Electronics SMES face slower revenue growth

The electronics industry is expected to see revenue growth decline to 15 per cent during the current fiscal year, from 19 per cent in fiscal year 2019, mainly due to slower growth in mobile phone manufacturing and consumer electronics, which together account for 54 per cent of its revenue.

Small and medium enterprises (SMES), which account for nearly a third of the industry’s revenue, with a varying share in different segments, are expected to be hit hard.

These units have a huge presence in the assembly of mobile phone components and provide customised offerings in other segments. These are typically clustered around electronics hubs such as Bengaluru and Delhi-ncr, which account for more than 20 per cent of the industry’s total output.

Growth in mobile phone manufacturing is expected to moderate, as players have little incentive to move up the value chain, while growth in consumer electronics is expected to be in single digits due to a demand slowdown.

Government policies in the sector have either been suspended or closed. For instance, the Phased Manufacturing Programme, which aided development of the mobile segment with a road map for in-house manufacturing of mobile components by imposing higher basic custom duties, remained suspended as of February 1, 2019. The programme had helped SMES move up the value chain in the past.

Other policies, such as the Modified Special Incentive Package Scheme and the Electronic Manufacturing Clusters Scheme, which provided capital subsidies and tax incentives, too, have stopped receiving applications.

CRISIL Research believes the lack of such policy incentives will limit domestic value addition in the industry, which is characterised by short product lifecycles and high levels of obsolescence, and needs continuous investment in technology and process upgrades, as well as in research and development, to remain competitive.