deficiencies in the eco-system. The Governments in India both at the centre and state levels have made several efforts to reach the benefits of IT to the Indian populace beyond the urban areas by launching several projects in regional language computing, however, very few have been
successful. All this is in direct contrast to the fact that several MNCs have set up their product design centres and technology labs in India to harness the inexpensive Indian engineering talent. Further, several Indian entrepreneurs as also Indian companies are engaged in product and technology development meant for exports purposes only. The linkages between the Industry and the academia in India are poor and there is no movement of personnel between the two thus limiting innovation and cross pollination of ideas. Lastly all nations with advancement in IT have scaled heights owing to the contribution of their governments in R&D and technology development. Government of India’s spend in R&D in IT is insignificant and not readily extended to the private sector.
Future Trends
The character of the IT industry is global and the industry in India also follows the global trends. With convergence of technologies, the distinction between technologies – IT, Consumer electronics and telecom is fast diminishing. Globally the consumption of mobile PCs (notebooks) exceeds that desktops and India will certainly follow suit over the next few years.
Tablet PCs since its launch in India in November 2010 are growing very fast, with major MNCs and domestic operators eyeing a share of the pie. Given the small form factor and its utility, the tablets are going be the preferable choice among the end-users over the coming years.
Further, with mobile industry is rolling out 3G, the mobile phone will become the access as well as the computing device. This will lead to a significant increase in population with internet access and with a critical mass, several services could be rolled out increasing the value proposition of IT. The traditional definition of computing will thus undergo a change.
India will be the youngest nation in the world by 2025. A large population of people under thirty will drive the consumption of IT products, the Indian market is therefore going to expand rapidly, the challenge will be how to tap our own ready market for purposes of manufacturing in India rather than creating jobs in other economies by meeting the demand through imports. Should measures be adopted to convert the opportunity into domestic IT manufacturing, India may well emerge as a strong manufacturing country.
Thrust Areas: It is evident from the experience of the mobile industry in India that a
vibrant market attracts investments. The lowering of first the customs duty and subsequently the excise duty has enabled the organised sector to offer mobile products to the consumers at the same prices as that of the grey market. The grey market in the mobile phones, once over 90% is now totally eradicated. With the consumption attaining global scales, several global leaders and EMS companies are investing in mobile and related equipment manufacturing in the country. With convergence of technologies and with products mimicking each other’s functions, the basic building blocks for all IT, Telecom and consumer electronics products are also converging. While most investments in the manufacturing value chain are concentrated towards assembly operations, the industry faces the challenge of deepening the manufacturing activity as the component and sub-assembly base is non-existent. This would require
significant focus from the government and the industry, as component manufacturing is highly capital intensive.
Status of investments and investment needed to meet the targets
A poor investment climate, and a policy structure non-conducive to manufacturing, failed to attract any significant investments in IT manufacturing. However, with rapid growth in consumption in the domestic market in the last few years, especially that of the mobile phones, most of the top ten EMS players have set up their operations in India.
Therefore the thrust should be on the creation of a vibrant market through mission mode projects that would enable investments and simultaneous rolling out of measures that will help deepen manufacturing by incentivising investments in high capital-intensive components such as ICs, LCDs etc. and subassemblies. Attention will also be needed to streamline procedures of exports, imports and also that of movement of goods within the country, as it is critical to achieve international levels of turnaround time. Delays lead to depreciation/loss in the value of goods, as the rate of obsolescence is very high in the IT industry. Further, thrust is also needed to create products specific to the requirements of the Indian market, suiting the Indian price points.
The core competence of EMS players is manufacturing and their investments in manufacturing will not remain relegated to mobile products alone. They are actively looking at diversifying their product profile as several of their international customers such as HP, Dell etc., have a strong market presence in India.
The hardware industry has the potential to create several employment opportunities for the semi-skilled and the blue collared.The Computer and related peripherals market in India is growing at a rapid pace. The IT products manufacturing industry in India is essentially an import intensive one. With a non-conducive policy structure and several inherent infrastructural disabilities, the industry has been essentially assembly oriented one with very low value addition. The disability factors are significantly pronounced in the component and the sub-assembly and component manufacturing industry, as a result of which the component base in India is practically non-existent. A rapidly growing market provides an opportunity to the IT industry to scale up their manufacturing operations, however, the policy structure needs to be streamlined to uniform low taxation rates across the country. Being an industry operating in a zero duty regime, mitigation of disability factors such as high cost of capital, high rates of electricity, poor turnaround time are essential as these loom large when compared to our global competitors. It is essential for the government to give thrust to domestic consumption so that the market attains global volumes in consumption and enables industry to operate at global scales. Global scale of operation will lead to significant employment opportunities, not only direct but also indirect including those in research and new product development. Issues of revenue loss to the Government due to changes in the taxation structure are unfounded, as a vibrant industry and market will move that make up for the revenue shortfall in the short run. The Twelfth Plan provides an excellent opportunity for the Government to enable the hardware manufacturing industry in India and aim for a significant proportion of the global IT manufacturing industry.