Indian Electronics and IT Industry

Electronics and Information Technology is the fastest growing segment of Indian industry both in terms of production and exports. Today, the electronics industry is completely delicensed with the exception of aerospace and defence electronics, and alongwith the liberalization in foreign investment and export-import policies of the entire economy, this sector is attracting considerable interest not only as a vast market but also as potential production base by international companies. In recent times, software development and IT enabled services have emerged as a niche opportunity for India in the global context. The Government is taking all necessary steps to make India, a Global Information Technology Superpower and a front-runner in the age of Information Revolution. The Government has announced promotion of Information Technology as one of the five top priorities of the country and constituted a National Task Force on Information Technology and Software Development.

Electronics Production
Indian Electronics and IT Industry Production Profile: 2003 The software and services industry continues to be the dominating factor in the overall growth of the Indian industry. The total value of software and services export is estimated at Rs. 55,500 crore (US$ 12.5 billion) in 2003-04, an increase of 20.4 per cent in rupee terms and 30 per cent in dollar terms. This segment will continue to show robust growth in future also. The Indian IT Enabled Services - Business Process Outsourcing (ITES-BPO) sector has emerged as a key driver of growth for the Indian software and services Industry. The ITES-BPO industry is estimated to have grown by about 54 per cent with export revenue of $ 3.6 billion during 2003-04. The ITES-BPO industry continues its upward spiral growth on service lines like customer care, finance, HR, administration, billing and payment services, etc. India has become one of the most preferred destinations for sourcing software and IT enabled services. India in comparison to other low cost locations ranks high in several critical parameters including, level of government support, quality of the labour pool, English language skills, cost advantage, project management skills, entrepreneurial culture, strong customer relationships and exposure to new technologies. India 's strength has been enhanced by the industry's strong focus on quality software and processes. This is evident from the fact that a large number of Indian companies have received SEI-CMM Level 5 and ISO-level certifications. Additionally, a favourable time zone difference with North-America and Europe helps organizations achieve 24x7 internal operations and customer service. The Indian IT software and services industry is expected to account for about 2.64 per cent of India 's GDP and 21.3 per cent of exports during 2003-04 and is projected to grow to 7% of India 's GDP and 35% of exports by 2008. India 's vibrant IT software and services industry has been projected to reach an export potential of $57-65 billion for the software and services sector by 2008. This implies a share of 6% of the relevant global market. The ITES-BPO sector exports is likely to reach US $ 21-24 billion by 2008. Consumer electronics sector is estimated to achieve a production level of Rs. 15,200 crore during 2003-04, as compared to Rs. 13,800 crore in the year 2002-03, thus achieving a growth rate of 10%. The fast growing segments during the year were colour TV, DVD players, home theatre systems. The colour TV production has shoot up to 8.9 million units during the year 2003-04. VCD/MP3 player sales have witnessed impressive growth and have been of the order of 7 million units. Indian colour TV picture tube manufacturers have made huge investments for manufacture of pure flat picture tubes. The production of CPTs has increased to over 87 lakhs during the year 2003. The sale of personal computers is estimated at 30 lakh numbers during the year 2003-04. The production in computer, communication and instrumentation industry is not matching growth in demand. The

Item 1. Consumer Electronics 2. Industrial Electronics 3. Computers 4. Commn. & Broad. Eqpt. 5. Strategic Electronics 6. Components Sub-Total 7. Software for Exports 8. Domestic Software Total

1998-99 9,200 3,300 2,300 4,400 1,300 4,750 25,250 10,940 4,950 41,140

1999-2000 11,200 3,750 2,500 4,000 1,450 5,200 28,100 17,150 7,200 52,450

2000-01 11,950 4,000 3,400 4,500 1,750 5,500 31,100 28,350 9,400 68,850

2001-02 12,700 4,500 3,550 4,500 1,800 5,700 32,750 36,500 10,874 80,124

2002-03 13,800 5,550 4,250 4,800 2,500 6,600 37,500 46,100 13,400 97,000

2003-04 15,200 6,100 6,700 5,200 2,700 7,900 43,800 55,500 15,350 114,650

communication and strategic electronics sector is showing a growth of about 10 per cent. Prices of colour TV and computers have also come down in consonance with the worldwide trend.

Electronics Production (Financial Year) (Rs. Crore)

Electronics & IT Production

The production of consumer electronics is estimated at Rs. 15,200 crore during 2003-04, as compared to Rs. 13,800 crore in the previous year, a growth of about 10 per cent. There has been further reduction in the prices of consumer electronics products, as the volumes are growing and the competition has become quite fierce. As a result of good monsoon this year, sale of consumer electronics products in the rural areas have registered appreciable growth. The fast growing segments during the year were colour TV, DVD players, home theatre systems. The other segments of consumer electronics have also shown positive growth during the current year and the industry is quite optimistic on future growth of this sector. During the year 200304, production of colour TVs is estimated at 8.9 million numbers, as compared to 7.5 million in 2002-03, achieving a growth of 19%.The number of TV households in the country has gone upto 110 million this year. About 50% of ownership is still in the black & white TV segment, who are gradually upgrading to colour TV.

The production and growth trends during last 5 year have been as follows: Year 1999-2000 2000-01 2001-02 2002-03 2003-04 Production (Rs. Crores) 52,450 68,450 80,124 97,400 114,650 Growth (%) 27.5 31.3 16.4 21.6 18.2

India 's colour TV industry reached a milestone when the sale crossed over 1 million colour TVs in a single month during October 2003. The flat TV segment has constantly improved its share in the overall colour TV sales. Advanced features like, PIP, built in video games, surround sound, high sound output, etc., are being provided to attract the customers. Production of flat TVs is estimated over 1 million nos. With the decline in prices of flat colour TVs, there has been almost 100 per cent growth in the sales. While entry level 21 inch flat TV was sold at less than Rs. 10,000, the conventional colour TVs sets of 20 inch and 21 inch size were available in the range of Rs. 7000-8000 in the low end models. However, the growth of production in conventional colour TVs has been about 15% by volume. By the end of the year 2003-04, one more indigenous CPT manufacturing unit is expected to start commercial production of flat CPTs. This may lead to further reduction in prices of flat colour TV sets. Demand for B&W TVs continued to decline further as most of the units in the organized sector have withdrawn from this segment. Export of CTVs has increased and it is estimated about 0.8 million numbers of CTVs were exported during 2003-04. The VCD/MP3 player market has reached around 7 million numbers during 2003-04, recording a growth of 50% over the last year. While the sale of VCD/MP3 players by the organized sector is limited, the unorganized sector or gray market is supplying the bulk due to huge price differentials. Most of the components of VCD/MP3 are still being imported into the country. Sale of DVD players is estimated to be about half a million sets during 2003-04. Availability of media at affordable prices pushed the sales of both VCD and DVD players. During the year 2003-04, there has been 40-50% drop in prices of stand-alone DVD players. Branded DVD players have been launched at Rs. 5000/-, which can also play VCD, MP3 and audio CDs. In the current year, numbers of companies have introduced DVD players. During 2003-04, production of Microwave Ovens has been about 300,000 numbers recording a growth of 25 per cent over the last year. Entry level microwave ovens are available at Rs. 5500/-.

Production of Major Consumer Electronics Products (Production in Lakhs Nos.) ITEM B&W TV 2000-01 2001-02 2002-03 2003-04 42 38 31 24

CTV Tape Recorder & Combinations CD Players Electronic Watches Electronic Clocks Microwave Ovens(Nos)

57 140 2.4 160 246

60 140 5 183 236

75 110 48 190 226

89 90 75 207 263

160,000 200,000 240,000 300,000

The audio segment also witnessed continued reduction in prices and availability of wide range of models to suit the varied customers needs, and recorded growth in double digit. Portable audio CD players incorporating cassette recorder and FM radio are gaining popularity. Some companies introduced 6-in-1 audio system, which include VCD, MP-3, Audio CD, cassettes, AM/FM radio and game playing facility at affordable prices. Production of car audios has grown by almost 15 per cent. Following popularity of FM radio channels, car radio cassette players are in demand instead of stand alone car cassette players. Production of clock and watch segment has shown positive growth. New models of clocks and watches were introduced in the market. The prices of calculators have declined, however, the production has shown only marginal increase. With the increase of PC penetration and continued reduction in price of the entry level digital cameras becoming more affordable, the market for digital cameras is growing.

Electronic Components
The colour picture tube industry continued the positive growth during the year. The CPT production is expected to increase from 73 lakhs numbers in 2002 to around 87 lakhs numbers in 2003, leading to growth of 19%. The market for B&W picture tubes declined further due to decrease in B&W TV market. The industry in the area of PCBs, connectors, diskettes, CD-R, etc., experienced positive growth. The total production of components is expected to increase to Rs. 7,900 crore during the year 2003-04, a growth of 20% over production in the previous year. The production of major components is shown below :

COMPONENTS

Production 2001 2002 7.30 4.10 563 300 322 2003 8.70 3.20 569 330 278

CPT (Million nos.) B/W Tube (Million nos.) PCBs (Rs. crore) Connectors(Rs. crore) Semiconductor Devices(Rs. crore)

5.60 4.35 512 213 352

The export of electronic components is expected to rise substantially during the year. The components with major share in the export are floppy diskettes, CD-R, semiconductor devices, PCBs, connectors, ferrites, CPTs, etc .

One of the significant developments, which took place during the year, was the successful launch of super flat tubes by one of the existing CPT manufacturers. Around 15% of flat tubes market was met by the indigenous manufacturer. The unit also plans to set-up a new line for manufacture of large size colour picture tubes for both flat and conventional categories. Another CPT manufacturer also commissioned their third line to be used for production of flat colour picture tubes, the regular production being expected to start in the first quarter of 2004. The total number of CPT lines thus increased to nine by the end of year. Keeping pace with the downward trend in prices of colour TVs, the prices of CPTs also fell. The colour glass parts manufacturer while increasing its capacity, was also taking steps to meet requirement of glass parts for super flat CPT as the indigenous commercial production of such CPTs has already started. The second existing manufacturer in the area of B/W glass also diversified and started regular production of colour funnels in their existing line. Thus both B&W glass parts manufacturers are producing funnels for colour picture tubes. They also plan to set up manufacturing facilities for colour panels in near future. In the optical storage device segment, an Indian company achieved the distinction of being the world's third largest optical storage maker. The company was supplying to a number of international branded players and was having collaborative R&D as well as reciprocal training arrangements with those companies. Large number of existing units imported capital goods under various schemes for expansion of their capacities in connectors, cable assemblies, colour picture tubes, compact disc, glass parts for colour picture tubes, transformers, etc. The demand of surface mount components, display devices, micro-electronic, opto-electronic devices, etc., continued to be met by imports due to their small manufacturing base in the country. Moreover, there was not much rise in serviceable market for professional grade components. Due to availability of imported components at low duties, the prices were very competitive and the profit margins of manufacturers continued to be under pressure.

Computer Industry
Production in this sector is expected to increase to Rs. 6,700 crore during the year 2003-04. The industry witnessed significant drop in prices of entry level PCs to Rs. 20000; for notebooks to Rs. 50,000; and servers to sub-Rs.1 lakh. The sales of computers is gaining momentum. PC sales during 2003-04 is expected to reach three million units. PC sales to the business segment is estimated to have improved by 20% accounting for 74% of the total PC consumption. Households also witnessed significant increase in PC consumption. With the fast technological advances, the computer industry is entering a new phase where convergence of various technologies is taking place. Different peripherals/ devices are being combined to perform operations like printing, scanning, photocopying and fax through a single device and thus will make the devices more cost effective. During the year, multifunctional peripherals under Rs. 20,000 were introduced in the market. Also with the developments in the wireless technology (bluetooth), the peripherals would no longer be required to be connected physically in near future. The PC penetration is expected to increase to 11.00 million numbers by March 2004 in the country. The Internet usage in the country has also increased by 5.5% and the current number of connections is touching 4 million marks. The information available on the net is becoming richer and thus creating favourable scenario for the growth of the industry.

Software and Services

The software and services industry continues to show a robust growth and as per NASSCOM estimates, the total value of software and services export was Rs. 55,500 crore (US$ 12.5 billion) in 2003-04, an increase of 20.4 per cent in rupee terms and 30 per cent in dollar terms.

The IT Enabled Services - Business Process Outsourcing (ITES-BPO) sector has emerged as a key driver of growth for the Indian software and services industry. The ITES-BPO industry is likely to grow by about 54% in 2003-04 to reach US$ 3.6 billion. In 2002-03, the Indian ITES-BPO industry grew by 59% to US$ 2.3 billion. In 2002, the global Business Process Outsourcing (ITES-BPO) market was approximately US$ 773 billion. By 2006, the potential ITES-BPO market may increase to US$ 1 trillion. India has maintained its global competitiveness in ITES-BPO by providing a winning combination of costquality-scalability versus competing offshore destinations such as the Philippines and China . Some of the key drivers of the Indian ITES-BPO industry include: improved efficiency and higher service levels due to streamlined processes, quality improvements due to better educated workforce, cost savings between 4050%, increase in offshoring by existing customers, superior project management skills and availability of a highly skilled, educated and English speaking labour pool. Indian software companies are trying to increase their presence in Europe . The share of the European market in Indian software exports is likely to increase slowly during 2003-04. Software exports to Europe grew by 18 per cent in 2002-03 to Rs. 10,200 crore (US$ 2.1 billion) in 2002-03. However, since North

America accounts for around 50 per cent of global IT services spending, it is likely to continue to dominate Indian software exports. The domestic software and services segment is estimated to register a growth of 14.8 per cent to reach Rs. 15,400 crore (US$ 3.37 billion) in 2003-04 from Rs. 134 billion (US$ 2.78 billion) in 2002-03. Increased spending by the banking, financial services and insurance (BFSI), government and manufacturing sectors resulted in this growth. Software services dominate the segment, accounting for an estimated 66.8 per cent of the total market in 2003-04. Contribution from packaged software is estimated at 13.7 per cent, while the domestic ITES and software services markets are estimated to contribute the remaining 19.5 per cent. During 2003-04, the packaged software segment is likely to grow by 5 per cent to reach Rs. 2,100 crore (US$ 460 million). Companies preferred to deploy expensive, branded products rather than cheap off-theshelf options from local vendors, resulting in higher spending. The SME sector was aggressive in implementing packaged software applications, but only as long as it was necessary and resulted in a clear cost benefit in the short run. The early adopters of business intelligence (BI) solution in the country are banking and finance, telecom, retail, and FMCG companies. Presently, the demand for BI solutions is largely being driven by MNCs and large enterprises. The BI solution seems to have gained more acceptances in sectors where customers play a pivotal role in deciding the future of the company. Primarily services companies are driving the BI market in India , which is signified by very high contributions from banking and finance, telecom, and call centre companies. The Indian industry is still in the data mining and data warehousing phase, with limited cases of sophisticated applications such as churn and business performance management implemented recently. Most solution providers are currently not using standard platforms for solution development, leading to non-structured solutions, which are not compatible with each other and other business applications. Given the high churn rate in the telecom sector, an increased demand for customer relationship management (CRM) solutions is witnessed in this sector. Some of the prominent telecom players in the Indian market that have adopted these solutions include Bharti, BPL, and Orange . The retail sector is also showing strong demand for CRM solutions. The Supply Chain Management (SCM) market in India is still in a nascent stage. Some of the verticals that have gone in for SCM solutions include e-manufacturing, automotive, FMCG, retail, oil and gas. Manufacturing and automotive sectors have been the leaders in adopting SCM solutions in India . In the near future, FMCG and retail sectors are likely to increase SCM adoption. Despite its smaller size relative to global standards, the services segment has shown signs of maturity including: outsourcing of facility management and IT operations, consolidation of servers, storage and networks into data centres, outsourcing of automated help desks and IT services, and the formulation of security policies and procedures. E-governance can be defined as the use of information and communication technologies to enhance access and delivery of government services for the benefit of various stakeholders. Government agencies were among the first to adopt IT systems to manage payrolls, tax collection and records. Developments in Internet technologies have made it possible to assimilate information from an unlimited number of sources as well as to make government services more friendly and transparent to citizens. Indian companies have raised their quality standards in recent years to meet international demands. The IT Act of 2000 includes laws and policies concerning data security and cyber crimes. Other than the IT Act, the Indian Copyright Act of 1972 deals with copyright issues in computer programs. Indian companies as well as the Government have been proactive in taking appropriate steps to tackle security concerns. Since the inception of the IT industry in India , players within the country have been focusing on quality initiatives, to align themselves with international standards. The industry has set in place processes and procedures for offering world class IT software products and services. The focus on maintaining high quality has lead to an increasing number of companies getting assessed at key quality standards.

As of December 2003, India has 65 companies at SEI-CMM Level 5 assessment. The quality maturity of Indian software and ITES-BPO industry can be measured from the fact that already 275 Indian software and ITES-BPO companies have acquired quality certification and about 80 more companies are in pipeline. India has become one of the most preferred destinations for sourcing software and IT enabled services, achieving an export value of nearly US$ 9.5 billion in 2002-03. India in comparison to other low cost locations ranks high in several critical parameters including, level of government support, quality of the labor pool, English language skills, cost advantages, project management skills, entrepreneurial culture, Indian diasporas and strong customer relationships, expertise in new technologies and over-all quality control. India 's strength has been enhanced by the industry's strong focus on quality software and processes. Indian companies are known for their quality services and have received SEI-CMM Level 5 and ISO-level certifications. Additionally, a favourable time zone difference with North America and Europe helps organizations achieve 24x7 internal operations and customer service. India's weakness include - positioning and brand management, infrastructure-urban mass transportation and aviation, cultural differences, physical distance from North America and need to back-end IT and BPO skills in college education curricula. India 's opportunities include - creation of global household brands, low share in service lines such as systems integration and IT consulting, and deeper penetration in existing service line, verticals and geographies (Europe, China , Japan ). The threats to India include - internal competition for resources, slippage in quality standards, rising labor costs, competition from upcoming destinations like Philippines, Malaysia, South Africa, etc., and stringent visa/work permit regime.

Training
The training and education industry in India showed signs of revival during 2003-04. The training and education industry revenues are estimated to increase by 6 per cent to Rs. 1,200 crore (US$ 265 million) in 2003-04. This segment witnessed a decline of 23 per cent in 2002-03 with revenues dipping to Rs. 1,100 crore (US$ 228 million). The growth in the BPO sector led to an increased demand for training, especially in soft skills. Most of the increase in demand has been due to the growth of the BPO sector. Services include simple call centre training to complex project management, testing and PCMM/CMM training programs. The ITES segment also provided a market for soft-skills training, which included customer relationship management, multi-tasking, talent transformation, etc. Short-term courses accounted for a significant percentage of the total revenues of companies and training companies benefited from an increase in enrolment for short-term courses. The courses were mostly need-based, focusing on current demand. Coupled with recession, long-term courses have taken a hit due to the volatile environment prevalent in the technology domain. Key opportunities for training companies lie in the emergence of new technologies (e-CRM, embedded systems, security), new market segments such as school children, and the emergence of skill gaps in areas such as legal services, biotechnology, and engineering design.

Control, Instrumentation and Industrial Sector

Instrumentation has an important role to play in the development of industrial sector of the economy. Electronic Test & Measuring Instruments (TMI) are the key enablers for all phases of any product's life cycle. Use of Application Specific Integrated Circuits (ASICs) has lead to reduced cost, size and power consumption of T&M instruments at the same time increasing their quality and reliability. Latest technologies in the field are Radio frequency & Microwave frequency, which provides low resolution of 0.1 Hz. The industry trend is towards the micro-controller / PC based instruments because of their higher throughput and cost effectiveness. Embedded technologies have lead to user-friendly panel controls.

In industrial electronics, applications involves the use of programmable logic controllers, distributed control system, inductive load, AC/DC drives, control rectifiers, sensors and so on. Automation industry is moving towards adopting general purpose hardware and software for process control instead of specialized one, because of its multi dimensional benefits. The market for embedded system in India is increasing. According to an estimate of the total 32 bit processors produced in the world, only 6% are used in PCs and the remaining 94% are used in non-PC devices including industrial sector. According to an estimate, the Indian market size for embedded software development, which was placed at $400 million in 2001, is expected to reach $1.1 billion in 2005. Power electronics, involves the use of rectifying equipments, A/C power controllers, power supplies and uninterrupted power supply (UPS) and electric power system such as high voltage power supplies, reactive power control, DC transmission and generator control, etc. The UPS and inverter industry contributes a major share of the market. The UPS system is widely accepted now a day as indispensable protective equipment. Indian industry is manufacturing UPS based on two technologies such as line interactive and on line.

Communication & Broadcasting Sector

A tele-density of 7 per 100 persons in the country has been achieved by December 2003, 15 months ahead of its target as per NTP99. During the year, 17.5 million mobile subscribers were added taking the total of this category to 28.2 million. Following the fast growth in the mobile market, a number of companies are considering setting up production base for mobile hand sets in the country. The production of communication and broadcasting equipment is estimated at Rs. 5,200 crore during the year 2003-04, as compared to Rs. 4,800 crore during the previous year.

Strategic Electronics
The strategic electronics sector of focus covers such areas as satellite based communication, navigation and surveillance, underwater electronics, infra-red based detection and ranging, disaster management, GPS based vehicle tracking systems, etc. While bulk of the requirement in this sector is being met by the defence PSUs and the DRDO, a number of new units from the private sector are also contributing to this sector. The production in the strategic electronics sector during the year 2003-04 is estimated to be Rs. 2,700 crore, as compared to Rs. 2,500 crore during the year 2002-03.

Electronics Production (Calendar Year)

(Rs. Crore) Item 1. Consumer Electronics 2. Industrial Electronics 3. Computers 4. Commn. & Broad. Eqpt. 5. Strategic Electronics 6. Components Sub-Total 7Software for Exports 8. Domestic Software Total 1999 3,750 2,500 4,000 1,400 5,100 2000 3,970 3,350 4,450 1,730 5,500 2001 4,480 3,520 4,450 1,750 5,650 2002 5,400 4,180 4,800 2,330 6,510 2003 6,100 6,600 5,150 2,670 7,850

11,000 11,880 12,300 13,580 14,850

27,750 30,880 32,150 36,800 43,220 16,000 27,000 34,000 44,000 53,300 7,000 8,800 10,600 12,000 14,700 50,750 66,680 76,750 92,800 111,220

Targets for the Year 2008 Opportunities in Software Sector by the Year 2008 ( McKinsey Report )
Software Sector

Total Market
IT Services Software Products IT Enabled Services Domestic Market Total $ 28-30 billion $ 8-11 billion $ 21-24 billion $13-15 billion $ 70-80 billion

Exports
$ 28-30 billion $ 8-11 billion $ 21-24 billion

$ 57-65 billion

IT Industry by the year 2008

Employment Generation Year 2003-04 IT Exports 35% of India's Total Exports in 2008 from 21.3% during 2003-04

Share of IT Software & Services Industry in GDP Likely to be 7% of GDP in 2008 from 2.64% of GDP during 2003-04

Electronic Exports (Financial Year)

( Rs. Crore ) Item 1. Consumer Electronics 2. Industrial Electronics 3. Computers 4. Commn. & Broad. Eqpt. 5. Strategic Electronics 6. Components Sub-Total 7. Computer Software Total 1998-99 400 160 400 70 10 760 1,800 10,940 12,740 19992000 300 200 240 50 10 600 1,400 17,150 18,550 2000-01 2001-02 2002-03 648 500 1,250 550 1,840 4,788 28,350 33,138 700 950 1,800 150 2,200 5,800 36,500 42,300 750 1,400 550 500 2,400 5,600 46,100 51,700 200304 825 1,515 1,440 165 3,755 7,700 55,500 63,200

Electronics Exports
During the year 2003-04, electronics and IT exports are estimated to be Rs. 63,200 crore, as compared to Rs. 51,700 crore in 2002-03, showing a phenomenal growth of 22.2 per cent. The software and services industry continues to show a robust growth and the total value of software and services export are estimated at Rs. 55,500 crore (US$ 12.5 billion) in 2003-04, as compared to Rs. 46,100 crore (US$ 9.55 billion) an increase of 20.4 per cent in rupee terms and 30 per cent in dollar terms.