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CONTENT

Particulars
EXECUTIVE SUMMARY
Chapter I

Chapter II

Page No.
i-vi

Introduction
1.1.
Background

1.2.

Objective of the Study

1.3.
1.4.

Methodology
Organization of the Report

1.5.

Limitations & Constraints

1-2
2
2-3

IT Hardware & Electronics Sector: An Overview


2.1.

World Electronics Market

4-6

2.2.

An overview of Indian Electronics and IT Hardware


Industry

6-7

2.2.1. Segment-wise Growth in Indian Electronics and IT


Hardware

8-11

2.2.2. Geographical Distribution of Electronics and IT

11-12

Hardware Industry

Chapter III

Chapter IV

Productivity Growth in IT Hardware & Electronics Sector


3.1.

Global Scenario

13-14

3.2.

Electronics and IT Hardware Industry: Organized


Factory Sector

14-18

3.3.

Partial and Total Factor Productivity Growth All


India

19-20

Competitiveness Analysis of IT Hardware & Electronics


Sector
4.1.

Benchmarking IT Industry competitiveness

21-22

4.2.

India in Trade Competitiveness Map of IT Hardware


& Electronics

22-23

4.2.1. IT Hardware and Consumer Electronics


I

23

4.2.2. Electronic Component Market


4.3..

India Vs China

24-26

4.4.

Competitiveness Factor Identification

27-28

4.4.1. Factor Analysis

28-30

4.4.2. Financial Performance of Electronics and IT


Hardware Industry

30-31

4.4.3

31-33

Cost Vs Profit Analysis

4.4.4. Domestic Market Analysis

33-34

4.4.5. Export Market Trend

34-37

4.4.6. Related and Supporting Industries

Chapter V

Chapter VI

37

4.4.7. Main players and Market trends

37-41

4.4.8. Role of Government

41-43

4.4.9. Recent Policy Initiatives

43-46

Field Survey Findings: IT Hardware & Electronics


5.1.

Introduction

47

5.2.

General Profile of Respondents

47-49

5.3.

Productivity and Competitiveness

49-51

5.4.

Employment Trend

5.5.

Market Trend

51-54

5.6.

Analysis of Export and Import

54-55

5.7.

Impact of Import on Price of Finished Products

5.8.

Analysis of Cost of Production

55-56

5.9.

Factors Affecting Productivity and Competitiveness

56-58

5.10.

Measures taken by Firms to enhance Productivity &


Competitiveness

59

5.11.

Expectation of IT Hardware and Electronics firms


from Government

60

51

Issues of Concern for IT Hardware & Electronics Sector

II

24

55

61-64

Chapter VII

Recommendations
7.1.

Competitive Strategy
Electronics Firms

7.2.

Policy

Guidelines

for

for

IT

Skill

Hardware

and

65-67

Development

and

67

Training of Manpower
7.3.

Infrastructure Development

7.4.

Import of Raw Material & Machinery

7.5.

R & D and Technology Upgradation

7.6.

Implementation of Quality Standards/ Certification

7.7.

FDI in Electronics and IT Hardware Sector

69

7.8.

Policy for Disposal e-waste

69

7.9.

Fiscal Incentives

69

REFERENCES

Annexure

67-68
68
68-69

70

Annexure - 1 : Survey Questionnaire

71-79

Annexure - 2 : List of Units Contacted for the Study

80-82

Annexure - 3 : Methodology Adopted for Partial and Total


Factor Productivity Estimations

83-85

Annexure -4 : NIC codes

86

III

67

LIST OF TABLES
Table
No.
2.1
2.2
2.3
2.4

Particulars
Ranking and share (%) in Electronics Production
Ranking and Percentage share in Electronics Components
Production
Electronics Production Scenario in India

Page
No
4
5
7

2.5

Segment-wise Production Growth in Indian Electronics and IT


Hardware
Top 10 States in Electronics and IT hardware Production

11

2.6

Sector wise Electronics in Top 10 States (2002)

12

3.1

Labour Productivity in World IT Market during 2006

13

3.2

Registered Manufacturing of Electronics and IT Hardware


Industry (All India)
Key Characteristics of Electronics and IT Hardware Industry

15

3.3
3.4

16

3.5

CAGR in Registered Manufacturing of Electronics and IT


Hardware Industry (All India)
Productivity and Productivity growth rates

19

3.6

Index of Labour and Capital Productivity Growth Rates

20

4.1

IT industry competitiveness in Asia-Pacific Region

21

4.2

23

4.4
4.5

Decomposition of Indias share in World IT & Consumer


Electronics Market
Decomposition of the change in Indias share in the World
Electronic Components Market
Development of ICT in India vis--vis China
Market and Production Rankings in the world : India Vs China

25
26

4.6

Indias Competitiveness Strengths and Weaknesses

27

4.7

Raw Material Import US Purchase

28

4.8

FDI inflows in Electrical Equipment

29

4.9

Financial Performance of Electronics Sector

31

4.10

Cost vs Profit Analysis of Electronics Sector

32

4.3

18

24

4.11
4.12
4.13
4.14
4.15
4.16
4.17
4.18
4.19
5.1
5.2
5.3
5.4
5.5
5.6
5.7
5.8
5.9
5.10
5.11
5.12
5.13
5.14
5.15
5.16
5.17

Market Size of each segment of the Electronics and IT Hardware


Sector
Domestic Demand (Consumption) of Electronics and IT
Hardware
Export Scenario of Indian Electronics and IT Hardware Industry
Segment-wise Growth in Export of Electronics and IT Hardware
(1991 to 2007)
Exports as a proportion of Sales in Electronics and IT Hardware
Industry
Share (%) and Market Trend of top players in Computers & its
Peripherals
Share (%) and Market Trend of top players in Electronics Market
Electronics Policy in India (1966- 2008)
Recent Policy Initiatives
State wise distribution of respondents from IT Hardware &
Electronics Firms
Profile of IT Hardware and Electronics Firms/ Units Surveyed
Research and Development (number of manufacturing units)
Productivity & Competitiveness in the IT Hardware &
Electronics Firms
Employment Trend in the IT Hardware & Electronics Firms
Market Trend of IT Hardware and Electronics (Last Five Years)
Market share (number of manufacturing firms)
Domestic market share
Extent of Trade of Raw material and finished Products
Factors Hindering Trade of IT hardware and Electronics
Impact of Import on Price of Finished Products during last Five
Years
Change in Components share in the Total Cost of Production
Analysis of Cost Components in IT Hardware and Electronics
Firms
Factors Affecting Productivity & Competitiveness of IT
Hardware and Electronics firms
Measures taken by Firms/Units to Enhance Productivity
Measures taken by Firms/Units to Enhance Competitiveness
Expectation of IT hardware and electronics firms from
Government

VI

33
34
35
36
37
38
39
42
43
47
48
49
50
51
52
53
54
54
55
55
56
56
57
59
59
60

Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

EXECUTIVE SUMMARY
Electronics and IT Hardware Industry is the largest and fastest growing manufacturing
Industry in the world. The current recession notwithstanding, the Indian IT hardware &
Electronics Industry has grown at approximately 7% per annum compared to global GDP
growth of 3-3.5%. The electronic industry in India constitutes just less than 1% of the global
electronic industry. However, the demand in the Indian market is growing rapidly though it
remains a major importer of electronic materials, components and finished equipment. A
series of market studies during the last few years have forecast rapid growth of electronics
hardware demand in India, going up from the existing US$40 billion to US$155billion by
2015 growing at 20%+ annual growth rate. This would be 12% of the projected GDP in 2015
against the present 2%. A manufacturing output of US$ 155 billion would have the potential
to create employment of 21 million (7million direct + 14million indirect) and Revenue of
approximately US$ 56 Billion (Rs.274,000Crores) including direct and indirect taxes (State
and Central). Present total employment in the sector is less than 2.5 Million and Revenue is
less than Rs.25, 000 Crores.
During the last 10-15 years, countries such as China, Korea, Taiwan, Singapore and
Malaysia have emerged as leading global IT hardware and electronics
manufacturer/exporters and has contributed significantly to the growth of their economies.
Indian electronics Industry has failed to keep pace with these countries and it is still in a
nascent stage of development, though the countrys software industry is well developed and
highly competitive in the global market. To ensure quantum jump in the production and
export of IT hardware and electronics, the performances of factors of production like human
resource, infrastructure, capital and technology needs to be enhanced through policy changes
and managerial action to boost the competitiveness of this sector.
A multi-pronged approach has been adopted for the study on IT Hardware and Electronics
industry in India. To assess the status of the industry, relevant data and information have
been collected from secondary sources and through field surveys at the unit level across 12
states covering 93 manufacturing units.
Profile of Indian Electronic Industry
The Indian IT Hardware and Electronics market is segmented product wise into seven broad
categories namely, Consumer Electronics, Controls, Instrumentation & Industrial
Electronics, Electronic Data Processing (IT Hardware), Communication & Broadcast
Equipment, Strategic Electronics and Electronic Components.
The overall production scenario in the Indian Electronics and IT Hardware sector is far
behind its current market demand of US$40 billion. The estimated production of various
segments of the industry during 2007-08 was estimated at US $ 20 billion.
In recent times, some SMEs are making investment in the tax-exempted regions and are
mostly doing Original Equipment Manufacturers (OEM) work for reputed Brands.
National Productivity Council, New Delhi

Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

The electronics industry in India had initially grown around three major centers, Bangalore,
Mumbai/Pune and Delhi. Bangalore not only has major public sector units in defence and
telecommunication but also has a very fast-growing, organised private sector firms in
computer and industrial products. Bombay /Pune has been always a preferred destination for
private sector firms and MNCs. However, eastern India remained underdeveloped in
electronics and IT hardware production. The secondary electronics centers include
Hyderabad, Hosur, Thiruvananthapuram, Chennai, Kolkata, Vadodora, Mohali, Ahmedabad
and Aurangabad.
Uttar Pradesh has emerged as the leading state in the production of electronics and IT
hardware since 2001. Delhi also occupies a significant place due to large concentration of
small scale units making consumer electronic products and computers.
Productivity & Competitiveness Trends
Based on overall IT competitiveness index, US ranks number one. While India and China has
been ranked at 46th and 49th respectively in 2006. India fares better than China because of its
highly developed software industry but is far behind Chinas hardware sector. Even in the
Asia-Pacific region these two countries are lagging behind countries like Japan, South Korea,
Australia and Taiwan who are providing the most competitive conditions for operation of IT
firms.
In terms of IT labour productivity i.e., total output per employee in the IT industry, Taiwan
ranks number one followed by South Korea, Ireland , Singapore and Australia. IT labour
productivity of China is ranked 10th where as that of Indias is 22nd in the world. It clearly
indicates that both India (considered to be a global IT Software giant) and China (a leader in
IT hardware production/export) have attained their present status not because of higher
labour productivity but because of their competitive advantage in certain factors, such as
workforce size, low wages, English literacy etc.
Productivity
Productivity estimations carried out based on secondary data sources (registered factory
sector) reveals that labour productivity in IT Hardware and Electronics sector at all India
level increased from Rs. 188806 during 1995-96 to Rs. 324653 per person employed at
constant 1993-94 prices.
In the case of capital productivity, it increased from Rs. 0.32 per Rupee of capital investment
in 1995-96 to Rs. 0.60 per rupee of capital investment in real terms. Total Factor productivity
growth has reported a negative growth at the rate 5.07 percent per annum during 1995-96 to
2000-01. However Total Factor Productivity Growth recovered remarkably during the second
phase under study i.e. (2001-02 to 2005-06). TFPG has reported a positive growth rate of
2.88 percent per annum during this period.

National Productivity Council, New Delhi

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Factors Affecting Competitiveness


Some of the important factors that are critical to competitiveness of the Indian IT Hardware
and Electronics Sector are the availability of raw materials, quality human resources,
physical infrastructure, technology and credit availability.
The manufacturing of Electronics and IT hardware sector in India is significantly dependent
on imports of raw materials. During the year 2007-08, the
imported raw material
constituted 37.7 percent of the total raw material used. The high level of dependence on
import of raw material is making the Indian products less competitive in the international
market.
Unlike the Software Industry, Indian Electronics and IT Hardware industry is not able to take
the advantage of available manpower as this Industry is highly dependent on skilled human
resource (viz. entrepreneurs, managers, technologists, skilled workers) who would
facilitate/carry out Research & Development resulting to innovation and product
diversification through technology up gradation, cost effectiveness and quality control.
The inadequacy and inefficiency of infrastructure viz., roads, ports, high cost of electricity
etc., is a deterring the productivity and competitiveness of the Indian Electronic
manufacturing industry as the industry is generally dependent on import of raw material and
components.
Lack of technology is one of the most important factors contributing to low level of
competitiveness in Indian electronics and IT hardware industry. Due to low level of technical
research and development, Indian industry is dependent on technical know-how of advanced
countries like USA, Germany and Japan. Further in this sector, continuous innovations are
leading to rapid changes in design and technology that give a competitive advantage in terms
of cost, speed and quality. In the absence of economy of scales, Indian organizations find it
unviable to procure and continuously upgrade the technology and machinery.
In India the average cost of finance available to Indian entrepreneurs is 11-12%, which is
more than double the average rate prevailing in the international market. As a result Indian
enterprises are becoming non-competitive compared to their counterparts in the world
market.
Field Survey Findings
A field survey of the manufacturing units and industry associations at different regions of the
country was undertaken during March-April 2008 to find out the factors affecting the
productivity and competitiveness of Indian IT hardware and Electronics manufacturing
sector. An analysis of responses indicate that a majority of the them (83.9%) belonged to
small scale sector and only 7% are from the registered manufacturing category and 95% of
the respondents are local manufacturers without any foreign direct investment. The
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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

involvement of these units in international trade is also moderate i.e. 41% units are engaged
in exports as compared to 38% engaged in imports. Most of the manufacturing units have
introduced various quality system accreditations like ISO 9001 and product innovations
during the last five years. About 26.2% of the manufacturing units are having patents.
As regards to productivity and competitiveness, most of the IT hardware and electronics firms
reported an increase during the last five years. While increase in total productivity has been
reported by 66% of the units; 74.5% of the respondents have reported increase in labour
productivity. The increase in productivity has resulted in overall competitiveness for 87% of
the respondents. Further analysis suggests that 80-85% of the respondents have reported an
increase in both cost competitiveness as well as price competitiveness.
It is further noted from the survey that employment has grown in 63.3% of IT hardware and
electronics firms whereas increase in casual labour is reported by 31.3% of firms.
Demand growth for Indian IT hardware and electronics is reported for both domestic and
export market. The increase in demand for IT hardware and electronics product in the
international market has been experienced by 66.7% of the exporters. About 74%
manufacturing units reported increase in profitability during the period 2000-2008.
About 90% of the industry comprises of small and medium sized firms and most of these firms
have a market share of less than 10%. This observation clearly goes with the economic
assertion that larger the number of firms smaller the market share of each firm.
Recommendations

Since technology is critical to the sector, to develop electronics and IT hardware


products built on latest available technology there needs to be continuous R& D
leading to innovation and product differentiation based on technology. The right mix
of unique and innovative products that are acceptable to the consumers is critical to
sustain and augment profits in the long run. Government should strengthen Research
and Development in Electronics and IT Hardware sector especially the applied
research like product development through special grants to leading Research
Institutes/Universities and Technical Institutes like IITs.

The price of the products need to be competitive but not at the cost of quality. A single
low quality product is enough to spoil the reputation of a manufacturing firm and will
result in destroying the market demand for all other products of the brand in the long
run.

However, base models of an electronic product (e.g, Mobile, watch etc) with some key
features may be placed on the shelves at lower rates than the similar available
products of the competing firms. This will help firm in capturing the market sentiments
of the Indias vast population. Simultaneously, to target the rich and elite class,
exclusive models/ products need to be designed with advanced technology. Such

National Productivity Council, New Delhi

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

products may be priced at high premium, as they would give the owner a sense of
pride.

Customer Management or Customer Care is a crucial differentiator in the electronics


and IT Hardware Industry. Distribution network could be an excellent source of
competitive advantage for a manufacturer of electronics and IT hardware products
alongwith excellent after sales service network, strong brand positioning, to take care
of customers.

Strengthening the global supply chain network as the industry is highly dependent on
the import of raw materials which would affect the competitiveness. The cost of the
supply network or logistic management network also needs to be assessed through
value chain analysis.

Scientific disposal of e-waste would ensure creation of safe environment & help in
sales promotion. The manufacturers of electronics and IT hardware firms may
undertake the development of human capital and disposal of e-waste as a part of their
corporate strategy under CSR. Efficient utilization of plant and machinery, reduction
in waste etc. would result in raising the productivity level of the firms and lowering
the cost of production, thereby increasing the profit margins providing a competitive
edge to the indigenous manufacturing units in the domestic market and reduce import
substitution.

Development of technical institutes according to the requirement of Industry will


ensure proper skill development and would help in solving the problem of
unavailability of technical manpower.

Indian entrepreneurs or companies may explore the opportunities of undertaking


contract manufacturing as Electronics manufacturing services (EMS) companies to
larger Original Equipment Manufacturers (OEMs)

Availability of quality manpower is declining and there is shortage of skilled and


trained personnel. The attrition rate is also high as the industry salary packages are
not competitive with ITES sector. The current educational system in the IT sector is
skewed towards Software rather than Hardware. Curriculum of ITIs should be
redesigned and continuously updated to meet the changing requirement of Hardware
& IT industry. Industry Associations may be involved in developing course curriculum
and in plant training be made compulsory part of course curriculum.
Industry/corporate bodies may be encouraged through tax benefits/ payment of
management fee to adopt government run ITI or diploma colleges for effective and
efficient management.

National Productivity Council, New Delhi

Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Lack of adequate physical infrastructure like transport system, roads, ports, airports
etc. adversely affect the competitiveness and productivity of the IT hardware and
electronic sector. Uninterrupted power supply is a necessary condition for operation
of IT hardware and electronics units as power fluctuations lead to breakage of entire
system. Adoption of PrivatePublicPartnership (PPP) model can facilitate faster and
cost effective development of infrastructure. Current incentives to SEZs may be
continued and IT Hardware Parks be developed within SEZs. Financial incentives
need to be given to manufacturing units for establishing and maintaining of backup
power units and for utilizing non-conventional energy sources.

The manufactures of IT hardware and Electronics products are generally dependent


on imported raw material. Weak supply chain network and lack of vendor support also
affects the quality, productivity and competitiveness of the products. Government
should ensure hassle free import of raw material and components by streamlining the
import policy and systems and through simplification of import procedures.

Since productivity estimations based on Labour and Total Factor Productivity Growth
rates have been found quite low in IT Hardware and electronics sector, there is a need
for substantial up gradation of skill levels of the personnel engaged in the sector and
also for the technological progress (R&D activities) in this sector.

It is recommended that the government should promote modernization of units


through a special scheme with fiscal incentives and minimum import duties.
Depending on the needs and performance of existing manufacturers, special loans
may be granted for technology upgradation, infrastructure building or expansion of
business.

Quality standards and systems need to be promoted among the Electronics and IT
Hardware manufacturing units. Electronics and IT Hardware manufacturing sector
has a great growth potential in India and export market. Government needs to
promote modern semiconductor industry for manufacturing various kinds of chips and
other essential components. Promotional activities need to be undertaken to attract
FDI and MNCs to start manufacturing units in India.

Fiscal incentives like rationalization of tariff on raw materials and capital goods,
lowering of excise duty on IT and Electronic goods, introduction of full Value Added
Tax (VAT) etc in conjunction with free environment to the manufacturers, speed of
business, proper communication, power supply, strong engineering and design base,
adequate R&D facilities etc. are the key to a successful and competitive hardware IT
industry.

National Productivity Council, New Delhi

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

CHAPTER I
INTRODUCTION
1.1 Background
The field of electronics is changing at a very fast pace. In common parlance though
the term indicates a few isolated devices, in reality its now a meta-resource that
can be converged with a wide spectrum of applications. In the changed scenario,
electronic items are no more just a product for direct consumption but are enabler
for improving the productivity and efficiency of other manufacturing sectors like
automobile where it is applied. The electronic industry has the potential of creating
enormous employment opportunities (both high skilled and low skilled). It further
helps in the spread of education and healthcare through ICT (e-learning) and telehealth services to both rural and urban areas as well as implementation of eGovernance. Thus the growth of IT hardware & electronics has direct impact on the
socio-economic development of a country and determining its competitiveness.
During the last decade of 20th century, countries such as China, Korea, Taiwan,
Singapore and Malaysia have emerged as global leaders in IT hardware and
electronics manufacture and export. The growth of IT hardware and electronics sector
has significantly contributed to the growth of these economies. India has not only
failed to keep pace with the economic development of these countries but its IT
hardware and electronics industry is still in a nascent stage of development, though
the countrys software industry is well developed and highly competitive in the global
market.
1.2 Objective of the Study
Since India is trailing behind her neighbouring Asian countries in the production and
export of IT hardware and electronics, a study on the major factors of production such
as human resource, capital investment and technology would provide indicators for
the future policy directions to make the sector more productive and competitive.
Thus, the major objective of the present study is to assess the productivity and
competitiveness of Indian IT Hardware and Electronics Sector. The study is aimed to
identify factors hindering the progress of the sector and suggest measures for
enhancing the competitiveness of the sector.
1.3 Methodology
The study on IT Hardware and Electronics Industry has been carried out considering
the nascent stage of development and the changing nature of competition in this
emerging market. In this study, relevant data and information have been collated and
compiled from both primary and secondary sources. For the compilation of field level
data, detailed field survey was undertaken across 12 states through a structured
questionnaire (Annexure 1). The states were chosen keeping in mind the
concentration of the IT Hardware and Electronics industry and regional distribution
across India. The stakeholders like senior management of various IT hardware and
electronics manufacturing units as well as industry association members were
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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

interviewed to find out the market realities and factors hindering productivity and
competitiveness of the sector. A total 93 manufacturing units from IT Hardware and
Electronic Sector participated in the NPC field survey
(Annexure 2).
Productivity indicators for major factor inputs have been computed for Electronics
and IT Hardware Industry during post liberalization (1991-2006) period from Annual
Survey of Industry (ASI) data. Since the demand for IT Hardware and Electronics
products are highly dependent on the external economy, the international scenario
also has been analysed. Globalisation has also opened new market opportunities as
well as challenges for the sector.
The competitiveness of the Indian IT Hardware and Electronics sector in the global
market has been studied on the basis of the findings of various international studies
such as IT competitiveness Index, 2007 by Economist Intelligence Unit and Trade
Performance Index, 2006 by International Trade Center, ITC Geneva, Switzerland.
The interactive market analysis tool developed by ITC has been used to find out
changing share in Indias global IT Hardware & Electronics and Electronic
Components market due to variations in competitiveness.
The Yearbook of World Electronics Data, 2004-2005, Volume 2& 3 by Reed
Electronics Research Ltd, England, World Competitiveness Yearbook, 2007 & 2009
by IMD, Switzerland and Knowledge Assessment Methodology, 2006 by World Bank
are also elucidated to identify the strengths and weaknesses of the business
environment that has a bearing on the competitiveness of IT Hardware and
Electronics sector in India.
1.4 Organization of the Report
The report is presented in seven chapters. Chapter I provide the introduction,
objective and methodology of the study. Chapter II deals with Indias position in the
world IT Hardware and Electronics market. Further, the production scenario of IT
hardware and Electronics sector in India is substantiated in this section. Chapter III
discusses productivity scenario in the international IT industry (including hardware
and Software). This is followed by analysis of the productivity trends of the Indian IT
Hardware and Electronics Sector for the period 1991-2006. Chapter IV deals with the
competitiveness of Indian IT Hardware and Electronics Sector. Further, this chapter
also discusses the competitive advantages and disadvantages of this sector. The
government policy is discussed in the relevant areas to understand its influence on the
Sector. Chapter V, analyses Indian IT Hardware and Electronics sector based on
results of a field survey that was carried out across Indian states. Chapter VI provides
issues and concerns of the sector and Chapter VII provides recommendations for
enhancing productivity and competitiveness of the sector.
1.5. Limitations & Constraints
Keeping in view of the initially set scope of work to focus the study mainly on
secondary data sources, which has its own limitations as regards to reliability of data

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

in working out futuristic projections. In order to substantiate the secondary data, field
evidences have been also included through a primary survey later on.
Due to the limited budgetary provisions, the unit level data survey coverage was
undertaken with limited scope and coverage. The outcome of the study and the
recommendations thereof are generic in nature. However, efforts have been made to
minimize such constraints through analyzing various data sources available to arrive
at broad recommendations for the development of the sector. The recommendation
have been formulated which are implementable in nature.

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

CHAPTER II
IT HARDWARE & ELECTRONICS SECTOR: AN OVERVIEW
2.1 World Electronics Market
It is interesting to note that top electronic hardware manufacturing countries are not
always leading component manufacturers in terms of their contribution (in percent) to
world production. For example, USA leads in equipment manufacturing whereas
Japan is leader in component manufacturing. Moreover, the production base of
electronics hardware is gradually shifting to countries like China and S. Korea. After
USA and Japan, it is China that has emerged as 3rd largest electronic hardware
production center and its share has grown from 8.3 per cent in 2001 to 14.7 percent in
2004. The ranking of India along with the top 10 electronic hardware and electronic
components producing countries is shown in Table 2.1. These top 10 countries
together contribute nearly 80 per cent world electronics production and 85 per cent of
world electronic and components production respectively.
Table 2.1: Ranking and share (%) in Electronics Production
Country
China
France
Germany
India
Japan
Malaysia
S. Korea
Singapore
Taiwan
UK
USA

1998
3
8
4
28
2
10
6
7
9
5
1

Electronics
Ranking
Share (%)
2001
2004
1998
2001
2004
3
3
4.8
8.3
14.7
11
11
3.4
2.7
2.4
5
5
4.6
4.3
3.9
29
24
0.4
0.4
0.5
2
2
18.1
16.7
14.9
7
6
2.7
3.5
3.6
4
4
3.8
4.7
5.8
9
8
3.5
3.1
3.2
8
7
3.1
3.4
3.6
6
9
4.4
4
3.2
1
1
29.8
28.2
25.1

Source: Kumar (2006), Electronics Information and Planning, Vol 33, 3 4, Dec2005-Jan-2006

Japan and USA together contributed 48.6 per cent of electronic component production
in 1998, which decreased to 43.4 per cent during 2004 where as that of China
improved from 4.1 per cent in 1998 to 10.1 per cent during 2004. Countries of the
Asia Pacific Region viz., South Korea, Taiwan, Singapore, Malaysia and Thailand
have significantly improved their share in electronic component production as
detailed in Table 2.2 where as countries of Western Europe Viz; Germany, UK and
France have shown consistent reduction in their share to world electronic production.

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Table 2.2: Ranking and Percentage Share in Electronics Components


Production
Ranking
Share (%)
Country
1998
2001
2004
1998
2001
2004
China
4
4
3
4.1
6.9
10.1
France
10
10
_
2.4
2.1
_
Germany
6
8
8
3.9
3.8
3.3
India
28
28
22
0.32
0.26
0.18
Japan
1
1
1
24.3 24.89
23.7
Malaysia
5
5
5
4
4.8
5.7
South Korea
3
3
4
7.9
7.4
8.7
Singapore
7
6
6
3.7
4.4
5.1
Taiwan
8
7
7
3.6
4.2
4.6
Thailand
_
_
10
_
_
2.4
UK
9
9
9
2.9
2.1
2.4
USA
2
2
2
24.3
21.9
19.7
Source: Kumar (2006) Electronics Information and Planning , Vol 33, 3 4, Dec2005-Jan-2006

Share in Electronic Component Production 2004


25

23.7
19.7

8.7
5.1

4.6

0.18

2.4

2.4

U
SA

ia
In
d

er
m

an
y

5.7

M
al
ay
si
a
S.
K
or
ea
Si
ng
ap
or
e
Ta
iw
an
Th
ai
la
nd

3.3

Ja
pa
n

15
10

%age

20

The share of high-cost locations (such as the United States, Western Europe and
Japan) in worlds production of electronics output declined from 75 per cent in 1995
to 53 percent in 2005. However, during the same period, the share of Asia/Pacific
region in the global electronics production increased from 20 per cent to 38 per cent
and that of China alone increased from 3 per cent to 16 per cent. Chinas production is
18.75 times that of India and its share in global production is more than 20 times that
of Indias. The figures for Electronics Manufacturing in countries like China, S.
Korea, Singapore in 2005 are $210 billion, $95 billion and $45 billion respectively as
compared to Indias $12.7 billion. Thus, India has under-performed with respect to
not only China but also other Asian countries as well.
It is worth noting that though there has been a change in geographical map of
production units of electronics and IT hardware, there is no significant growth in
indigenous manufacturing companies. This may be attributed to the fact that the bulk
of the components and electronic products produced in Far East and other developing
countries are subsidiary production units of MNCs with headquarter in USA, Japan or
Germany. Relatively low cost assembly based production has shifted to China,
Countries of Far East viz., Taiwan, Singapore, Malaysia, Thailand, Philippines and
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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Latin America. The focus of USA, Japan, South Korea and Western Europe countries
has shifted to high technology and knowledge intensive manufacturing.
2.2 An overview of Indian Electronics and IT Hardware Industry
The Indian electronics industry has been broadly classified into two categories,
namely IT Hardware & Electronics and Software. The production of IT (Hardware
and Software) and electronics, which was worth about Rs 150 million in 1960, has
increased to Rs 1730 million in 1971 and Rs 8900 million in 1981. It has further
increased to Rs 94,344 million in 1991 and to Rs 35,01,300 million in 2008.
During the period 1991-2008, the electronics industry as a whole experienced an
overall annual growth of 23.69 per cent. However, major growth can be traced to
Indian software and services industry that grew at the annual rate of 40.63%, in
comparison, the IT hardware and electronics sector experienced a moderate growth of
only 14.34% during the same period. By 2008, the production of software and
services in India reached
Rs. 25,80,000 crore. The Business Process
Outsourcing (ITES-BPO) sector has emerged as a key driver of this phenomenal
growth in the Indian software and services Sector.
It is of course, encouraging to note that in recent decade (2001-2008) IT hardware and
electronics sector has experienced a higher growth than the last decade (1991-2000).
But production of electronics and IT hardware as a proportion of total production in
the electronics industry has been continuously declining as it declined from 45 percent
in 2000 to 26 percent in 2008 (table 2.3).

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Table 2.3: Electronics Production Scenario in India


Production (Rs Crores)
Year

Total
Computer
Electronic Software

1991
9434
_
1992
11016
_
1993
14567
1550
1994
17789
2351
1995
21290
3900
1996
25253
5700
1997
30959
9300
1998
39998
15200
1999
50754
23000
2000
68650
37550
2001
76750
44600
2002
92800
56000
2003 113200
70500
2004 145300
95500
2005 178500 124000
2006 231575 167175
2007 282860 203060
2008 350130 258000
CAGR (1991-2000)
CAGR (2001 to 2008)
CAGR (1991 to 2008)

Electronics
Hardware

9434
11016
13017
15438
17390
19553
21659
24798
27754
31100
32150
36800
42700
49800
54500
64400
79800
92130

Growth (%)

Electronics
Hardware
Production
Share (%)

_
_
89.36
86.78
81.68
77.43
69.96
62.00
54.68
45.30
41.89
39.66
37.72
34.27
30.53
27.81
28.21
26.31

Total
Electronic

Computer Electronic
Software Hardware

_
16.77
32.23
22.12
19.68
18.61
22.60
29.20
26.89
35.26
11.80
20.91
21.98
28.36
22.85
29.73
22.15
23.78

_
_
_
51.68
65.89
46.15
63.16
63.44
51.32
63.26
18.77
25.56
25.89
35.46
29.84
34.82
21.47
27.06

_
16.77
18.16
18.60
12.64
12.44
10.77
14.49
11.92
12.06
3.38
14.46
16.03
16.63
9.44
18.17
23.91
15.45

24.67

57.67

14.17

24.21

28.50

16.23

23.69

40.63

14.34

Note: In case of software for calculating CAGR 1991-2000, the 1993 data is used instead of 1991
Source: Data from 1991-1999, Guide to Electronics Industry, Data from 2001 to 2006 is from Dept. of
IT website and 2000 is from Economic Survey 2006-07

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

2.2.1 Segment-wise Growth in Indian Electronics and IT Hardware


During the period 2001 to 2008, the production of electronics and IT hardware
showed a CAGR of 16.23 percent (Table 2.4). The Indian IT Hardware and
Electronics market is segmented product wise into seven broad categories namely,
Consumer Electronics, Controls, Instrumentation & Industrial Electronics, Electronic
Data Processing (IT Hardware), Communication & Broadcast Equipment, Strategic
Electronics and Electronic Components.
The Software for exports reported the highest CAGR of 29.11 % followed by
Communication and Broadcast equipment at 27.35%. In view of GDP growth rate of
around 8%, during this period, the growth of both consumer electronics segment
(10.75%) and electronics components (7.92%) was only moderate.
Table 2.4: Segment-wise Production Growth in Indian Electronics and IT Hardware
(Rs Crore)
Item
IT Hardware
& Electronics
(Total )
Consumer
Electronics
Control,
Instrumentation
Industrial
Electronics
Electronic Data
Processing/IT
Hardware

2003

2004

2005

2006

2007

CAGR
%
2008 (20012008)

32150 36800 42700

49800

54500

64400

79800

92130

16.23

12300 13580 14850

16500

17500

19500

21950

25140

10.75

4480

5400

5980

8300

8600

10100

11530

12530

15.83

3520

4180

6600

8680

10500

12500

15100

14090

21.91

16400

24180

27.35

5400

6560

20.78

9420

9630

7.92

2001

2002

Communication
4450 4800 5150
4770
6300
9200
& Broadcast
Equipment
Strategic
1750 2330 2670
2850
3070
4500
Electronics
Electronic
5650 6510 7450
8700
8530
8600
Components
Software
44600 56000 70500 95500 124000 169000
(Total)
Software for
34000 44000 55000 75000 97000 132025
Exports
Domestic
10600 12000 15500 20500 27000 35150
Software
Total
76750 92800 113200 145300 178500 231575
Electronics
Note: CAGR = Cumulative Average Growth Rate
Source: Dept. of IT (website & Annual Report 2007-08 & 2008-09)

National Productivity Council, New Delhi

202230 258000 28.50


158550 203330 29.11
44510

54670

26.41

282860 350130 24.21

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Consumer Electronics: Consumer electronics contributes more than 30% of the total
electronic hardware production in the country and the Colour TV segment would be
the largest contributor with a domestic market of more than 12 million units. The shift
in demand with rise in income is prominent in the TV market. The Black and white
TV (B/W TV) is continuously registering a negative growth where as CTV is steadily
rising. Most of manufacturers of B/W TV are shifting to grey market due to high level
of taxation on this product, which is meant for rural masses. Similarly, the
DVD/VCD/CD Players market is steadily taking over the Analog Audio segment,
which is experiencing a declining trend.
The growth in CTV segment may be attributed to rise in income as well as enthusiasm
of majority of Indians to watch popular sports events such as Cricket and daily sops
that are being broadcasted. The introduction of DTH broadcasting has further
contributed to the rise in demand of LCD TV and Home Theater. The high end
products, particularly Liquid Crystal Display (LCD) TVs have registered 400%
growth in 2006-07 and the total market for the LCD TV and the Plasma TV is
projected to be over 150,000 and 50,000 respectively. Till now there is not a single
LCD TVs production unit in India. However, rapid increase in the sale of this product
has prompted a few MNCs and Indian companies to announce their intention to start
production of LCD TV in India.
Introduction of Conditional Access System (CAS) has resulted into an exponential
growth in the Set Top Boxes (STB) market. However, STB are mainly imported, as
customs duty on STB is zero. STB production is expected to take off and more than
2.5 million STBs would be produced in the year 2007-08 if customs duty on STBs be
made at par with other consumer electronic products.
The overall production scenario in the Indian consumer electronics segment is far
behind its current market demand. In recent times, some SMEs are making investment
in the tax-exempted regions and are mostly doing Original Equipment Manufacturers
(OEM) work for reputed Brands. Of course, it is encouraging to note that Samsung
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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Electronics is setting up production unit for Colour TVs and Monitors in Tamil Nadu
and LG Electronics has also announced investment and making India hub for exports.
Control, Instrumentation and Industrial Sector: The application of electronics and
information technology is mainly seen in the Control, Instrumentation and Industrial
Sector. Moreover, newer technologies involving wireless sensors and sensor
networking are emerging as potential application in the field of industrial automation
technologies as these are inexpensive and easy to install. Though manufacturing of
related hardware in technology areas like Distributed Control Systems and UPS is
increasing in India, still there is substantial dependence on imported hardware and
software for this sector.
The Department of IT has already realized that subsystems that constitute a part of the
knowledge enabled enterprise control system are presently available in India as
independent packages. But integrating these modules developed by different vendors
using varied interfacing and communication standards is a wearisome task due to lack
of inter-operability. To overcome this problem, national collaborative development
initiatives on next generation Automation Technologies have been already
conceptualized by the DIT to bring out an open standard based flexible control
system, in a holistic manner.
IT Hardware Industry: The development in the overall Indian ICT sector and ITES
in particular during the period 2001 to 2008 is continuously increasing the domestic
demand for IT hardware and this push factor is encouraging local firms to raise their
production level. The IT hardware industry though is far behind that of Chinas, in
recent times (2001-2008) has grown at more than 16 percent per annum.
Communication & Broadcasting Sector: There is no doubt that the growth in
Information and Communication Technology (ICT) has contributed significantly in
Indias economic development. The over all tele-density reached 17.16% during
December 2006. The gross telephone subscribers has reached to about 190 million,
out of which 150 million are mobile telephone subscriber and total broadband
connections in the country have reached 2.10 million by December 2006. A target of
250 million telephones (tele-density of about 22%) and broadband connectivity of 10
million subscribers have been set to be achieved by end of 2007 and by 2010
broadband subscribers is expected to be around 20 million. check
The huge mobile handsets Indian market has tempted world renowned mobile set
manufacturers to set up production base for mobile hand sets in the country to not
only meet local demands but also to cater to international markets. It is highly
encouraging to see that worlds top five mobile handset makers - Nokia, Motorola,
Samsung, Sony-Ericsson and LG have started their manufacturing in India.
Strategic Electronics: In India the technology applicable to strategic sector as well as
strategic technology for civilian and defense sector is not available off the shelf. In
order to ensure acquisition of the state-of-the-art technology, it is desirable to focus on
production in the strategic electronics sector.
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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Electronic Components: Electronics and IT Hardware manufacturing scenario in


India is expected to improve with the presence of global Electronics manufacturing
services (EMS) majors like Flextronics, Jabil, Elcoteq. These companies would not
only create potential for a quantum jump but are expected to create a downstream
effect by greater demand for components and assemblies. Companies like Flextronics,
Nokia and Jabil Circuit have committed investments to the tune of $100- 150 million
over the next 2-3 years which will largely cater to domestic demand for
Communication and IT products. In 2005, Moser Baer after announcing its plans to
enter in the high growth Photo Voltaic business has made initial investment of Rs.
3390 million in Indias first renewable energy SEZ at Greater Noida, UP to set up a
Photo Voltaic cell and module manufacturing project with an 80 MW capacity.
2.2.2 Geographical Distribution of Electronics and IT Hardware Industry
There is lot of variation in the geographical distribution pattern of Indian Electronics
and IT hardware production. The electronics industry in India had initially grown
around three major centers, Bangalore, Mumbai/Pune and Delhi. Bangalore not only
has major public sector units in defence and telecommunication but also has a very
fast-growing, organised private sector firms in computer and industrial products.
Bombay /Pune has been always a preferred destination for private sector firms and
MNCs. However, eastern India remained underdeveloped in electronics and IT
hardware production. Table 2.5 gives the growth of electronics production during
1991 and 2002 in top 10 states.
From 2001, Uttar Pradesh is the leading state in the production of electronics and IT
hardware. Delhi also occupies a significant place due to a large concentration of small
scale units making consumer electronic products and computers. The physical
location of the plant is considered for calculation of the share of small scale units as
well as the share of different States in production and employment in the electronics
production. During 2002, the top three states viz., Uttar Pradesh , Maharashtra and
Karnataka accounted for almost 58 per cent of the total electronics production of the
country (Table 2.5).
Table 2.5: Top 10 States in Electronics & IT hardware Production
1991

2002

States

Production
(Rs Crores)

Share
(%)

Rank

Production
(Rs Crores)

Share
(%)

Rank

Total
Units
(No.)

SSI

Uttar Pradesh
Maharastra
Karnataka
Delhi
Andhra
Pradesh
Tamil Nadu
Haryana
Gujarat
Kerala
Madhya
Pradesh

1915
1762
1750
921
585

19.69
18.12
18.00
9.47
6.02

1
2
3
4
6

7715
7219
6232
3190
2030

20.96
19.62
16.93
8.67
5.52

1
2
3
4
5

170
809
363
354
169

115
693
289
330
132

622
170
361
421
151

6.39
1.75
3.71
4.24
1.55

5
12
8
7
13

1839
1451
1260
1121
787

5.00
3.94
3.42
3.05
2.14

6
7
8
9
10

278
97
244
88
43

220
59
199
57
26

Source: Guide to Electronics Industry2003, Dept. IT, GoI


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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Further analysis of regional distribution shows that the Northern region mainly Delhi
and its surrounding areas account for over 38 per cent of production. The East is
underdeveloped relative to its population. The West accounts for 25 per cent of
electronics production, mostly in Maharashtra (Mumbai and Pune) contributed mostly
by private sector firms both in small scale and organised sectors. The South, primarily
Bangalore, accounts for about 30 percent of production. Table 2.6 gives the
sectorwise electronics production during 2002 in top 10 states.
Table 2.6: Sectorwise Electronics Production in Top 10 States (2002)
(Rs crores)
States

Uttar
Pradesh
Maharastra
Karnataka
Delhi
Andhra
Pradesh
Tamil
Nadu
Haryana
Gujarat
Kerala
Madhya
Pradesh

Control,
Consumer
Computer
Strategic Electronic
Instn & Ind
Telecom
Total
Electronic
Hardware
Electronic Component
Electronic

4230

400

550

1130

295

1110

7715

3680
950
1410
265

1055
1830
200
505

1360
350
350
150

185
800
75
270

74
1062
5
660

865
1240
1150
180

7215
6232
3190
2030

950

310

145

177

37

220

1839

400
540
320
35

25
180
160
52

25
15
15
_

585
125
420
90

126
_
11
_

90
400
195
610

1451
1260
1121
787

Source: Guide to Electronics Industry 2003, Dept. IT, GoI


To spread the geographic base of the electronics industry states were encouraged to
establish electronics development corporations for promotion and development of
electronics in their respective states. Special incentives like sales tax concessions,
creation of separate industrial areas for electronics, subsidy for setting up units in
backward areas, financial participation either as joint sector or assisted sector, etc are
also being provided by many of the states. This action, combined with the dispersion
of additional public sector units, encouraged the emergence of several secondary
electronics centers. For example, Hyderabad, which reflects the expansion of ECIL, is
the most important of these. Other secondary centres includes Hosur,
Thiruvananthapuram, Chennai, Kolkata, Vadodora, Mohali, Ahmedabad and
Aurangabad.

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

CHAPTER III
PRODUCTIVITY GROWTH IN IT HARDWARE &
ELECTRONICS SECTOR
3.1 Global Scenario
The Economist Intelligence Unit (2007) ranked 64 countries in terms of IT labour
productivity (Total output per employee in the IT industry). Output has been
measured as value of production for both IT hardware and software in US Dollar for
the year 2006. Table 3.1 reports that among the labour productivity is highest in
Taiwan, followed by South Korea, Ireland, Singapore and Australia. IT labour
productivity of China has been ranked 10th where as that of Indias rank is 22nd in the
world.
Table 3.1 : Labour Productivity in World IT Market
Rank

Country

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22

Taiwan
South Korea
Ireland
Singapore
Australia
Switzerland
United States
Japan
New Zealand
China
Denmark
Norway
United Kingdom
Belgium
Germany
Israel
France
Austria
Brazil
Greece
Hong Kong
India

Total Output per


Employee(US$)*
386,413
310,393
278,451
216,941
208,014
194,826
154,173
148,560
148,384
136,506
127,777
119,481
107,184
96,593
82,255
75,936
70,564
62,280
49,154
44,037
39,629
39,033

Note*Output is for 2006 US$value for hardware and software production.

Source: Economist Intelligence Unit, 2007.

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

The study clearly reveals that both India (considered to be a global IT Software giant)
and China (a leader in IT hardware production and export) have attained their present
status not because of higher labour productivity but due to their competitive
advantage in certain factors such as availability of educated workforce, low wages,
language attributes such as, English speaking population (in case of India) etc.
3.2 Electronics and IT Hardware Industry: Organized Factory Sector
The Electronics and IT Hardware Industry comprises of organized as well as
unorganized industries. Due to lack of data on the operation of unorganized industries,
an analysis of the organized factory sector is done to get an idea of the Indian
Electronics and IT Hardware Industry. Annexure 3 shows the methodology used for
analyzing the electronics and IT Hardware Industry.
The structural constituents of the Electronics and IT Hardware Industry may be
understood from the analysis of organized factory sector that mainly consists of largescale enterprises. Further, impact of globalisation and various government policies on
the electronics and IT hardware sector may be analysed through the developments in
the organized factory sector. The data are collected from Annual Survey of
Industries, Central Statistical Organisation (CSO), Government of India.
The data from 1990-91 to 1998-99 for the Electronics and IT Hardware Industry
pertains to 3 digits NIC 1987 code. For the later years, the equivalent of 2-digit NIC
Code are calculated by adding the 4- digit NIC codes as per the concordance table
given by CSO (Annexure 4).
The number of factories in the Electronics and IT Hardware Industry is showing a
declining trend during the last one and half decade and the rate of decline is higher
during the latter period i.e. 2000-01 to 2005-06 than during 1990-91 to 2000-01. The
number of person engaged also declined at the rate of 0.34 percent during the period
1990-91 to 2005-06. The decline in employment is greater during in the recent times
(2000-01 to 2005-06).

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Table 3.2: Registered Manufacturing of Electronics and IT Hardware Industry ( All


India)
Characteristics 1990- 91 2000-01 2001- 02 2003-04 2004-05 2005-06

Number of
Factories
Number of
Workers
Total Persons
Engaged

CAGR
Total Period
Period
I
(1990-91 (1990to 2005- 91 to
06)
200001)

Period
II
(200001 to
200506)

1.05 -0.05

3.01

1591

1583

1432

1314

1371

1359

96770

97270

87274

85540

91416

103129

0.43

0.05

1.18

158991

151130

135387

132941

138300

151102

0.34 -0.51

0.01

7.19

5.28

6.13

6.22

2.87

31.19

10.22

6.65

11.15

Value of Output
at Constant
802656 1342528 1233887 1557086
3828149 2273716
Prices (199394=100)
GVA at
Constant Prices 198493 263448 262123 301222 654219 490556
(1993-94=100)
Fixed Capital at
constant prices 242532 461698 411513 611201 1305165 1043311
(1993-94 =100)

Source: Annual Survey of Industries factory Sector (various years)

It is very encouraging to note that the value of output at constant price has increased
during 1990-91 to 2005-06 at a CAGR of 5.23 percent. However, the growth in the
value of output during 2000-01 to 2005-06 is higher than that of 1990-91 to 2000-01.
This has resulted in an increase in the growth of gross value added at a CAGR of 3.26
percent during 1990-91 to 2004-05. The growth of GVA at constant prices during the
period 2000-01 to 2004-05 is also higher than that of 1990-91 to 2000-01 (Table 3.2).
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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

The individual item wise performance analysis of the electronics and IT hardware
industry during the last one and half decade is given in Table 3.3 and Table 3.4. The
number of factories and workers employed in the manufacturing of four segments out
of five product segments reported decline during 1990-91 to 2005-06 (Table 3.3).
However, Gross Value Added at constant prices have contributed substantial increase
for all the five segments of IT Hardware and Electronics sector.
Table 3.3: Key Characteristics of Electronics and IT Hardware Industry
Segment
Manufacture of
office,
accounting and
computing
machinery (NIC
98: 3000)

Manufacture of
electronic valves
and tubes and
other electronic
components
(NIC 98: 3210)

Characteristics
Number of Factories
Number of Workers
Total Persons Engaged
Value of Output at
Constant Prices
(1993-94=100)
GVA At Constant
Prices (1993-94=100)
Fixed Capital at
constant prices
(1993-94=100)
Number of Factories
Number of Workers
Total Persons Engaged
Value of Output
at Constant Prices
(1993-94=100)
GVA At Constant
Prices (1993-94=100)
Fixed Capital at
constant prices
(1993-94=100)

Manufacture of Number of Factories


television and
Number of Workers
radio
transmitters and Total Persons Engaged
apparatus for Value of Output at
line telephony
Constant Prices
and line
(1993-94=100)
telegraphy (NIC GVA At Constant
98: 3220)
Prices (1993-94=100)
Fixed Capital at
constant prices
(1993-94=100)
Manufacture of Number of Factories
television and
radio receivers, Number of Workers
sound or video Total Persons Engaged
recording or
Value of Output at
reproducing
Constant Prices
apparatus, and (1993-94=100)
associated goods GVA At Constant
(NIC 98: 3230) Prices (1993-94=100)

National Productivity Council, New Delhi

1990-91
257
14044
27348

2000-01
224
11753
19343

2005-06
180
14368
21776

161425

303958

455913

42487

60190

147509

41030
299
11822
20768

78832
577
32977
49001

207741
564
39257
59251

60576

350816

666042

19106

101333

125731

33063
332
10253
57491

255836
268
16781
30069

328586
237
18503
27734

251177

227090

347598

82531

43531

74426

74260
542
24052
36524

70946
334
22822
32892

233414
235
20224
28904

268015

726901

729674

39088

101366

110461

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector


Fixed Capital at
constant prices
(1993-94=100)
Manufacture of Number of Factories
watches and
clocks (NIC 98: Number of Workers
3330)
Total Persons Engaged
Value
of
Output
at
Constant Prices (199394=100)
GVA At Constant Prices
(1993-94=100)
Fixed Capital at constant
prices (1993-94=100)

59270
161
12511
16860

181207
180
12937
19825

252169
143
10777
13437

16463

79528

74489

15281

24879

32430

34909

28150

21401

Source:EstimatedfromASISummaryResultsofFactorySector

During the period 1990-91 to 2005-06, there has been negative growth in the numbers
of factories, the amount of fixed capital and workers employed in almost all the
segments of electronics and IT hardware sector viz., manufacture of office,
accounting and computing machinery, manufacture of television and radio
transmitters and apparatus for line telephony and line telegraphy, manufacture of
television and radio receivers, sound or video recording or reproducing apparatus and
associated goods and manufacture of watches and clocks (Table 3.4). This might have
resulted in declining the growth rate of the gross value added as well as value of
output in the manufacture of television and radio transmitters and apparatus for line
telephony and line telegraphy and manufacture of watches and clocks.
However, during the period 1990-91 to 2005-06, the manufacture of electronics
valves and tubes and other electronics components showed positive growth in all the
characteristics viz., the numbers of factories, the amount of fixed capital,
workers/persons employed as well as value of output and gross value added. But in
recent years ie., from 2000-01 onwards, a decline has been noticed in the number of
factories and workers employed.

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Table 3.4 : CAGR in Registered Manufacturing of Electronics and IT Hardware


Industry ( All India)
Segment

Characteristics

Manufacture of
Number of Factories
office,
accounting and Number of Workers
computing
Total Persons Engaged
machinery (NIC
Value of Output at Constant Prices
98: 3000)
(1993-94=100)
GVA At Constant Prices (1993-94=100)
Fixed Capital at constant
prices (1993-94=100)
Manufacture of Number of Factories
electronic valves
and tubes and Number of Workers
other electronic Total Persons Engaged
components
Value of Output at Constant
(NIC 98: 3210) Prices (1993-94=100)
GVA At Constant Prices (1993-94=100)
Fixed Capital at constant
prices (1993-94=100)
Manufacture of Number of Factories
television and
Number of Workers
radio
transmitters and Total Persons Engaged
apparatus for Value of Output at Constant
line telephony Prices (1993-94=100)
and line
telegraphy (NIC GVA At Constant Prices (1993-94=100)
Fixed Capital at constant prices
98: 3220)
(1993-94=100)
Manufacture of Number of Factories
television and
radio receivers, Number of Workers
sound or video Total Persons Engaged
recording or
Value of Output at Constant Prices
reproducing
(1993-94=100)
apparatus, and
associated goods GVA At Constant Prices (1993-94=100)
(NIC 98: 3230) Fixed Capital at constant prices
(1993-94=100)
Manufacture of Number of Factories
watches and
clocks (NIC 98: Number of Workers
Total Persons Engaged
3330)
Value of Output at Constant
Prices (1993-94=100)
GVA At Constant Prices (1993-94=100)
Fixed Capital at constant prices
(1993-94=100)

Compound Annual Growth Rate


Total Period Period I
Period II
(1990-91 to (1990-91 to (2000-01 to
2005-06)
2000-01)
2005-06)

0.91
1.18
2.28

-1.36
-1.77
-3.40

4.28
4.10
2.40

4.31
2.35

-9.55
2.88

8.45
19.64

4.45
4.48
7.08
5.89

3.73
6.79
10.80
8.96

21.38
0.45
3.55
3.87

12.42
11.76

16.50
15.48

13.68
4.41

14.61
1.42
3.34
4.23

19.24
-2.12
5.05
-6.28

5.13
2.43
1.97
1.60

0.67
4.18

-3.25
-8.32

8.89
11.32

0.30
3.18
0.35
0.70

-3.27
-4.73
-0.52
-1.04

26.89
6.79
2.39
2.55

6.88
6.56

7.99
7.51

0.08
1.73

7.73
0.75
0.22
1.09

8.66
1.12
0.34
1.63

6.83
4.50
3.59
7.48

11.07
3.30

14.41
2.62

1.30
5.44

-4.89

5.33

1.42
Source:EstimatedfromASISummaryResultsofFactorySector

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

3.3 Partial and Total Factor Productivity Growth All India


In this section we estimate partial (labour and capital) and total factor productivity
growth rates for IT Hardware & Electronics Sector at all India level for the period
1995-96 to 2005-06. As explained in the earlier section, GVA is considered as the
variable for output. It is assumed that there are only two major factors of production
such as labour and capital. Labour is considered as the total persons engaged in
manufacturing or production process of IT Hardware & Electronics products while
capital is estimated as the real value of capital investment (at constant 1993-94
prices) in the manufacturing process. Detailed methodology used for the construction
of variables and the estimation procedure adopted for productivity growth rates has
been given in detail in Annexure 3.
Labour Productivity, Capital Productivity and Total Factor Productivity in the
Electronics and IT hardware sector has been calculated from Annual Survey of
Industries (ASI) data, published by CSO. The present study analysed the productivity
scenario of the Electronics and IT Hardware Industry after liberalization i.e., from
1995-96 to 2005-06. Labour productivity has grown from Rs. 188806 per person
engaged in 1995-96 to Rs. 324653 per person in 2005-06 (Table 3.5). In the case of
capital productivity it may be noticed that it increased from Rs. 0.32 in 1995-96 to Rs.
0.71 in 2005-06. Total Factor Productivity Growth during the same period exhibited
substantial year to year variations.
Table 3.5: Productivity and Productivity Growth Rates:
Year

Labor
Productivity
(Rs.)

Capital
productivity
(Rs.)

Labor
Productivity
Growth
Rate(%)

Capital
Productivity
Growth
Rate(%)

1995-1996
188806
0.32
1996-97
198538
0.32
6.87
0.72
1997-98
172448
0.28
5.11
-14.64
1998-99
215684
0.61
-12.92
119.89
1999-00
206085
0.70
-17.48
15.51
219214
2000-01
0.55
6.07
-21.65
2001-02
249254
0.72
1.86
31.31
2002-03
294370
0.63
19.13
-12.97
2003-04
300522
0.46
-0.62
-25.96
2004-05
252559
0.54
-12.57
17.12
2005-06
324653
0.71
40.44
30.11
Average
196312
0.45
4.61
30.37
1995-00
Average
273429
0.60
9.05
2.99
2000-06
Source:EstimatedfromASISummaryResultsofFactorySector

Total Factor
Productivity
Growth Rate
(%)

6.09
11.61
-70.92
51.55
-23.68
4.52
17.83
15.04
-16.74
20.33

5.07
2.88

In order to get a clearer picture of productivity growth scenario, we have converted


the growth rates into an index. It may be noted from Table 3.6 that Capital
Productivity Growth Index has grown from 100 in 1995-96 to 239.45 by 2005-06. In
the case of Labour Productivity, it may be seen from Table 3.6 that it increased from
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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

100 in 1995-96 to 135.89 by 2005-06. Similarly Total Factor Productivity Growth


Rate Index has grown from 100 in 1995-96 to 115.64 by 2005-06. Both Labour
Productivity Growth Index and Total Factor Productivity Growth Indices report
substantial decline till 2001-02. However, later years report positive growth in the
indices.

Table3.6:IndexofLabour,CapitalandTotalFactorProductivityGrowthIndices:

Year
199596
199697
199798
199899
199900
200001
200102
200203
200304
200405
200506

Capital
Productivity
GrowthIndex

Labour
Productivity
GrowthIndex

Totalfactor
Productivity
GrowthIndex

100.00

100.00

100.00

100.72

106.87

106.09

86.08

111.99

117.70

205.98

99.06

46.78

221.48

81.58

98.34

199.84

87.65

74.65

231.14

89.51

79.17

218.18

108.64

97.01

192.22

108.02

112.05

209.34

95.45

95.30

239.45

135.89

115.64

Source:EstimatedfromASISummaryResultsofFactorySector

Labour,CapitalandTotalFactorProductivityGrowthIndices

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

CHAPTER IV
COMPETITIVENESS ANALYSIS OF IT HARDWARE &
ELECTRONICS SECTOR
4.1 Benchmarking IT Industry Competitiveness
The growth potential of domestic IT industry (both hardware and software) depends
on the existence of favourable conditions in several interrelated areas like the quality
of the IT and communications infrastructure, the supply of local talent, the research
and development (R&D) environment and the legal regime, not to mention the overall
business environment. A study undertaken by the Economist Intelligence Unit 2008
ranked 64 countries by assessing the enablers of competitiveness and determining
their relative importance in IT sector performance.
In the overall IT competitiveness index, US ranks number one as its IT environment
combines scale and quality in the key areas that promote competitiveness, including
education, infrastructure and encouragement of innovation, as well as solid legal
protection. India and China has been ranked at 46th and 49th respectively in the overall
IT competitiveness index. India fares better than China because of its highly
developed software industry but is far beyond Chinas hardware sector. Even in the
Asia-Pacific region these two countries are lagging behind countries like Japan, South
Korea, Australia and Taiwan who are providing the most competitive conditions for
operation of IT firms. The relative IT competitiveness ranks of countries in AsiaPacific region are given in Table 4.1.
Table 4.1: IT industry competitiveness in Asia-Pacific Region
Rank
Country
Score
1
Taiwan
69.2
2
Australia
64.1
3
South Korea
64.1
4
Singapore
63.4
5
Japan
62.2
6
New Zealand
56.6
7
Hong Kong
54.1
8
Malaysia
34.2
9
Thailand
31.5
10
Philippines
29.8
11
India
28.9
12
China
27.6
13
Sri Lanka
24.9
14
Indonesia
23.1
15
Bangladesh
22.4
16
Vietnam
21.4
Source: Economist Intelligence Unit, 2008.

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Actually, in case of both India and China, the negative impacts arising out of
weaknesses in the industry environment has been overshadowed by positive effects of
their competitive advantages in factors like huge workforce, low wages and vast
english speaking population (India). However, this high growth of Indias IT software
industry as well as Chinas IT hardware manufacturing cannot be sustained in the
long run unless immediate attention is given by policymakers to improve the business
environment in their respective country.
Future rivalry for Indias and China s positions is likely to come from countries like
Russia, Brazil, Malaysia and Vietnam, as well as smaller markets such as Estonia,
Lithuania and Chile as the skills base of each of these countries is improving. The
warning bell has already been sounded India and China will need to improve here as
well, as their cost advantages will erode; greater innovation will be required of their
IT firms to remain competitive on a global scale"(EUI, 2007). Thus, finding of this
study needs to be taken seriously by Indian policy makers and sincere efforts need to
be taken to improve the business environment, infrastructure both social and physical,
etc., encourage R&D activities and innovation to remain competitive in the global
market.
The Standing Committee on Information Technology (2004-2005) Fourteenth Lok
Sabha has already reported that the policy environment needs to be much more
conducive to the manufacturer, more so, in view of the zero per cent duty which will
become effective w.e.f. 2005 under the WTO agreement. Further, creating basic
infrastructure e.g. guaranteed communication, uninterrupted power supply, speed of
business for having competitive advantage and a thriving business climate is
government responsibilities, to transform the struggling IT hardware and Electronics
industry into a vibrant and competitive Industry.
4.2 India in Trade Competitiveness Map of IT Hardware & Electronics
Competitiveness of the Indian IT Hardware and Electronics sector is further analysed
using the Trade Performance Index (TPI) which has been developed by the
International Trade Center (ITC) Geneva, Switzerland, with the aim of assessing and
monitoring the multi-faceted dimensions of export performance and competitiveness
by sector and by county. This particular index is used in this study as TPI calculates
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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

the level of competitiveness and diversification of a particular export sector using


comparisons with other countries. It further brings out gains and losses in world
market shares and sheds light on the factors causing these changes. Moreover, it
monitors the evolution of export diversification for products and markets.
The competitiveness of Indian IT hardware and Electronics at the aggregated level
may be assessed from the change (variation over time) in Indias share in the world IT
hardware and Electronics market. A positive change indicates that Indias share in
world market has increased and thereby implying the fact that competitiveness has
enhanced during the time period under consideration for analysis.
4.2.1. IT Hardware and Consumer Electronics
India has been ranked at 47th in 2006 in terms of trade performance of IT and
Consumer Electronics where as the relative change in its world share is only 0.0528%
during the period 2002-2006 against 0.1855% during 1998-2002 (table 4.2).
Table 4.2: Decomposition of Indias share in World IT & Consumer Electronics
Market

Indicator's description
Change Index
Share in world market (%)
Relative change of world market share p.a
(%)

Change between
2002 2006
Value Rank
0.09%

37

0.0528%

0.1105%
Competitiveness effect, p.a. (%)
Initial geographic specialisation, p.a. (%)
0.0063%
Initial product specialisation, p.a. (%)
-0.0317%
Adaptation effect, p.a. (%)
-0.0323%
Number of exporting countries for the
107
ranking in the sector
Average Current Index
Source: International Trade Center, Geneva (2006)

Change between
1998-2002
Value
Rank
0.07%

40

0.1855%
25

0.2206%

16

64
85
71

0.0056%
0.0597%
-0.1004%

45
21
72

96
47

46

The effect of geographical specialization on Indias share in the world market has
been not only positive but also increased during the period 2002-2006 as compared to
that of the previous period (1998-2002). However, the negative impact of adaptation
effect is a clear indication that India is not able to adjust its exports to changes in
world demand in IT hardware and Electronics Market. But it is encouraging to note
that the positive impacts of competitiveness effect of 0.1105% played a significant
role in overcoming the combined negative impacts of product specialization and
adaptation effect on Indias share in the world IT hardware and Electronics Market.

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

4.2.2 Electronic Component Market


The Trade performance of India in the Electronics Component Market has been
ranked at 42nd in 2006. The relative change in Indias share in world market though is
positive but declined from 0.1930% during 1998-2002 to 0.1050% during the period
2002-2006 (table 4.3). This may be attributed to sharp decline in competitiveness
effect during the period 2002-2006 though the impacts of both product specialization
and adaptation effect on Indias share in the world IT hardware and Electronics
Market were positive during this period.
Table 4.3: Decomposition of the change in Indias share in the World Electronic
Components Market

Indicator's description

Change between
2002 2006
Value Rank

Change Index
0.32%
Share in world market (%)
Relative change of world market share p.a
0.1050%
(%)
Competitiveness effect, p.a. (%)
0.0867%
0.0113%
Initial geographic specialisation, p.a. (%)
0.0049%
Initial product specialisation, p.a. (%)
0.0021%
Adaptation effect, p.a. (%)
Number of exporting countries for the
119
ranking in the sector
Average Current Index
Source: International Trade Center, Geneva (2006)

32

Change between
1998-2002
Value
Rank
0.20%

34

0.1930%
32

0.9452%

52
62
45

-0.0076%
0.0104%
-0.7550%

58
42
112

114
42

37

4.3 India Vs China


It is a well recognized fact that the success of Electronics and IT Hardware Industry
depends on the availability of technology, human capital as well as overall
development of the Countrys ICT.

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Table 4.4: Development of ICT in India vis--vis China


India
Innovation System
Researchers in R&D / Mil. People, 2004
119.00
Total Expenditure for R&D as % of GDP, 2004
0.85
Manufacturing. Trade as % of GDP, 2004
15.29
*University-Company Research Collaboration (1-7), 2006
3.30
*Availability of Venture Capital (1-7), 2006
4.20
Patents Granted by USPTO, avg 2001-05
316.40
High-Tech Exports as % of Manuf. Exports, 2004
4.90
*Private Sector Spending on R&D (1-7), 2006
3.80
*Firm-Level Technology Absorption (1-7), 2006
5.50
Value Chain Presence (1-7), 2006
4.80
ICT
Total Telephones per 1,000 People, 2004
84.50
Main Telephone Lines per 1000 People, 2004
40.70
Mobile Phones per 1,000 People, 2004
43.80
Computers per 1,000 People, 2004
12.10
Households with Television (%), 2004
37.00
International Internet Bandwidth (bits per person), 2004
11.40
Internet Users per 1,000 People, 2004
32.40
Price Basket for Internet (US$ per month), 2003
8.70
*Availability of e-Government Services (1-7), 2006
3.55
*Extent of Business Internet Use (1-7), 2006
3.80
ICT Expenditure as % of GDP, 2005
5.91
Education
Adult Literacy Rate (% age 15 and above), 2004
61.00
Average Years of Schooling, 2000
5.06
Gross Secondary Enrollment, 2004
53.50
Gross Tertiary Enrollment, 2004
11.80
*Internet Access in Schools (1-7), 2006
4.00
Public Spending on Education as % of GDP, 2003
3.30
*Quality of Science and Math Education (1-7), 2006
5.70
*Extent of Staff Training (1-7), 2006
4.50
*Quality of Management Education (1-7), 2006
5.90
Note: * is based on the statistical score on a 1-7 scale of a large sample group
country responding to the question

China
708.00
1.44
50.35
3.90
2.90
448.20
29.80
3.60
5.00
3.80
499.40
241.10
258.30
40.90
91.00
57.40
72.50
10.10
3.96
3.50
5.28
90.90
6.35
72.50
19.10
3.80
2.10
4.20
3.50
3.50
in a particular

Source: Knowledge Assessment Methodology 2006, World Bank


Table 4.4 reveals that Chinas ICT sector is well developed. But India is better off
than China in some innovation system indicators like availability of venture capital,
private spending on R & D, firm level technology absorption and the presence of a
well developed value chain. India has higher public spending in education and
internet access in school. The extent of staff training as well as quality of science and
mathematics education and management education is also better in India.

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Table 4.5: Market and Production Rankings in the world: India Vs China
Sector
Production
Market
India
China
India
China
Rank
Rank/Share (%) Rank
Rank/Share (%)
EDP
27
2
(16.0)
27
3
(10.5)
Office Equipment
18
2
(17.6
21
5
(5.4)
Control &
21
8
(2.4)
22
3
(7.0)
Instrumentation
Medical & Industrial
Radio communication
(incl. Mobile phones)
Telecommunications
Consumer Electronics
Electronic
Components
Total

26
23

4
4

(3.5)
(7.1)

22
25

4
4

(5.4
(5.4)

27
13
26

3
1
3

(9.0)
(21.8)
(8.3)

26
11
27

3
2
2

(7.9)
(8.9)
(17.3)

29
3
(11.1)
26
3
Source: Yearbook of World Electronics Data 2004/05, Vol 2 & Vol 3

(10.8)

But when it comes to performance in production or market share China is much ahead
of India (Table 4.5). This clearly hints that there are some critical factors other than
the level of ICT development, which has enabled China to have a competitive edge
over India.
The answer to the mystery of Chinas success in IT hardware and Electronics market
lies in its large domestic consumption led by the Government itself, unique package
of investment and tax incentives, high competition among the local Governments for
attracting hardware industry related investments, high investments in infrastructure
sector, flexible labour laws and linking of access to domestic market with condition of
local manufacturing (Fifth Report of Standing Committee on IT, 2004-2005).

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

4.4 Competitiveness Factor Identification


It is necessary to have an insight on the basic strengths and weakness of Indian
economy (Table 4.6) under which the IT hardware and Electronics sector of the
country is presently operating.
Table 4.6: Indias Competitiveness Strengths and Weaknesses
Factors
Economic
Performance

Govt.
Efficiency

Strengths
Relocation of R&D facilities is not a threat to
the future of your economy (survey)
Relocation of production is not a threat to the
future of your economy (survey)
Real GDP Growth Percentage Change, based
on national currency in constant prices
Real GDP growth per capita percentage
change based on national currency in constant
prices
Relocation of services is not a threat to the
future of your economy (survey)
Consumption tax rate Standard rate of
VAT/GST
Ageing of society is not a burden for economic
development (survey)
Collected Total Tax Revenue Percentage of
GDP
Central government foreign debt percentage of
GDP

Business
Efficiency

Infrastructure

Weaknesses
GDP (PPP) per capita Estimates : US$
per capita at purchasing power parity
GDP per capita US$ per capita
Export of goods (% of GDP)
Employment percentage of population

Unemployment rate percentage of


labour force
Government budget surplus/deficit %
of GDP
Tariff barriers tariffs on imports. Most
favoured nation simple average rate.
Start up procedures number of
procedures to start a business
Corporate tax rate on profit maximum
tax rate, calculated on profit before
tax
Employers social security contribution rate
Country credit rating rating on a scale
compulsory contribution as a % of an income
of 0-100 assessed by the institutional
equal to GDP per capita
investor magazine ranking
Compensation levels (Estimates: Total hourly Labour Productivity (PPP) estimates:
compensation for manufacturing workers
GDP (PPP) per person employed per
(wages + supplementary benefits), US$
hour, US$
Working hours (Average number of working
Overall Productivity Estimates: GDP
hours per year)
(PPP) per person employed US$
Remuneration of management Total base salary Female labour force (%of total labour
plus bonuses and long term incentives, US$
force)
Banking and financial services professions
Labour force (% of population)
Gross annual income including supplements
such as bonuses, in US$
Remuneration in services professions (Gross
Investment Risk Euro money country
annual income including supplements such as
credit worthiness scale from 0-100
bonuses in US$)
Mobile telephone costs Mobile cellular tariffs
Pupil-teacher ratio (primary education)
US$ per minute local call, off-net (peak)
Ratio of students to teaching staff
Fixed Broadband Tariffs Monthly fee
Mobile telephone subscribers (No. of
(residential), US$
subscribers per 1000 inhabitants

Fixed telephone tariffs US$ per 3 minutes Pupil-teaher


ratio
(secondry
local call (peak)
education) Ratio of students to
teaching staff
Qualified engineers are available in your
Life expectancy at birth Average
labour market (survey)
estimate
Science in schools is sufficiently emphasized
(survey)

Human Development Index combines


economic-social-educational
indicators (Source:HDR)

Source: WCY 2008, IMD Switzerland

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Against this background, the present study attempts to identify the factors that are
either facilitating or hindering the competitiveness of the Indian IT Hardware and
Electronics Sector with the help of Porters diamond model.
4.4.1 Factor Analysis
The factor condition is analyzed through the contribution of various factor
endowments like natural resource, human resource, physical infrastructure,
technology and capital resource towards competitiveness of this sector.
Raw Material Availability: The manufacturing of Electronics and IT hardware
sector in India is mainly dependent on imports of raw materials. It is clear from table
4.7 that raw material import as a percentage of raw materials purchased in the
electronics industry has remained stagnant during the last one and half decade. It
increased from 36.4% in 2001-02 to 37.7% in 2007-08. The high level of dependence
on import of raw material is making the Indian products less competitive in the
international market. Further, the rising Inflation in the domestic economy is also
affecting the sector adversely.
Table 4.7 : Raw Material Import and Purchase
Transaction
(%)
(Raw material
Imports) /
(Raw material
purchase)

Segment
Electronics
Industry (Total)
Consumer
Electronics
Computer
peripherals and
storage devices
Communication
Equipment

2001 2002
-02
-03
36.4 34.9

2003 2004
-04
-05
35.2 37.4

2005 2006 2007-06


-07
08
39.6 38.7 37.7

27.3

32.2

30.7

30.3

28.9

28.6

23.5

59.2

52.3

52.7

58.2

66.1

61.9

67.7

50.6

50.0

46.5

65.0

65.6

55.6

41.6

Source: CMIE (July 1998 & April 2009)

Human Resources: The development of electronics and IT hardware industry may


lead to huge employment generation and ease the nation of demographic pressure and
the impending employment crisis. It is predicted that there is a potential of 21 million
direct and indirect jobs by 2015 (7 million direct and 14 million indirect) in the
industry if the domestic electronics demand is met through local production as against
imports. However, unlike the Software Industry, Indian Electronics and IT Hardware
industry is not able to take the advantage of available manpower as this Industry is
highly dependent on skilled human resource (viz. entrepreneurs, managers,
technologists, skilled workers) who would facilitate/carry out Research &
Development resulting to innovation and product diversification through technology
up gradation, cost effectiveness and quality control.
The country is already in short supply of talented employees everywhere and the
situation is getting worse, as the nature of skills required is constantly changing. In
addition to technical knowledge, future employees of IT hardware and electronics
firms require expertise in project management, change management and business
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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

analysis. At present, Indias educational system is not fully equipped like US,
Singapore and Australia who have already started designing their course/training
curriculums according to the specific needs of the Industry.
Physical Infrastructure: The inadequacy of infrastructure Viz., roads, ports, high
cost of electricity etc., is a deterring the productivity and competitiveness of Indian
economy. The impact is more pronounced in case of the IT manufacturing industry
due to very high rate of obsolescence. While significant progress has been made in
improving the Turn-Around-Time (TAT), yet it needs to be streamlined to the
international levels of 15-20 mins as compared to a day or two in India
Technology: Lack of technology is one of the most important factors leading to low
level of competitiveness in Indian electronics and IT hardware industry. Technical
Research and Development in India is negligible. As a result, Indian Electronics and
IT hardware manufacturing is dependant on technical know-how of advanced
countries like USA, Germany and Japan. In addition to this, capital equipment
procured by an Indian company remains under utilized due to the low volume of
production and firms many a times fail to recover even the cost of the machinery.
Moreover, in advanced countries, continuous innovations are leading to rapid changes
in technology that give a competitive advantage in terms of cost, speed and quality.
But in India lack of innovations resulting in obsolescence of existing technology.
Indian Companies even find it unviable to upgrade as their initial investments are yet
to be recovered.
Quality Standards and Testing Facilities: In electronic and IT hardware sector,
there is a rapid change in technology and the product life cycle is getting shorter.
Hence, proper care needs to be taken to ensure that the new products meet quality
standards and also prevent dumping of low quality products into the country.
Capital Resources Availability: In India, electrical equipment sector attracts the
highest cumulative FDIs, followed by services and telecommunication. The total
inflow of FDI in Indian Electrical Equipment (including Electronics and Computer
Software) sector has increased from Rs 2441 crore in 2004-05 to Rs.7329 crores in
2008-09 (Table 4.8). The cumulative inflow of FDI into this sector stood at Rs 30760
crores.
Table 4.8: FDI inflows in Electrical Equipment
(Including Electronics and Computer Software)
Year
FDI inflow
(Rs in crore)
2004-05
2,441
2005-06
6,172
2006-07
11,786
2007-08
5623
2008-09
7329
Cumulative inflows
30,760
Source: Economic Survey 2008-09
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The announcements by electronics majors such as Flextronics, BenQ, ST Micro,


Samsung, LG, Videocon etc., for investments in design, R&D as well as
manufacturing facilities in India are very encouraging. However, most of these
announcements are for establishing R&D Labs, Test facilities and Design Centres,
while a few are for manufacturing in consumer electronics, telecom etc.
In the domestic market the average cost of finance available to Indian entrepreneurs is
11-12%, which is more than double the average rate prevailing in the international
market. As a result Indian enterprises are becoming non-competitive compared to
their counterparts in the world market
4.4.2 Financial Performance of Electronics and IT Hardware Industry
The financial performance of the industry could be assessed from the growth in sales
or income. Table 4.9 presents such data for the total industry and its major segments
namely, consumer electronics, computer hardware and communication equipment for
the period 2001-02 to 2007-08. It shows that in comparison with 2001-02 the growth
(%) in income and sales has improved significantly in 2007-08 for the industry and its
segments barring computer hardware, though growth was intermittent in between the
years. The computer hardware segment experienced positive growth in sales and
income throughout.

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Table 4.9: Financial Performance of Electronics Sector


Segment

Growth (%)

2001- 2002- 2003- 2004- 2005- 2006- 200702


03
04
05
06
07
08
Total
0.7
11.0
15.3
12.1 14.5 24.2
22.0
Total Income
Electronics
1.3
11.4
15.1
12.1
14.6
22.9
23.8
Sales
Industry
6.3
10.1
15.3 11.0 17.8
7.7
Raw Material Expense -1.8
Compensation to
4.7
3.4
11.8
11.9
8.2
14.2
11.5
Employees
Selling & Distribution -5.7
27.8
31.7
22.2
9.6
8.4
10.0
Expense
15.7
10.2
10.5
9.2
10.2 13.7
12.9
Gross Fixed Assets
Consumer
1.7
13.4
23.8
21.9
11.0
15.3
9.0
Total Income
Electronic
1.6
13.6
24.0
21.3 10.4 15.7
9.5
Sales
14.9
15.7
15.9
6.4
17.7
10.9
Raw Material Expense -3.1
Compensation to
11.2
-6.8
18.6
27.7 28.0
5.7
-11.5
Employees
Selling & Distribution -5.0
30.4
32.6
23.3
8.8
7.3
2.1
Expense
19.0
7.8
11.0
12.3 10.7 20.4
20.3
Gross Fixed Assets
Computer
2.6
13.9
33.0
-1.7 23.3 17.3 128.8
Total Income
peripherals
3.2
13.6
33.8
-2.7 23.2 18.0 129.8
Sales
and storage
11.5
22.6
26.0 34.2 11.9
-3.5
Raw Material Expense 7.1
devices
Compensation to
20.1
6.9
22.6
20.1 32.5 22.8
29.1
Employees
Selling &
3.5
14.2
45.1
22.0 20.9 12.9
21.3
Distribution Expense
54.7
46.3
28.0
13.7 10.3 14.7
13.1
Gross Fixed Assets
Communi- Total Income
-2.4
3.8
-7.4
3.5
30.4 56.7 -19.0
cation
-0.8
6.4
-8.8
3.3
32.3 57.0 -19.4
Sales
Equipment
9.8
32.6 11.9
-9.9
Raw Material Expense -2.7 -25.6 -6.9
Compensation to
6.0
8.4
-1.4
16.6 -10.3 7.7
4.6
Employees
Selling &
-17.9 48.9
10.9
26.6 45.5 12.5
18.1
Distribution Expense
4.6
1.8
3.8
-2.3 11.4
9.1
1.3
Gross Fixed Assets

Source: CMIE, Indusrty Financial Aggregates & Ratios, April 2009


4.4.3 Cost Vs Profit Analysis
The profitability (%) (Measured as PAT net of P&E/Avg. capital employed) of Indian
electronics and IT hardware industry has been displaying a fluctuating trend.
However, it may be noted that the electronics industry as a whole as well as all its
segments are earning profits during 2001-02 to 2007-08 period (table 4.10).

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Table 4.10 : Cost vs Profit Analysis of Electronics Sector


Segment

Characteristics

Electronics
Industry
Total)

Cost (as % of Sales )


Raw Material Expenses
Power, fuel & water charges
Compensation to employees
Advertising, marketing
& distribution
Profitability (%)
PAT net of
P&E/Avg. capital employed
Consumer Cost (as % of Sales)
Electronics
Raw Material Expenses
Power, fuel & water charges
Compensation to employees
Advertising, marketing
& distribution
Profitability (%)
PAT net of
P&E/Avg. capital employed
Computer Cost (as % of Sales )
peripherals
Raw Material Expenses
and storage
Power, fuel & water charges
devices
Compensation to employees
Advertising, marketing
& distribution
Profitability (%)
PAT net of
P&E/Avg. capital employed
Communica Cost (as % of Sales )
-tion
Raw Material Expenses
equipment
Power, fuel & water charges
Compensation to employees
Advertising, marketing
& distribution
Profitability (%)
PAT net of
P&E/Avg. capital employed

2001
-02

2002 2003 2004 2005 2006 2007-03 -04 -05 -06 -07
08

44.8
1.1
8.2
4.9

42.9
1.3
7.8
5.7

40.4
1.2
7.5
6.4

41.2
1.0
7.2
6.9

41.7
1.0
6.9
6.8

38.1
1.0
6.8
4.7

11.1

9.8

9.2

6.5

7.7

16.8 15.4

48.0
0.5
3.8
9.0

48.1
0.6
3.2
10.2

44.4
0.6
3.0
10.9

42.9
0.6
3.1
11.2

41.7
0.6
3.6
11.0

38.9
0.7
3.6
8.1

11.4

11.4 12.7 8.2

10.2 14.3 15.3

32.8
0.8
6.4
2.3

33.5
1.2
5.9
2.5

40.5
1.5
6.7
2.7

37.7
1.6
6.9
2.6

17.1

14.2 16.2 7.6

7.4

10.6 12.0

44.8
0.9
13.5
1.6

32.7
0.9
14.4
2.4

32.7
0.9
15.0
2.8

40.4
0.7
12.9
3.2

28.3
0.4
8.5
2.3

8.0

4.2

-3.4 -8.1 -19.5 16.7 7.7

29.6
1.2
5.1
2.2

36.7
1.3
6.2
2.8

32.1
0.7
15.8
3.5

33.7
1.0
6.6
3.4

39.5
0.8
3.1
5.9

16.4
0.9
4.0
1.5

34.2
0.6
12.4
3.6

Source: CMIE, Industry Financial Aggregates & Ratios, April 2009


But in later years, particularly during 2003-04 to 2004-05, profitability declined and
the total industry & two segments viz. consumer electronics and communication
equipment experienced either negative or very low level of profitability. However, the
latest year (2007-08) data present a reversal of this trend (table 4.10). Comparatively,
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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

the computer hardware segment had displayed better performance in this regard. One
of the main reasons for existence of low or fluctuating profit in this sector is high cost
of raw materials, which, in turn, due to higher dependence on imported raw materials.
4.4.4 Domestic Market Analysis
In the last decade, there has been a positive growth in the market size of almost all
electronics and IT hardware products and this is expected to provide the necessary
impetus to growth in production. Among various electronics products, the fast
growing segments are colour TV, DVD players and home theatre systems. The
buoyant mood in IT Hardware consumption in 2007-08 was led by significant growth
in notebook sales (180%). Consumption of desktops, however, grew by 8 per cent and
PC sales are projected to cross 6.5 million units.
Table 4.11: Market Size of each segment of the Electronics and IT
Hardware Sector
(Value in Rs Crore)
Electronics and IT
2005-06
Hardware Industry
Computers and its peripherals 5450

6967.2

CAGR (2005- CAGR (200606 to 2007-08) 07 to 2007-08)


7612.9
18.18
9.26

2237

6773.4

8112.3

90.43

19.76

Dry Cells

1415.9

1642.9

1579.1

5.60

-3.88

Storage Battery

3370.7

4760.7

7859.7

52.70

65.09

Audio Equipment

1369.3

2241.7

2682.2

39.95

19.65

Air conditioning Equipment

4973.9

6297.5

8655.6

31.91

37.44

Refrigerators

3673.9

4015.9

4411.0

9.57

9.83

Washing Machines

2347.5

2545.4

2996.9

12.98

17.73

Television Receivers
Watches and Clocks

9872.8
1078.5

10720.3
1332.6

11351.8
1488.7

7.22
17.48

5.89
11.71

Telephone Instruments

2006-07

2007-08

Source: CMIE (July 1998 & April 2009)

Table 4.11 shows the market size, which is estimated as sales plus the value of
imports for various Electronics and IT Hardware products. The high growth (around
15 % during 1994-95 to 2007-08) in the market size of computer and its peripherals
may be attributed to increased consumption by industry verticals such as Telecom,
Banking and Financial Services, Manufacturing, Education, Retail, IT-enabled
services (BPO & KPO) and e-Governance initiatives of both Cental and State
Governments. The downward trend in pricing, made possible by improved
technology, has further contributed to the growth domestic PC market.
During the period 1994-95 to 2007-08, there is a positive growth in the domestic
consumption of most of the electronics and IT products. Maximum growth is noticed
in case of telephone instruments, followed by air-conditioning equipment (Table
4.12). The growth in the telephone market may be attributed to the privatization of the
telecom sector where as the growth in air-conditioning market is due to the rising
purchasing power among the urban population.
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Table 4.12: Domestic Demand (Consumption) of Electronics and IT Hardware


(Value in Rs Crore)
Industry

2005-06

2006-07

2007-08

Computers and its peripherals 5264.2

6758.2

7413.8

18.67

9.70

Telephone Instruments

2215.9

6744.0

7990.9

89.89

18.48

Dry Cells
Storage Battery

1390.1
3190.5

1615.1
4523.6

1539.9
7556.1

5.25
53.89

-4.65
67.03

Audio Equipment
Air conditioning Equipment
Refrigerators
Washing Machines
Television Receivers

1100.0 1995.7 2541.7


4793.5 6099.8 8402.6
3558.6 3797.8 4064.4
2260.9 2512.2 2962.0
9542.3 10389.1 11046.7

52.00
32.39
6.87
14.45
7.59

27.35
37.75
7.01
17.90
6.32

Watches and Clocks


Source: CMIE (April 2009)

879.9

21.47

14.74

1131.6

1298.4

CAGR
CAGR
(2005-06
(2006-07
to 2007-08) to 2007-08)

However, in recent times, i.e., 2000-01 to 2007-08, domestic consumption of audio


equipment has experienced a negative growth. The decline in this sector may be due
to a favorable shift towards television, which has grown at about 12 percent during
1994-95 to 2007-08. It is interesting to note that there is a decline in the demand for
B/W television, but the demand for CTV has been rising.
4.4.5 Export Market Trend
The export of total electronics (i.e., electronics hardware and computer software) has
been growing significantly in the last one and half decade. It showed a growth of
38.74% during the period 1991 to 2008-09 (Table 4.13). This is mainly due to
49.75% growth in the export of software. However, the electronics hardware export
grew by only 22.91%. The competitiveness of Indian electronics and IT hardware
sector is low as compared to software industry. It is well reflected by the fact that its
share in the export of total electronics is continuously declining during this period
(Table 4.13). The share of IT hardware and electronics share was 63.33% in 1991 in
total electronics export which declined to just 8.07% by 2008-09.

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Productivity & Competitiveness of Indian Manufacturing IT Hardware & Electronics Sector

Table 4.13: Export Scenario of Indian Electronics and IT Hardware Industry


Share of
Export (Rs Crores)
Growth in export (%)
Electronics
Electronics Computer
Total
Electronics Computer
Total
Hardware Software Electronics Hardware Software Electronics Hardware
Year
export in
total
electronics
export (%)
1991
570
330
900
_
_
_
63.33
1992
775
500
1275
36.05
51.61
41.76
60.79
1993
897
900
1797
15.67
79.89
40.85
49.92
1994
1224
1351
2575
36.45
50.11
43.29
47.53
1995
2023
2350
4373
65.28
73.95
69.83
46.26
1996
2472
3500
5972
22.19
48.94
36.57
41.39
1997
2899
6100
8999
17.27
74.29
50.69
32.21
1998
1913
10500
12413
-34.01
72.13
37.94
15.41
1999
1961
16000
17961
2.51
52.38
44.70
10.92
2000-01
4644
27000
31644
136.82
68.75
76.18
14.68
2001-02
5800
36500
42300
24.89
35.19
33.67
13.71
2002-03
5600
46100
51700
-3.45
26.30
22.22
10.83
2003-04
7700
58240
65940
37.50
26.33
27.54
11.68
2004-05
8000
80180
88180
3.90
37.67
33.73
9.07
2005-06
9625
104100
113725
20.31
29.83
28.97
8.46
2006-07
12500
141000
153500
29.87
35.45
34.97
8.14
13200
164400
177600
2007-08
5.60
16.60
15.70
7.43
19000
216300
235300
2008-09
43.94
31.57
32.49
8.07
CAGR (1991-2000) %
26.25
63.13
48.52
CAGR (2000-01 to 2008-09) %
19.26
29.71
28.50
CAGR (1991 to 2008-09) %
22.91
46.45
38.74

Note : CAGR=Cumulative Average Growth Rate


Source: Data from 1991-1999, Guide to Electronics Industry Dept of IT & Data
from 2000-01 to 2001-02 is from Dept. of IT website, 2002-03 onwards from
Annual Report(2007-08 & 2008-09), DIT
Trend in Export Growth: Indias performance in the international market with
respect to various electronics and IT hardware product segments are discussed in
table 4.14. During the period 1991-2008, the electronics hardware export experienced
a growth of 21.76%. Among various segments of electronics hardware, maximum
growth was noticed in the export of Communication & Broadcast Equipment
(27.32%), Control Instn & Industrial Electronics (27.37%), Consumer Electronics
(17.94%) and Electronics components (24.72%).

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Table 4.14: Segment-wise Growth in Export of Electronics and IT Hardware (1991 to


2007-08)
( Rs Million)
Year

Consumer
Electronic

Control,
Data
Communication
Electronic
Strategic Electronic
Instn & Ind Processing & Broadcast
Hardware
Electronic Components
Electronic
Systems Equipment
Total

1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001-02
2002-03
2003-04
2004-05
2005-06
2006-07
2007-08

1211
1775
2000
3150
4500
5000
5590
4100
3410
6240
7000
7500
8250
11500
20000
15000
16972

810
1042
840
680
80
1940
910
930
60
7160
9500
14000
15150
15000
23000
30000
38850

1769
2672
3500
5610
7800
8920
12210
3920
4480
10020
18000
5500
14400
12000
10250
15000
9900

131
162
350
230
1950
3380
930
860
1100
4760
1500
5000
1650
3500
5000
6500
6250

0
43
410
140
100
400
20
100
30
10
_
_
_
_
_
_
--

1779
2061
1870
2430
4900
5080
8330
8220
8530
18250
22000
24000
37550
38000
38000
58500
61000

5700
7755
8970
12240
20230
24720
28990
19130
19610
46440
58000
56000
77000
80000
96250
125000
132972

CAGR
(19912000)

19.98

27.4

21.25

49.06

29.52

26.25

CAGR
(2000-01
to
2007-08)

15.91

26.46

-9.48

26.8522

18.5272

16.59

CAGR
(1991 to
2007-08)

17.94

27.37

11.36

27.3248

24.7232

21.76

Source: Data from 1991-1999, Guide to Electronics Industry Dept of IT & Data from 2000-01
to 2001-02 is from Dept. of IT website, 2002-03 onwards fro Annual Report (2007-08), DIT

It is an encouraging fact that the export share in total sales of electronics industry has
increased from 5.5 in 2000-01 to 8.7 in 2007-08 (Table 4.15). It is a clear indication
of the fact that the demand of Indian electronics good is increasing in the international
market. In 2007-08, export as a proportion of sales has been the maximum (15.8%)
for the other electronics segment where as that of the communication equipment
segment was minimum at only 3.5%.

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Table 4.15: Export as a proportion of Sales in Electronics and IT


Hardware Industry
Transaction Segment
2000- 2001- 2002- 2003- 2004- 2005- 2006 2007(%)
01
02
03
04
05
06 -07 08
(Export) /
Electronics Industry
5.5 6.6 7.4 8.8 9.5 9.6 9.9 8.7
(Sales)
(Total)
Consumer
3.1 2.5 2.7 4.1 5.6 6.4 5.8 5.1
Electronics
Computer peripherals
21.5 24.1 23.8 21.5 23.9 22.8 8.6
and storage devices
Communication
3.3 3.2 2.9 4.3 4.1 3.5 2.6 3.5
equipment
Other Electronics
6.8 7.9 9.9 11.2 14.1 11.1 14.0 15.8

Source: CMIE, March 2009


4.4.6 Related and Supporting Industries
The NASSCOM Deloltte report (2008) indicates that the contribution of IT/ITES to
the Indias GDP has steadily increased from a share of 1.2% in 1997-98 to 5.2% in
2007-08 and export earnings in 2007-08 is around US$ 40.0 billion with an annual
growth rate of 36%. The IT/ITES sector is the largest employer in the organized
private sector. The direct employment in the sector is estimated to be around 2.0
million at the end of 2007-08. Further, for every 1 job created in the IT/ITES sector, 4
additional jobs are created in the economy. This indirect employment is socially more
relevant as nearly 75% of the workforce employed in those additional jobs are
generally less educated (having SSC/HSC certificates). Further, the study shows that
US$ 15.85 billion spent by the IT/ITES industry in the domestic economy in 2005-06
generated an additional output of US$15.5 billion.
The growth in IT/ITES sector along with generation of additional employment and
rise in per capita income is gradually generating more demand for IT hardware and
electronics products in the domestic market. Therefore, Indias burgeoning IT/ITES
industry would surely act as a pull factor in strengthening competitiveness of
countrys IT hardware and electronics sector.
4.4.7. Main players and Market trends: For analysis of market trends of main
players under each product category, the data has been collected from the CMIE
report on market size and market share.

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Table 4.16: Share (%) and Market Trend of top players in Computers & its
Peripherals

Sector

Industry

Computers
and its
peripherals
IT Hardware

Telephone
Instruments

Company Name
Wipro
HCL Infosystems
Compuge Infocom
Wep peripherals
Zenith Computers
PCS Technology
D-Link (India)
Priya
TVS Electronics
LG Electronics
Lipi Data Systems
Motorola India Pvt
Bharti Teletech
LG Electronics
XL Telecom & Energy
Spice Mobiles

2006-07 2007-08
21.94
30.63
32.15
28.07
4.33
8.03
4.83
4.42
6.81
4.27
4.69
4.15
4.38
3.87
2.10
2.30
2.39
2.15
2.15
1.88
1.17
`
35.28
29.46
36.24
19.15
7.27
5.16
4.97
4.85
2.14
4.48

Source: CMIE (April 2009)


Wipro, Compuge Infocom, and Priya reported an increase in Computers and its
peripherals market share in 2007-08 over the 2006-07 (table 4.16). During 2007-08,
WIPRO reported the highest market share at 30.63% followed by HCL Info at
28.07%. These two companies have almost 60 % of the share in the domestic
computers and its peripherals market. The other major players are Compuge Infocom,
Web peripherals, Zenith Computers, PCS Technology.
In the telephone instrument market, the leaders are Bharati Teletech and Motorola
(India). The market share of Bharati Teletech has decreased from 36.24 % in 2006-07
to 19.15% in 2007-08 where as that of Motorola has gone down from 35.28% in
2006-07 to 29.46% in 2007-08. These two companies together command about 70%
of market share in 2006-07. However, their market share declined in 2007-08 to 50%.
The market trend of top electronic components manufacturers in India is shown in
table 4.17. Some electrical appliances like switchgear and process control instruments
are also included in the analysis as their functioning depends on the electronics
components embedded in them.

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Table 4.17: Share (%) and Market Trend of top players in Electronics Market
Sector

Industry

Company Name

Eveready Industries (India)


Nippon Batteries Co.
Dry Cells
Panasonic battery India Co.
Exide Industries
Amara Raja Battery
Storage Battery
HBL Power System
Videocon Electronics
Audio Equipment Philips Electronics (India)
Nippon Audiotronix
Blue Star
Air Conditioning
L. G Electronics India Pvt.
Equipment
Voltas
AT & S India Pvt Ltd.
Printed Circuit
Circuit Systems (India)
Boards
Electronics
Imericus Tech Pvt Ltd.
and
IT
Seimens
Hardware
ABB
Switchgears
L&T
Television
Videocon Industries
Receivers
L. G Electronics India Pvt.
(Including TV
Samsung India Electronics Pvt.
spares & KITS)
Samtel colour
Television Picture
JCT Electronics
Tubes
BPL Display Devises
Honeywell Automation
Process Control
ABB
Equipment
Yokogawa India
Titan Industries
Watches and
Timex watches
Clocks
Kamala Dials & Devices
Source: CMIE (April, 2009)

2006-07

2007-08

41.18
20.36
13.69
50.05
15.65
11.04
78.34
15.58
1.51
17.85
14.42
15.52
22.79
4.90
3.18
10.52
10.35
9.80
36.82
20.48
13.69

44.61
19.55
12.56
45.88
17.18
13.35
79.32
18.15
1.26
17.98
13.20
14.11
23.59
5.02
3.23
12.75
10.69
9.43
40.18
18.66
15.52

47.68
17.50
9.97
20.93
19.42
5.89
52.17
8.03
4.58

44.56
18.95
9.32
22.43
12.72
5.43
52.40
8.32
4.45

R&D, Innovation & Product Differentiation: A tech-savvy customer would always


like to possess electronics and IT hardware products built on latest available
technology. Hence, product differentiation is a necessary condition for
competitiveness of Electronics and IT Hardware Industry as a successful differentiator
would not only attract new customers but also invokes a competitive reaction that will
encourage others towards vertical movement in the product market.

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The one liner by Onida Owners Pride and Neighbours Envy is a good example to
understand consumers psychology. However, there needs to be continuous R& D
leading to innovation and product differentiation based on technology. This will help
a manufacturer to become the market leader as it would be very difficult for its
competitors to replicate the product without violating IPR norms. Thus the right mix
of unique and innovative products that are acceptable to the consumers is critical to
sustain and augment profits in the long run.
Market Segmentation: In developing economies like India, manufacturers of
electronics and IT hardware products while designing and pricing their products need
to take into consideration some key determinants of demand like existing socioeconomic disparity and rural-urban divide. Market segmentation may also be done
based on purchasing power of the majority of potential customers, available
infrastructure like power supply or voltage fluctuations etc., in that particular area.
Quality & Price Discrimination: The sovereignty of consumers is quite evident
through their revealed preference in favour of economically rational decisions. The
price of the products need to be competitive but not at the cost of quality. A single
low quality product is enough to spoil the reputation of a manufacturing firm and will
result in destroying the market demand for all other products of the brand in the long
run.
However, base models of an electronic product (e.g, Mobile, watch etc) with some
key features may be placed on the shelves at lower rates than the similar available
products of the competing firms. This will help firm in capturing the market
sentiments of the Indias vast population. Simultaneously, to target the rich and elite
class, exclusive models/ products need to be designed with advanced technology.
Such products may be priced at high premium, as they would give the owner a sense
of pride.
Customer Relationship Management: Customer Management or Customer Care is
a crucial differentiator in the electronics and IT Hardware Industry. Distribution
network could be an excellent source of competitive advantage for a manufacturer of
electronics and IT hardware products. Manufacturers need to build a good after sales
service network, along with strong brand positioning, to take care of customers.
Consumer helpline should address the complaints at the earliest.
Building a Global Supply Chain Network: The competitiveness of electronics and
IT hardware industry could be enhanced only through strengthening the global supply
chain network as the industry is highly dependent on the import of raw materials. The
cost of the supply network or logistic management network also needs to be assessed
through value chain analysis. Unless it is intervened at the right time there will be a
spiraling effect (e.g., rise in price of raw materials leading to high cost of production,
that would result in either rise in product price or incurring of loss by the
manufacturer) that would hinder the competitiveness of both the product and the firm.
However, while calculating cost, the efficiency and reliability of the supply chain also
need to be considered, as most of the products require handling with care and to be
delivered in time.
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Skill Development: The manufacturers may sponsor either one or two centers or
some students through fellowship in the technical institutes and get them trained
according to their requirement. This may partially solve the problem of unavailability
of technical manpower.
e-waste Management: Since disposal of e-waste by individuals is not always
possible, the manufacturers need to take care of it through schemes like exchange
offer. This would help them not only in getting back the old products for scientific
disposal and creating safe environment but also help in sales promotion.
Productivity Enhancement for Raising Profit Margins: Manufacturers of
electronics and IT hardware need to take special care towards efficient utilization of
plant and machinery, reduction in waste etc. It would result in raising the productivity
level of the firms and lowering the cost of production, thereby increasing the profit
margins. A part of enhanced profit may be passed to the customers through lowering
of product prices. This would certainly make indigenous products more competitive in
the domestic market and reduce import substitution.
Contract Manufacturing/EMS: Indian entrepreneurs or companies may explore the
opportunities of functioning as Electronics manufacturing services (EMS) companies
to larger Original Equipment manufacturers (OEMs). In this case, OEMs would
provide Indian EMS with a full range of services like contract design, prototyping,
final system assembly, configuration, order fulfillment, and repair and after-market
services. Further, being part of OEMs, Indian EMS could be able to reap other
benefits such as research and product development, brand building, sales and
marketing network of OEMs.
4.4.8 Role of Government

Government plays a key role in creating a favourable environment in which IT


hardware and electronic manufacturing firms can flourish. It is clear from Table 4.18
that since 1966, a number of policies have been formulated to facilitate the growth of
the Indian IT hardware and electronics sector. Most of these policies were formulated
keeping a specific objective in mind.

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The Fifth report of the Standing Committee on Information Technology (2004-2005)


Fourteenth Lok Sabha has already recognized that In Hardware, there are constraints
galore in terms of duties, taxes, lack of investment in R&D and others. The biggest
constraint that is slowing down growth in all the three sectors viz., Software, IT
enabled services and Hardware is inadequate communication infrastructure. It has
already been suggested that the Government has to look into all these aspects
urgently and the industry has to come forward to invest in Hardware design and
manufacturing and build world-class quality levels on Hardware. All possible
encouragement should be extended to small and medium entrepreneurs who have
brought out innovative products.
Fiscal incentives like rationalization of tariff on raw materials and capital goods,
lowering of excise duty on IT and Electronic goods, introduction of full Value Added
Tax (VAT) etc in conjunction with free environment to the manufacturers, speed of
business, proper communication, power supply, strong engineering and design base,
adequate R&D facilities etc. are the key to a successful and competitive hardware IT
industry.
Table 4.18: Electronics Policy in India (1966-2008)
1. Bhabha Committee (1966) Report Recommended development of an integrated electronics sector to
achieve self-reliance with minimal recourse to foreign capital and
dominant role to public and small-scale sector.
2. Formation of The Department of The Department was endowed with the responsibility for
Electronics (1970)
developing Electronics industry in the Country
3. Formation of Electronics
Commission (1971)

This was mainly the policy formulating body relating to


electronics industry in the country.

4. Sondhi Committee (1979)

Recommended dismantling of controls in general and MRTP and


FERA in particular.

5. Menon Committee (1979)

Recommended liberalization of import of foreign capital and


technology and duty free import of capital equipment.

6. Components Policy (1981)

De-licensing of component manufacture except for MRTP and


FERA companies. Provision of 74 per cent foreign equity to
FERA companies in high tech. areas. No clearance required
under section 21 and 22 of MRTP Act except for LSI and VLSI
circuits. General reduction in duty on components and liberal
import of capital goods for component manufacture.
7. Telecommunication Policy (1984) Telecommunication equipment manufacture was opened to
private sector.
8. Computer Policy (1984)
All Indian companies, including FERA, were allowed to enter all
segments of companies the computer industry with no restriction
on capacity. Most of the components needed were put under
OGL to facilitate import.
9. Integrated Policy (1985)
De-reserved certain components of small-scale sector. Introduced
broad-banding and liberal approach towards foreign companies
even with more than 40 per cent equity in high technology areas.
10. Computer Software Policy (1986) Reduction in the import duty on all imports meant for software
exports and no duty for hundred per cent export. Provision of
special financing schemes and permission for foreign companies
(with more than 40 per cent equity) in hundred percent export
projects.
11. National Taskforce on ICT (1998) Made 104 recommendations on Software and 87 on Hardware
development in the Country.
12. Telecommunication Policy (1994,

Opening up the Telecommunication Services for the private

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1999)

sector

13 Formation of MIT (1999)

Brought Together different actors involved in IT to form a separate


Ministry of Information Technology.

14. Information Technology Act


2000

A legal framework for transactions carried out electronically, was


enacted to facilitate e-Commerce, e-Governance and to take care
of computer related offences.
Several Special incentive schemes announced through extra
ordinary Gazette notification (No.78 March 21, 2007). The
special incentive package shall be available upto 31 March 2010.

15 Semi Conductor Manufacturing


(Fab Units) Special Incentive
Package, 2007

Source: Joseph, K.J. (2005) & Ministry of Communications & Information Technology, Annual Report,
2007-08 &2008-09

4.49 Recent Policy Initiatives : To tap the full potential for growth of the hardware
industry, the Department. of IT along with National Manufacturing Competitiveness
Council (NMCC) have been taking initiatives to energize and sustain the growth of IT
Hardware manufacturing industries in India. Of course, some major steps/Policy
Initiatives (Table 4.19) have been already taken to make the Indian IT hardware and
electronics sector globally competitive.
Table 4.19: Recent Policy Initiatives
National e-Governance Plan
(NeGP)

State Wide Area Network


(SWAN)
State Data Centres (SDCs)

Common Service Centres


(CSCs)
Capacity Building Scheme

e-Readiness

Special Incentive Package


Scheme (SIPS) for
Semiconductor Fabrication and
Micro and Nanotechnology

DIT on June 14, 2006 in a major initiative unveiled various


components of the ambitious National e-Governance Plan
(NeGP) covering 27 Mission Mode Projects and eight support
components to be implemented at Central, State and Local
Government levels, at an estimated cost of Rs. 23,000 crore over
the next five years. At the State level the Mission Mode Projects
(MMP) would include services around road transport, land
records, commercial taxes, employment exchanges, agriculture,
civil supplies, treasuries, land registration, policy and education,
while at Central level, it will cover areas such as insurance,
Central Excise, National ID, pensions, e-Posts, banking, passport,
visa and income-tax.
The Scheme has been approved across the country in 29 States/ 6
UTs with a total outlay of Rs.3,334 crore over a period of five
years.
The policy guidelines for technical and financial assistance to the
States for setting up of SDC have been circulated to the States.
The Government has approved the Scheme in January 2008 at an
estimated cost of Rs. 1623.20 crore to cover 28 States/6 UTs
across the country
A Scheme to facilitate establishment of 1,00,000 broadband
internet enabled CSCs in rural areas of the country has been
approved with an estimated cost of Rs 5,742 crore and is being
implemented in Public Private Partnership mode.
Capacity Building Scheme under NeGP, with an outlay of Rs.
313 crore over three years, has been approved to provide
technical and professional support to thedecision makers in the
States/UTs including NEStates.
The e-Readiness Assessment report of States/UTs was released in
2008 by NCAER. One of the key features of the report is the use
of Social Accounting Matrix to assess impact of ICT on social
dimensions such as poverty.
SIPS was announced in March 2007 to attract investments for
setting up semiconductor fabrication and other micro and
nanotechnology manufacturing industries in India The incentive
would be 20% of the capital expenditure if the units are set up in

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Manufacture Industry

the SEZs. For units set up outside SEZ, the incentive would be
25% of the capital expenditure plus exemption from
countervailing duty (CVD). Fab units with threshold Net
Present Value (NPV) investment of Rs. 2,500 crore would be
covered by the SIPS. For other units in the ecosystem, there
would be a threshold NPV investment of Rs. 1,000 crore. A set of
guidelines for implementation of SIPS has also been formulated
and issued on 14 September 2007.
National Knowledge Commission has recommended setting up of
National Knowledge Network
high-speed digital broadband network with adequate capabilities
and access speed to encourage sharing of resources and
collaborative research. The primary objective of the proposed
integrated National Knowledge Network is to provide gigabit
broadband connectivity to all institutions of higher learning and
research in the country. An allocation of Rs. 100 crore has been
made in the year 2008-09 for implementing the scheme.
This program aimed at pervasively spreading the benefits of eHorizontal Transfer of
Governance across the country. In the first phase, projects on
Successful e-Governance
Land records, Transport and Registration were taken.
Initiatives
This project provides a single window access to the Indian
India portal
Government at all levels from Central Government to State
Government to District Administration and Panchayats for the
Citizens, Business and Overseas Indians.
This standardization activity enables collaboration and
Standards for e-Governance
integration across various e-Governance applications.
NSDG is standards based middleware architecture which will
National e-Governance Service
facilitate interoperability and seamless data exchange amongst
Delivery Gateway (NSDG)
various government departments. NSDG will also provide a
secure and simplified interface to the external world for the
departments.
The object of this is to create a Central Database & generate UID
Unique ID Project for BPL
for residents primarily for effective reach of social sector
Families
benefits. Currently, a central database of 68.77 crore records has
been created and work is going on for a proof of concept to look
at integrating the National Population Register (NPR) and the
UID. An Empowered Group of Ministers (EGOM) approved the
creation of a UID Authority under the aegis of the Planning
Commission.
The Department taken up the initiative for setting up of
Community Information
Communication Information Centres (CICs) in the hilly, farCentres (CIC)
flung rural areas of the country to bring the benefits of ICT to the
people.
Information & Communication ICTD started with an initial funding of USD 5.0 million from
UNDP and additional Swedish International Development
Technologies for Development
Agency (SIDA) funding of USD 0.5 million.
(ICTD)
This programme seeks to provide responsive and credible
India Development Gateway
information, products and services in local languages catering to
(InDG)
the needs of rural communities.
Under this project, the Department has created 7 national
Conformance Assessment
infrastructures (region-wise) in terms of skills, knowledge and
Centres
experience with technical and legal expertise in the areas of
information Security, Software Quality, IT Service Quality,
Legal and ethical issues of web sites etc. the project is being
executed by Standardization, Testing and Quality Certification
(STQC).
Source: Annual Report (2007-08 & 2008-09), DIT, GoI

DIT prepared "A Discussion Paper on the Conceptual Policy Framework to Promote
Growth of Electronics/IT Hardware Manufacturing Industry" in consultation with the
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stakeholders with the objective to make the industry globally competitive, to attract
more Foreign Direct Investment (FDI) into the industry, to bring down the prices of
the end products (by bringing down the production cost and increasing volumes to
take advantage of economies of scale), to increase the demand, to compensate for
disabilities until the basic infrastructure constraints that the nation faces are removed,
and to move towards total taxation level of 12 - 15 per cent over a period of 3 years.
In order to examine the proposals/ suggestions a Task Force to promote growth of
Electronics/IT hardware manufacturing industry was set up. The recommendations
pertained to Infrastructure development, Incentives for R&D (Support to encourage
filing of international patents, Promotion of technology and innovation focused start
ups, Multiplier grants for industry sponsored research programs with premier
Academic and Government R&D institutions), Environmental considerations
(Management of E-Waste, EMC / EMI & safety standards), Tariff issues & fiscal
incentives, Special incentives to encourage investments for setting up semiconductor
fabrication & other high tech Electronics/IT products, Demand creation measures,
Promotional measures, Role of State Governments and Skill development. Based on
the recommendations of the Task Force, action has been initiated by the concerned
Ministries/ Departments to implement the same.
The salient features of the existing tariff Scheme/policy applicable to Electronics and
IT Industry are as under.
Customs
Peak rate of basic customs duty is 10%.
India is a signatory to the Information Technology Agreement (ITA-1) of the
World Trade Organization and w.e.f. 1st March 2005, the basic customs duty
on all the specified 217 tariff lines has been eliminated.
All goods required in the manufacture of ITA-1 items have been exempted
from customs duty subject to Actual user condition.
Information Technology (IT) Software is exempted from customs duty.
Customs duty on specified raw materials and inputs used for manufacture of
electronic components or optical fibers / cables is 0%.
Customs duty on specified capital goods used for manufacture of electronic
goods is 0%.
Customs duty on MP3 / MP4 / MPEG4 players is 5%.
Set top box and their major parts are exempted from basic customs duty.
Basic customs duty on project imports is 5%.
Central Excise
The general rate of excise duty (CENVAT) is 14%.
Excise duty on computers is 12%.
Microprocessors, Hard Disc Drives, Floppy Disc Drives, CD ROM Drives,
DVD Drives/DVD Writers, Flash Memory and Combo-Drives are exempted
from excise duty.
Parts, components and accessories of mobile handsets including cellular
phones are exempted from excise duty.
Excise duty on MP3 / MP4 / MPEG4 players is 8%.
Wireless data modem cards are exempted from excise duty.
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Central Sales Tax


Central Sales Tax (CST) has been reduced from 3% to 2%.
Other Policy Measures
Supplies of Information Technology Agreement (ITA-1) items and notified zero duty
telecom/electronic items in the Domestic Tariff Area (DTA) by Electronics Hardware
Technology Park (EHTP)/ Export Oriented Unit (EOU)/ Special Economic Zone
(SEZ) units are counted for the purpose of fulfillment of positive Net Foreign
Exchange Earnings (NFE).
Special Economic Zones (SEZs) are being set up to enable hassle free manufacturing
and trading for export purposes. Sales from Domestic Tariff Area (DTA) to SEZs are
being treated as physical export. This entitles domestic suppliers to Drawback/ Duty
Entitlement Pass Book (DEPB) benefits, CST exemption and Service Tax exemption.
100% Income Tax exemption on export profits is available to Special Economic Zone
(SEZ) Units for 5 years, 50% for next 5 years and 50% of ploughed back profits for 5
years thereafter.
It is expected that the Electronics Industry will utilize the incentive package available
under SIPS to plan investments for setting up manufacturing facilities in the country
for high-tech products. Thus, the Government Departments/Ministries play a key role
in removing all impediments that the Indian hardware industry is presently
encountering to make it as competitive as its Chinese counterpart.

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CHAPTER V
Field Survey Findings: IT Hardware & Electronics
5.1 Introduction
National Productivity Council conducted a field survey of IT Hardware and
Electronics manufacturing units located at different regions of the country during
March-April 2008, to find out the factors affecting the productivity and
competitiveness of the sector. The survey was carried out across 12 states namely,
Andhra Pradesh, Delhi & NCR, Gujarat, Himachal Pradesh, Maharashtra, Karnataka,
Kerala, Rajasthan, Punjab, Tamil Nadu, Uttar Pradesh, and West Bengal. The units
were personally interviewed based on structured questionnaires (Annexure 1). A
detailed analysis of the responses received from the IT hardware and electronics
manufacturers during the field survey was undertaken and the results are summarized
in the following sections.
A total 93 of IT Hardware and Electronics units co-operated with NPC survey and
their state wise distribution is shown in table 5.1. The responses against each question
have been analyzed with a view to identify the factors hindering the productivity and
competitiveness of Indian IT hardware and Electronics Sector.
Table 5.1: State wise distribution of respondents from IT Hardware & Electronics
Firms

State
Number
Andhra Pradesh
6
Delhi & NCR
18
Gujrat
12
Himachal Pradesh
14
Maharashtra
3
Karnataka
13
Kerala
1
Rajasthan
9
Punjab
4
Uttar Pradesh
11
West Bengal
2
Total
93
Source: NPC-field survey March-April 2008

Respondent
%
6.5
19.4
12.9
15.1
3.2
14.0
1.1
9.7
4.3
11.8
2.2
100.0

5.2 General Profile of Respondents


During survey an attempt was made to cover IT Hardware and Electronics units from
different categories viz., Small, Medium and Large. Among the respondents majority
of them (83.9%) belonged to Small Scale Sector and only (6.5%) belonged to
registered manufacturing category. It is a clear indication that the industry is still in a
nascent stage of development (table 5.2).
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Table 5.2: Profile of IT Hardware and Electronics Firms/Units Surveyed


Total Number of Respondent (93)
Respondent
(%)
Criteria
Sub Criteria
Nature

Primary Business

Category

Quality Accreditation
Engaged in Export
Engaged in Import
Extent of ICT in firms
operation/production

Extent of FDI in your Firm

Acquisition of firm in other country


Performance in last five years
Conducted/ Commissioned R & D
Introduce Product Innovation
Product Patented

Small Scale Sector


Informal Sector
Registered Manufacturing
Other
Manufacturing
Trading Company
MNC
Other

83.9
2.2
6.5
5.4
63.4
19.4
2.2
3.2

Small
Medium
Large
Other
Yes
Yes
Yes
0-5%
5-10%
10-25%
25-50%
Above 50%
Not Applicable
0-5%
5-10%
25-50%
Above 50%
Not Applicable
No acquisition

79.3
12.0
7.6
1.0
57
41.4
38.0
9.2
6.6
1.3
1.3
18.4
63.2
5.5
1.4
15.1
1.4
76.7
95.0

Yes
Yes
Yes

47.4
30.1
13.8

Further, it is noticed from Table 5.2 that 95% of the respondents are local
manufacturers without any foreign direct investment. Particularly, large sized firms
have no foreign investment of any kind though 8 % of small and medium sized firms
have foreign partners with less than or equal to 50% ownership. This gives a clear
indication that govt should provide incentives to attract FDI or any kind of fgn
intervention in IT and Hardware industry.
The involvement of these firms in international trade is also moderate (i.e., export
41.4% and import 38.0%). Approximately 56% units export less than 50% of their
total sales. Such units include 80% of large scale firms and 53%small and medium

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sized firms. 60% of firms import less than 50%. These 60% units include all large
sized firms surveyed and half of the small and medium sized firms.
Taking an aggregate view of exports and imports it can be observed that IT Hardware
& Electronics industry doesnt have a significant contribution in trade. Also, whatever
contribution the industry has, an active role is played by small and medium sized units
as compared to large sized units.
But it is encouraging to note that 57% of the respondents have various quality
accreditations like ISO 9001:2004, ISO 9000 etc.
Less than 50 % of the firms spend on Research and Development. Only 66% of large
sized firms are involved in R&D activities. On the other hand when small and
medium sized units were observed only 46% of these firms were indulged in
R&D.(table 5.3)
Table 5.3 : Research and Development (number of manufacturing units)
Respondant

Yes

No

Total

Small

46

54

100

Medium

50

50

100

Large

66

34

100

Total
5.3 Productivity and Competitiveness
The productivity and competitiveness in case of most of the IT hardware and
electronics firms have increased during the last five years. For instance, increase in
total productivity is reported by 66% of the units surveyed where as, labour
productivity has increased for majority (74.5%) of IT hardware and electronics
manufacturers (table 5.4). This might have resulted in increasing the overall
competitiveness for 87% of the respondents.

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Table 5.4: Productivity & Competitiveness in the IT Hardware & Electronics


Firms
Respondent (%)
Response

Increase

Total Factor
Productivity

66.0
6.0
28.0

Labour
Cost
Price
Competitiveness
Productivity
Competitiveness Competitiveness

Decrease
No Change
Extent of Increase in Productivity

74.5
10.6
14.9

87.0
8.7
4.3

82.2
7.8
10

84.7
11.8
3.5

1-5%

5-10%

10-25%

25% & Above

41.1

19.2

39.7

Labour Productivity
39.0
Extent of Increase in Competitiveness

26.0

33.8

1.3

Total Factor Productivity

1-10%
Cost Competitiveness
Price Competitiveness

48.7
48.6

10-25% 25-50%

36.8
42.9

10.5
8.6

50 % & Above

3.9
0

However, variation is noticed among the firms who experienced an increase in total
factor productivity (TFP). For instance, for 41.1% of IT hardware and electronic firms
TFP increased in the range of 1-5% while another 39.7% had 10-25% increase in
TFP. Similar variation is also seen in case of firms who had increase in labour
productivity.

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Table 5.4 shows that 80-85% of the respondents have reported an increase in both
cost competitiveness as well as price competitiveness of IT hardware and electronics
products. Further, analysis of survey data reveals that increase in cost competitiveness
and price competitiveness has been in the range of 1-10% for around 48% of the
respondents.
5.4 Employment Trend
The analysis of survey results in Table 5.5 indicates that 81% of respondents have
reported growth in salary and among them almost 50% experienced 10-25% hike in
salary. Employment has grown in 63.3% of IT hardware and electronics firms but the
extent of increase in employment varied among firms. The majority of respondents
are from small sector and increase in casualisation of labour is reported by 31.3% of
firms.
Table 5.5: Employment Trend in the IT Hardware & Electronics Firms
Respondent (%)
Response

Growth in Employment Casualisation of Labour Growth in Salary


in last five years
in last five years
(2000-2008)

Increase

63.3
10.0
26.7
0

Decrease
No Change
Dont Know

31.3
4.5
31.3
32.8

81.0
2.4
16.7
0

Extent of Increase
Employment
Salary

1-5%

5-10%

10-25%

25% & Above

28.8
13.7

37.3
30.1

25.4
49.3

8.5
6.8

%age of units

Extent of Increase in Em ploym ent in Last 5


Years
40

37.3
28.8

25.4

30
20

8.5

10
0
1-5%

5-10%

10-25%

25% &
Above

%age increase

5.5 Market Trend


Though the percentage of respondents reporting increase in profitability has remained
unchanged at around 74%, it is a matter of concern that profitability after 2000 has
declined in case of 10.1% of respondent against 4.3 % of respondent during 19912000 (Table 5.6). The increase in demand for IT hardware and electronics product in
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the international market has been experienced by 66.7% of the exporters. However,
among these firms there is variation in the extent of increase in export demand for
various products.
Table 5.6: Market Trend of IT Hardware and Electronics (Last Five Years)
Respondent (%)
Response

Growth in
Growth in
Export
Domestic Demand

Increase

66.7
21.4
11.9

Decrease
No Change

86.8
6.6
6.6

Extent of Increase in Demand


Respondent
(no.)
Export Market
28
Domestic Market

Profitability
(PAT)
(1991-2000)

Profitability
(PAT)
(After 2000)

74.3
4.3
21.4

74.2
10.1
15.7

1-5%

5-10%

25.0

42.9

17.9

14.2

17.3

33.3

35.8

13.6

81

10-25% 25% & Above

Extent of Increase in Exports


50

42.9

%of units

40
30

25
17.9

20

14.2

10
0
1-5%

5-10%

10-25%

25% & Above

%age incrrease in Exports


1-5%

5-10%

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Extent of increase in Domestic Demand

%age of units

40

35.8

33.3

30
17.3

20

13.6

10
0
1-5%

5-10%

10-25%

25% & Above

%age increase in dem and


1-5%

5-10%

10-25%

25% & Above

It is encouraging to note that growing demand for Indian IT hardware and electronics
is noticed in both domestic and export market. Majority of the units (86.8%)
witnessed a growth in the domestic demand. Table 5.6 shows that domestic demand
has grown in the range of 10-25% for 35.8% of firms where as for another 33.3% of
firms domestic demand increased by 5-10%. Further, analysis of survey data reveals
that competition is intense in the domestic market and this has been admitted by
53.9% of the firms.
90% of the industry comprises of small and medium sized firms and most of these
firms have a market share of less than 10%. This observation clearly goes with the
economic assertion that larger the number of firms smaller the market share of each
firm. Most of the large sized firm have a market share above 10%.(Table 5.7 )
Table 5.7: Market Share (number of manufacturing firms)
Respondants

1-5%

5-10%

10-25%

25%&
above

Small

45

13

Medium

3
1
19 (21.34)

1
Large
Others
50 (56.17%)
11 (12.35%)
Total
Note: Figures in bracket are in percentage

Total

9 (10.11%)

71
(79.77%)
10
(11.23%)
7 (7.86%)
1 (1.12%)
89 (100%)

56% of firms in the industry have 50% and above domestic market sales to their total
sales. 56% of small and medium sized firms can be included in this category whereas
57% of large sized firm lie in this category. (Table 5.8)

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Table 5.8: Domestic market share


Respondant 1-10%

10-25%

25-50%

Small

12

Medium

10
(11.49%)

15
(17.24%)

36
5

13
(14.94%)

6
(6.89%)

43
(49.42%)

Large
Total

50-75% 75%&
above

Total
70
(80.45%)
10
(11.49%)
7
(8.04%)
87
(100%)

Note: Figures in bracket are in percentage


5.6 Analysis of Export and Import
The competitiveness of Indian IT hardware and electronics products can be assessed
from trade analysis of raw material and finished goods. Table 5.9 shows that export
constitutes more than 50% of total sales in case of 42.1% of the respondents.
However, import of raw material and finished good is also substantial. Analysis of
survey responses shows that almost 40% of the respondents are importing more than
25% of raw material used in the production of goods. In addition to this, finished
goods to the extent of 10-25% are imported by 37.5% of respondents.
Table 5.9: Extent of Trade of Raw material and Finished Products
Respondent (%)
Respondent
Range
(No.)
1-10% 10-25% 25-50% 50 & Above
Export to Total Sales
Import of Raw Material
Import of Finished
Products

38
28

21.1
25

26.3
35.7

10.5
14.3

42.1
25.0

16

50.0

37.5

6.3

6.3

Analysis of survey response (Table 5.10) reveals that export of IT Hardware and
Electronics is getting hampered because of the combined impact of a number of
factors like export taxes, Inspection fee, Certification etc. But as a single factor
Inspection fee has been cited by 16.5% of the respondents as a major factor hindering
export of electronics products. Importers have reported that Import pricing scheme
and import licenses play a crucial role in determining the extent of import of IT
hardware and electronics items.

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Table 5.10: Factors Hindering Trade of IT hardware & Electronics


Export

Import

Factor
Respondent
Respondent (%)
(%)
Export Taxes
4.2
Import Pricing Scheme
27.8
Certification
8.3
Import Licenses
11.1
Inspection Fee
16.5
Import Prohibition
27.8
State Trading
12.5
Import Licenses +
Administration
Quantitative safeguards
11.6
measures
Dual Pricing Scheme
4.2
Export Taxes +
20.4
Import Licenses +
11.6
Inspection Fee
Import Prohibition
Export Taxes + Dual
4.2
Pricing Scheme
Certification +
16.7
Any Other*
11.8
State Trading
Administration
Factor

Note: Under any include Custom clearance problem etc.

5.7 Impact of Import on Price of Finished Products


Table 5.11 shows that import of raw material as well as finished goods have
significant impact on the price of Indian IT Hardware and electronics products. In
case of 66.7% of respondents the price of finished Indian products have gone up
around 10-25% due to increase in import of raw material.
It is important to note that there is intense competition in the domestic electronics
market from imported products mainly from China. These imported Chinese products
are much cheaper than Indian IT Hardware and Electronics. To sustain in this
competitive market, most of the times Indian manufacturers have to reduce the price
of their products. Table 5.11 clearly shows that price decline to the extent of 10-25%
has been reported by 77% of the respondents.
Table 5.11: Impact of Import on Price of Finished Products during Last Five Years
Respondent (%)

Impact

Respondent 0-10%
(No.)

Price Rise due to Increase in


import of raw material
Decline in Price due to Increase
in import of finished products

10-25%

25-50%

63

15.9

66.7

17.5

61

8.2

77.0

14.8

5.8 Analysis of Cost of Production


In the IT hardware and electronics sector, raw material is mostly imported. Analysis
shows that the fact is also accepted by 52.9% of the respondent and the share of raw
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material in total cost of production has increased in case of 64.7% of the firms (Table
5.12). However, Indian manufactures while importing raw material could not reap the
benefit of rise in rupee as it was offset by simultaneous rise in the price of raw
material in the international market. As a result almost 30% of the IT hardware and
electronics firm end up with raw material expense contributing more than 50% of
their cost of production (Table 5.12).
Table 5.12:Change in Components Share in the Total Cost of Production
(Last Five Years)

Response

Respondent (%)
Wages & Salaries Raw Material

Increase
Decrease
No Change

73.8
7.5
18.8

64.7
16.5
18.8

Interest

Taxes

57.8
7.2
34.9

83.5
3.5
12.9

Most of the IT hardware and electronics firms (73.8) have experienced an increase in
the share of wages & salaries in the total cost of production. However, the
contribution of wages & salaries to total cost of production is 10-25% in 50.6% of
firms (Table 5.13). Fuel & energy have only 1-10% share in total production cost for
majority of firms.
Table 5.13:Analysis of Cost Components in IT Hardware and Electronics Firms
(Current)

Contribution to Total
Production Cost
Wages & Salaries
Raw Material
Fuel & Energy
Interest
Taxes

Respondent (%)
1-10%

10-25%

25-50%

50-75%

40.2

50.6

8.0

1.1

4.6
42.0
49.4
28.2

27.6
22.7
34.5
56.5

37.9
33.0
9.2
7.1

29.9
2.3
6.0
8.2

5.9 Factors Affecting Productivity and Competitiveness


The hindrances may be related to different factors of production like labour,
machinery, raw material etc or the economic/business environment under which these
units are operating. In table 5.14, the factors hindering productivity and
competitiveness of Indian IT hardware and electronics sector is arrived at after a
detailed analysis of responses from surveyed questionnaire and discussion held with
manufacturing firms.

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Table 5.14: Factors Affecting Productivity & Competitiveness of IT hardware and
Electronics Firms
Problem
Factor
Remark
Input/
Non availability of raw
Raw Material material

Labour
Related

Shortage of Skilled
Manpower
Old workers in the
factory
High rate of Attrition /
Not attractive for
Young Work Force
Casualisation of labour
and lack of HR Policy
Work Environment

Machinery

Automation
Outdated Technology

New Machinery
Imported machinery

Usually imported and assembled in India to


produce finish product
Quality not Assured in local markets
Weak Supply Chain Network/Vendor support
Upward Trend in Cost
High (electricity & water), Wages & Salaries
Non Availability of Trained Manpower
Dearth of technical manpower due to present
educational system
Salary not Competitive
Software and ITES sector are more lucrative
than hardware
No Social Security
No Incentive Schemes
Small firms/units dont have safety system and
workers are prone to occupational hazards
Reluctant to adapt to New Machinery /
Technology
As the older model machines are not
manufactured any more, new spares are not
available in the market.
Inefficient, High Maintenance Cost
Finance/Interest rate high for upgradation
Lack of after sales service facility
High cost

Spare parts are very costly


Though policy permits import of second
hand spare parts, it is impossible to prove
that these parts are with 80% remaining
lifetime
Factor

Infrastructure Power
Physical infrastructure
Space & layout
problem
Transport System
/Logistic Management
System
Distribution Network
Quality
Quality Standards

Governance/

Remark

Problem

R & D, Innovation
Taxes

Irregular Supply/interruptions
Road, Airports, Ports, Power
High Realty Price
Lack of e-Waste Management System
Inefficient /Long time in shipment
High cost

Not well developed


Majority of public are ignorant about energy
efficiency
Lack of awareness about Implementation
process/procedures
Not Sufficient
High

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Trade Policy

Attitude towards
entrepreneurs/businesse
s houses

Poor dissemination of policies / procedures

relating to establishing a new


manufacturing unit
Not transparent
Slow in processing of files & clearing licenses

Export-Import
Procedures

Withdrawal of tax holidays w.e.f 2009-10


granted to EOUs would be a huge set back.
Delay in import clearances slows down
completion of time bound project, as well
as export production by Units
Import of capital equipments under zero
percent EPCG was withdrawn during the
year 2002 policy changes has adversely
affected and discouraged good performers

Finance

Difficulties in capital mobilization for small


firms
High interest rate
Low Export Earnings
Reduction in profit margin
Is raising the cost of Raw material
Consumer is postponing the purchase of IT
hardware and electronics items and thus
affecting the growth of the sector
Capturing local market
Intense from imported products

Economic
Chance
factor

Rupee-dollar
conversion ratio
Inflation

Market

Unorganised Sector
Competition

The manufactures of IT hardware and Electronics products are generally dependent


on imported raw material. The analysis revels that 52.9% use imported raw material
where as 42.5% raw material within the country.
Most of the respondents (57.5%) feel that the quality of human resource is declining,
as they are not trained/suited for industry. The attrition rate is also very high due to
low salary packages than the ITES sector. Almost 56% of the manufacturers are not
satisfied with the prevailing educational system as it has only focused on software and
not fulfilling the requirement of IT hardware and electronics industry. As there is
acute shortage of manpower for the industry, a few of the respondents want ITI or
Diploma colleges to focus on IT hardware and electronics courses.
It is to be noted that 60% of the respondents are not satisfied with the existing quality
of infrastructure. Inadequate physical infrastructures transport system, road, port,
airport, etc and fluctuation in power supply is adversely affecting the productivity of
the IT hardware and electronic firms.
The respondents (55.2%) are satisfied with the present level of computerization of
government Departments. Further, around 44% of the units reported that the system is
neither transparent nor investor friendly and 55% feel that government efficiency and
interface with business or private sector needs to be improved. The time required for
processing files also needs to be reduced drastically and simplification of procedures
is a necessity to enhance productivity and competitiveness of the sector.
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5.10 Measures taken by Firms to enhance Productivity & Competitiveness


In order to overcome the hindrances, the IT hardware and electronic manufacturers
have taken several steps (Table 5.15 and Table 5.16) at firm level to enhance the
productivity of their firms and competitiveness of products. These measures have
played important role in improving both total factor productivity and labour
productivity of majority of the respondents.
Table 5.15: Measures Taken by Firms/Units to Enhance Productivity
Measure Initiated

Productivity

Labourers are trained and designed for fresh and productive


output in the company
When the labour is trained in the line, incentives are provided
in addition to pay, so that they use their knowledge at work.
Healthy working environment
Hiring experienced labourers for the company
Good coordination in work
Technology Upgradation/ Replacement of Old Machines
Preventive Maintenance
Quality examination and upgrading
The electrical and hardware component are periodically
checked

Table 5.16: Measures Taken by Firms/Units to Enhance Competitiveness


Competitiveness
Measure Initiated

Own R & D
Developing High end Products
Creating own Brand
Diversification/New range of Products
Following ISI standards /Ensure quality of product

Concentrate on Components required by MNCs


Reducing operational costs of manufacturing
Automation for bulk production
Determining Competitive Price
Maintaining Production Schedule/In time - execution of

good delivery and sales


Information on Product Specification on Products, Boxes
Better after sales service to consumer
Enhance Knowledge/ Assess market on competition,
purchase/sale, knowing the competition
Focus on sales and marketing, Advertisement, promotional
scheme

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5.11 Expectation of IT hardware and electronics firms from Government


Though these firm level initiatives have gone a long way in improving the
productivity of the IT Hardware and Electronic manufacturer, yet not sufficient to
make the Indian products competitive in the international market. Hence, these
manufacturers expect certain policy intervention or support from the government
(Table 5.17) that would help in strengthening the competitiveness enablers of Indian
IT hardware and electronics sector.
Table 5.17: Expectation of IT hardware and electronics firms from Government
Factor

Human Resource

Infrastructure

Trade/Tax

Governance

R&D/
Technology
Raw Material
Competition

Policy Intervention
Course curriculum to suit to industrys need
Practical Training to students studying in ITI and
Diploma colleges
Parity in pay structure among different manufacturing
sectors
Modification in labour laws, making it more flexible
SEZ/ Industrial cluster /IT hardware Parks inside SEZs
Physical Infrastructure: Road, Airport & Port etc.
Information Kiosks at industrial centres
Uninterrupted power Supply
Health care/Social Security
Tax Holidays to EOU to be continued
EOUs should be allowed to procure spares for
maintenance
Single Tax Structure (VAT and CST may be combined)
Reduce delays in getting clearances at port & Airport
Single window clearance
Simplification of Procedures/ Faster Import Clearance
Efficiency /Transparency of Govt. Departments
Strengthen linkage between University-Industry
Special fund to support R & D
Technology Transfer from advanced Countries
Ancilarisation of industries with technical inputs from
bigger companies
Control Input prices (raw material & energy)
SSI should be given financial support and tax rebates
Market feasibility studies
Imports of finished products needs to be restricted
Quality Checks on imported Products
Indian grey market operations needs to be monitored
Indian brand needs Promotion/recognition.

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CHAPTER VI
ISSUES AND CONCERNS OF IT HARDWARE & ELECTRONICS
SECTOR
Creating Demand: Manufacturing of Indian Electronics and IT Hardware Industry is
still in a developing stage. Though there has been a continuous growth in demand for
the electronics products, further catalyzing domestic market development is essential
as it would encourage the local manufacturers as well as MNCs to start their
production units in India.
Shortage /Non-availability of Skilled Manpower: The Indian educational system is
not able to meet the requirement of IT hardware and Electronics sector. The course
curriculum is theoretical and in plant training of students is missing in most of the
institutes. As a result there is acute shortage of skilled manpower. Further, attrition
rate is high and salary not competitive with ITES sector.
Obsolescent technology: The manufacturing of electronics and IT hardware in India
is uncompetitive and unable to keep pace with rest of the world due to existence of
obsolescent technology, low volume of production and high costs. The gap instead
of bridging is continuously widening and it very difficult for the manufacturers to
catch up with other electronic manufacturing nations.
Cost & Price Reduction: Indian products are not able to compete with cheap
imported electronics products. The demand for electronics and IT hardware products
could be created through reduction in prices. This may be done by creating economies
of scale to reduce the cost of manufacturing and lowering the general level of taxes on
the consumer electronic products. India like china would be able to export electronic
products only through mass production.
As consumers are very price-sensitive, manufacturers of electronics and IT hardware
needs to take special care towards efficient utilization of plant and machinery,
reduction in waste etc for reducing prices of electronic products. This would certainly
make indigenous products competitive in the domestic market and reduce import
substitution. However, quality should not be comprised as a cost reduction strategy as
it would hamper the sustainability of the market share in the long run.
R&D: In India the level of R&D required for innovation and technology upgradation
is limited only to few renowned institutes like IITs, IISC etc. Moreover, these
activities are not coming out of the research laboratory due to lack of UniversityIndustry linkage. Industries need to apply R&D results for the development of the
Electronics and IT hardware industry. Fostering an ecosystem for innovation is highly
essential for enhancing the productivity and competitiveness of this sector.
Lack of Dissemination of Knowledge: The linkages between Government Agencies,
Universities, as well as Industry need to be strengthened. This will help not only in
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disseminating knowledge on existing policy and technology but will also help in
integrating strategic changes to tackle problems while evolving new policy.
Made in India is not promoted: The distributional as well as marketing networks
also not promoting Indian brands in the domestic as well as international markets.
Retailing of electronics goods need to be enhanced.
Weak Supply Chain: The production schedule meeting export market usually gets
affected as a result of delay in supply of raw material. The global supply chain
networks need to be strengthened for efficient and timely delivery of raw materials to
the production centers as well as finished products to the market.
Lack of Infrastructure: Lack of physical infrastructure like transport facility ports,
airports etc is a major hurdle to the competitiveness of the Indian Electronics and IT
hardware sector. Unless the existing infrastructure bottleneck is removed, it is not
possible to enhance the competitiveness of the sector.
Foreign Investors: Government may through policy initiatives encourage renowned
manufactures to set up their production units in India. This would be mutually
beneficial for the manufacturers as well as customers.
Taxes: Multiplicity of taxes as well as high excise tax is hindering the growth of the
sector.
Import of capital equipments under zero percent EPCG was withdrawn during the
year 2002 policy changes has adversely affected good performers Electronic Industry
Association of India (ELCINA). Electronic Component Industry is a highly capital
intensive industry and also the obsolescence is very high. The industry is competing
with major players in the countries like Taiwan, China and South Korea. Thus, there
is the imperative to upgrade machines meeting the latest technological developments.
Trade: Like any other, technology driven industry, the Electronics and IT Hardware
Industry in India is also confronted by challenges of trade related Intellectual Property
Rights, comprising of patent laws, trade links, etc.
Tax Holiday under Section 10A and 10B of the Income Tax Act is going to be
withdrawn w e f 2009-10. This withdrawal of exemption granted to EOUs will be a
huge set back. When an exemption from Income Tax could be provided to SEZ for
15 years, it should not be denied to EOUs. (ELCINA)
Presently, Duty Entitlement Pass Book (DEPB) rates for the component industry are
at varying rates and Printed Circuit Board (PCB) industry, the rate is 4%. With the
rupee being stronger, the realization is lesser which affects competitiveness
(ELCINA). The Electronics Hardware and Component Industry wants the government
to remove CST completely on its products, to help it fight global competition under a
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Zero Duty regime. This step for electronics hardware would surely give a boost to
investments in high value added manufacturing.
Future Scenario:
Reports released by Gartner during June 2007 to Dec 2008 give very optimistic view
of Indian IT Hardware and Electronics Sector. The world's top five mobile phone
makers have manufacturing facilities in India, and with demand for handsets set to
increase, it expected production of handsets in this country to grow at a compound
annual rate of 25% from 2006 to 2011(Gartner, June 2007).
The Indian electronics equipment market is warming up, with global players setting
up manufacturing units to cater to local demand. Gartner Dataquest believes that the
consumer and communication segments will drive growth in the industry through
2010. For global providers of electronics manufacturing services, having a local
presence in India offers twin benefits. They can take advantage of the country's
growing electronics demand, and tap into its large pool of local design talent to serve
their global clients better. The various components of the semiconductor industry
value chain are slowly beginning to gain a foothold in India. In the next five years,
two key developments will shape and define the business opportunities for global
semiconductor vendors in India (Source: http://www.gartner.com/).
Further, Gartner estimated that overall demand for electronics in this country will
amount to $75 billion in 2011 as the demand for electronic goods in India is growing
rapidly, driven by factors ranging from rising household incomes and changing digital
lifestyles to favorable government policies and economic growth. The IT professional
services market in India will record an 18.3% compound annual growth rate from
2008 through 2012. Interest levels and the pace of outsourcing have picked up
dramatically in past two years (Gartner, Dec 2008)
MAIT also quotes Gartner report India and China will lead a surge in global demand
for computer hardware in 2010. According to Gartner, companies will cut down their
spending on buying computer servers and desktops by almost 4.8% this year, with
customers in the top markets of US and Europe struggling to cope with an economic
recession. In the next two quarters, markets not impacted as badly as US and Europe
will rebound (MAIT, 2009).
Earlier ELCINA also said that In recent years the electronic industry is growing at a
brisk pace. It is currently worth $10 Billion but according to estimates, has the
potential to reach $ 40 billion by 2010. The largest segment is the consumer
electronics segment. While is largest export segment is of components
But recent global economic recession has made Industry Associations a bit doubtful
about the future growth of IT hardware and Electronics sector. The total Indian
market for domestic IT, including hardware and BPO services, clocked revenues of
around $16 billion (Rs.78,002.5 crore) for the year ended December, 2008. However,
the growth in the Indian information technology (IT) market is expected to halve this
year to 13% with top enterprises such as largest carmaker Maruti Suzuki, two-wheeler
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leader Hero Honda and top private telco Bharti Airtel looking to reduce their capital
expenditure
and
postpone
new
technology
investments.
(Source:
http://www.elcina.com/new.asp)
Similar views are given by Indian Electrical and Electronics Manufacturers
Association (IEEMA) The demand for industrial electronics products such as
AC/DC drives, SCADA, PLC, DCS etc. is reduced as the same is directly related to
the developments taking place in the core sector industries such as steel, cement,
petro-chemicals/refineries, textiles, paper mills etc. and the growth in these core
sectors continues to be low since past few years. The existing demand is mostly on the
account of process improvements in user industries. (Energy Conservation,
replacement markets etc.) Value added services such as application engineering and
software, system integration etc. are the key competence areas of the industry
(source: http://www.ieema.org/)
In this period of global recession, the demand for IT Hardware and Electronics goods
may experience a declining trend. The prevailing uncertainty about the future
employment status is resulting consumers in suppressing their desire and postpone
the purchase of new electronics goods esp., the premium brands. This lack of demand
would further result into slump in the manufacturing of IT Hardware and Electronics
good.

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CHAPTER VII
RECOMMENDATIONS
The analysis of the Indian IT hardware and Electronics Sector has revealed the major
factors hindering productivity and competitiveness of the sector. To tackle these
hindrances, and enhance the productivity and competitiveness of the IT hardware and
Electronics sector, the following recommendations are made:
7.1 Competitive Strategy for IT Hardware and Electronics Firms
In order to become competitive in the world market, IT Hardware and Electronics
firms need to formulate strategies based on market intelligence, demand forecasting
and competitive pricing of the rivals products. For a market leader this needs to be a
continuous process and an inherent part of corporate planning. However, following
strategies may serve as a guide for a startup company or relatively new market
entrant.
R&D, Innovation & Product Differentiation: A tech-savvy customer would always
like to possess electronics and IT hardware products built on latest available
technology. Hence, product differentiation is a necessary condition for
competitiveness of Electronics and IT Hardware Industry as a successful differentiator
would not only attract new customers but also invokes a competitive reaction that will
encourage others towards vertical movement in the product market.
The one liner by Onida Owners Pride and Neighbours Envy is a good example to
understand consumers psychology. However, there needs to be continuous R& D
leading to innovation and product differentiation based on technology. This will help
a manufacturer to become the market leader as it would be very difficult for its
competitors to replicate the product without violating IPR norms. Thus the right mix
of unique and innovative products that are acceptable to the consumers is critical to
sustain and augment profits in the long run. Department of IT, Government of India,
may encourage R&D activities through establishment of technology parks for the
development of IT hardware and electronics industry.
Market Segmentation: In developing economies like India, manufacturers of
electronics and IT hardware products while designing and pricing their products need
to take into consideration some key determinants of demand like existing socioeconomic disparity and rural-urban divide. Market segmentation may also be done
based on purchasing power of the majority of potential customers, available
infrastructure like power supply or voltage fluctuations etc., in that particular area.
Quality & Price Discrimination: The sovereignty of consumers is quite evident
through their revealed preference in favour of economically rational decisions. The
price of the products need to be competitive but not at the cost of quality. A single
low quality product is enough to spoil the reputation of a manufacturing firm and will
result in destroying the market demand for all other products of the brand in the long
run.
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However, base models of an electronic product (e.g, Mobile, watch etc) with some
key features may be placed on the shelves at lower rates than the similar available
products of the competing firms. This will help firm in capturing the market
sentiments of the Indias vast population. Simultaneously, to target the rich and elite
class, exclusive models/ products need to be designed with advanced technology.
Such products may be priced at high premium, as they would give the owner a sense
of pride.
Customer Relationship Management: Customer Management or Customer Care is
a crucial differentiator in the electronics and IT Hardware Industry. Distribution
network could be an excellent source of competitive advantage for a manufacturer of
electronics and IT hardware products. Manufacturers need to build a good after sales
service network, along with strong brand positioning, to take care of customers.
Consumer helpline should address the complaints at the earliest.
Building a Global Supply Chain Network: The competitiveness of electronics and
IT hardware industry could be enhanced only through strengthening the global supply
chain network as the industry is highly dependent on the import of raw materials. The
cost of the supply network or logistic management network also needs to be assessed
through value chain analysis. Unless it is intervened at the right time there will be a
spiraling effect (e.g., rise in price of raw materials leading to high cost of production,
that would result in either rise in product price or incurring of loss by the
manufacturer) that would hinder the competitiveness of both the product and the firm.
However, while calculating cost, the efficiency and reliability of the supply chain also
need to be considered, as most of the products require handling with care and to be
delivered in time.
Corporate Social Responsibility (CSR): The manufacturers of electronics and IT
hardware firms may undertake the development of human capital by adopting
institutes such as ITIs/IITs for running courses.
Skill Development : The manufacturers may sponsor either one or two centers or
some students through fellowship in the technical institutes and get them trained
according to their requirement. This may partially solve the problem of unavailability
of technical manpower. Course curriculum needs to be designed to cater to the
requirement of the industry. Ministry of HRD and Industry Associations need to take
a pro-active stand in development of such curriculum.
Productivity Enhancement for Raising Profit Margins: Manufacturers of
electronics and IT hardware need to take special care towards efficient utilization of
plant and machinery, reduction in waste etc. It would result in raising the productivity
level of the firms and lowering the cost of production, thereby increasing the profit
margins. A part of enhanced profit may be passed to the customers through lowering
of product prices. This would certainly make indigenous products more competitive in
the domestic market and reduce import substitution.
Contract Manufacturing/EMS: Indian entrepreneurs or companies may explore the
opportunities of functioning as Electronics manufacturing services (EMS) companies
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to larger Original Equipment Manufacturers (OEMs). In this case, OEMs would


provide Indian EMS with a full range of services like contract design, prototyping,
final system assembly, configuration, order fulfillment, and repair and after-market
services. Further, being part of OEMs, Indian EMS could be able to reap other
benefits such as research and product development, brand building, sales and
marketing network of OEMs.
7.2. Policy Guidelines for Skill Development and Training of Manpower
Majority of the IT Hardware & electronics manufacturers surveyed by NPC have
expressed their concern that the availability of quality manpower for their industry is
declining and there is shortage of skilled and trained personnel. The attrition rate is
also high as the industry salary packages are not competitive with ITES sector. The
current educational system and the training institutes are unable to meet the
requirement of IT hardware and Electronics sector as generally their focus is on
Software rather than Hardware. Further the course curriculum is theoretical and in
plant training of students is missing in most of the institutes.
It is suggested that more number of Industrial Training Institutes (ITI) be opened and
the Course Curriculum of ITIs should be redesigned and continuously updated to meet
the changing requirement of Hardware & IT industry. Industry Associations may be
involved in developing course curriculum and in plant training be made compulsory
part of course curriculum. Industry/corporate bodies may be encouraged through tax
benefits/ payment of management fee to adopt government run ITI or diploma
colleges for effective and efficient management. Private Engineering /Management
Institutes may be encouraged to run courses on IT Hardware and Electronics.
7.3 Infrastructure Development
Lack of adequate physical infrastructure like transport system, roads, ports, airports
etc. adversely affect the competitiveness and productivity of the IT hardware and
electronic sector. Uninterrupted power supply is a necessary condition for operation
of IT hardware and electronics units as power fluctuations lead to breakage of entire
system. Many of the respondents to the survey have shown their dissatisfaction with
the existing availability and quality of infrastructure.
It is important that Government should prepare a time bound plan to upgrade physical
infrastructure to ensure long term competitiveness and sustained development of IT
Hardware and electronics sector. Adoption of PrivatePublicPartnership (PPP)
model can facilitate faster and cost effective development of infrastructure. Current
incentives to SEZs may be continued and IT Hardware Parks be developed within
SEZs. Financial incentives be given to manufacturing units for establishing and
maintaining of backup power units and for utilizing non-conventional energy sources.
7.4 Import of Raw Material & Machinery
The manufactures of IT hardware and Electronics products are generally dependent
on imported raw material. Electronics components and subassemblies are imported and
assembled in India to produce finish product. Respondents of the survey revealed that
more than 52% units are using imported raw material. The Quality of these imported
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raw materials available in local markets is not fully reliable. Weak supply chain network and
lack of vendor support also affects the quality, productivity and competitiveness of the
products. Manufacturing units directly importing raw materials face delay in import

clearances which slows down completion of time bound projects as well as export
production by these units. Government should ensure hassle free import of raw
material and components by streamlining the import policy and systems and through
simplification of import procedures. Maritime Transport is a critical infrastructure for
the development of Logistics and Supply Chain Management . It influences the pace,
structure and pattern of development. Ministry of Shipping may undertake appropriate
action plans for hassle free Handling of raw material and finished products at the
ports.
The Electronics Industry is a highly capital intensive industry and also the
obsolescence is very high. The industry is competing with major players in countries
like Taiwan, China and South Korea. Thus, there is the imperative to continuously
upgrade manufacturing facilities in line with the latest technological developments.
Import of capital equipments under zero percent EPCG was withdrawn during the
year 2002. This has adversely affected the productivity and competitiveness of many
small manufacturing units.
It is recommended that the government should promote modernization of units
through a special scheme with fiscal incentives and minimum import duties. Special
Financing Schemes need to be formulated for encouraging the entrepreneurs in the IT
hardware & Electronics sector. Depending on the needs and performance of existing
manufacturers, special loans may be granted for technology upgradation,
infrastructure building or expansion of business.
7.5 R&D and Technology Up gradation
Government should strengthen Research and Development in Electronics and IT
Hardware sector especially the applied research like product development through
special grants to leading Research Institutes/Universities and Technical Institutes like
IITs. Special schemes may be formulated to promote the development of Indigenous
Technology to reduce dependence on imported equipments and components.
Development of incubators should be promoted and the linkages between
Government Agencies, Universities, as well as Industry and other stakeholders like
NGOs and industry associations needs to be strengthened. Doctoral/Post Graduate
Programmes in Electronics be made industry oriented and attractive Fellowships
should be provided to attract best talent for these programmes.
Since productivity estimations based on Labour and Total Factor Productivity Growth
rates have been found quite low in IT Hardware and electronics sector, there is a need
for substantial up gradation of skill levels and technological progress (R&D activities)
in this sector.
7.6 Implementation of Quality Standards/ Certification
Quality standards and systems are critical for ensuring the quality of electronic
products. Government needs to promote implementation of standards and
certification. Incentives may be given to small scale enterprises for getting quality
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system certification. Special Cells at regional/state level needs to be created that


would work as facilitating centers for implementation of standards and getting
certification. Quality Council of India can help manufacturing units to get Quality
Accreditation.
7.7 FDI in Electronics and IT Hardware Sector
Electronics and IT Hardware manufacturing sector has a great growth potential in
India and export market. Government needs to promote modern semiconductor
industry for manufacturing various kinds of chips and other essential components.
Promotional activities need to be undertaken to attract FDI and MNCs to start
manufacturing units in India. INDIA ADVANTAGE needs to be promoted.
Ancillarisation of industry mainly electronic components manufacturing may be given
special tax benefits.
7.8 Policy for Disposal of e-waste
Since disposal of e-waste by individuals is not always possible, the manufacturers
need to take care of it through schemes like exchange offer. This would help them not
only in getting back the old products for scientific disposal and creating safe
environment but also help in sales promotion. Policies for safe disposal of e-waste ie.,
electronic equipment that is no longer useful but may or may not be re-usable needs to
be formulated on priority in consultation with all the stakeholders. Once formulated,
implementation of these policies should be strictly enforced else it would be
unsustainable to be competitive in the manufacturing of electronics and IT hardware
Products in the changing environment scenario.
Since disposal involves additional cost and environmental clearances, Ministry of
Environment and Forests and Pollution Control Bards need to undertake suitable
measures for disposal of e-waste with emphasis on the aspect of safety and
sustainability.
7.9 Fiscal Incentives
Finally, fiscal incentives like rationalization of tariff on raw materials and capital
goods, lowering of excise duty on IT and Electronic goods, introduction of full Value
Added Tax (VAT) etc in conjunction with free environment to the manufacturers,
speed of business, proper communication, power supply, strong engineering and
design base, adequate R&D facilities etc. are the key to a successful and competitive
hardware IT industry. Ministry of Finance and Department of Information
Technology together can evolve strategies and schemes for providing Fiscal
Incentives to IT hardware and Electronics Manufacturers.

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REFERENCES
Annual Report (2007-08), Dept. of IT, Government of India
Annual Survey of Industries, Central Statistical Organisation, Government of India
CMIE (July 1998 & April 2009), Industry Market Size & Share, July
CMIE (July 2008 & April 2009), Industry Financial Aggregates and Ratios , March
Economist Intelligence Unit (2007), The means to compete Benchmarking IT industry
Competitiveness, July
Economic Survey (2006-07), Government of India.
ELCINA , Electronic Industries Association of India
Gartner Dataquest Insight: Mobile Phone Manufacturing, India, 2006-2011(June 2007)
Dataquest Insight: Demand for Electronic Equipment, India, 2006-2011 (Aug 2007)
International Trade Centre, Geneva (2006)
Joseph, K.J. (2005), Strategic Approach to Strengthening the International Competitiveness
in Knowledge Based Industries: Electronics Industry RIS-P#88/2005 RIS, New Delhi
Knowledge Assessment Methodology (2006) World Bank
Kumar (2006), World Electronic Component Production Scenario:An Indian Prespective
Electronics Information and Planning , Vol 33, 3 4, Dec2005-Jan-2006, Dept.of IT, GoI
Manufacturers Association for Information Technology (MAIT), 27 January 2009
www.mait.com
Market Trends: IT Services, India, 2008-2010, Gartner Report, Dec 2008
NASSCOM Delotte Report (2008)
Porter, Michael (1990), Competitive Advantages of Nations, Free Press, New York
Yearbook of World Electronics Data, 2004, Volume 2-America, Japan &Asia-Pacific, Reed
Electronics Research Ltd, England
Yearbook of World Electronics Data, 2004/2005, Volume 3-Emerging Countries & World
Summary, Reed Electronics Research Ltd, England
Eleventh Five Year Plan (2002-07), Information Technology Sector
Indian IT/ITES industry: Impacting economy and society 2007-08, NASSCOM-Deloltte
study, 2008
Fifth report of the Standing committee on Information technology (2004-2005) Fourteenth
Lok Sabha, Ministry of communications and Information technology
(Department of Information Technology)
Ministry of Communications & Information Technology, Information Technology Annual
Report 2007-08 & 2008-09, Department of Information Technology

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Annexure 1
Survey Questionnaire: Company/Manufacturing Unit
National Productivity Council is carrying out a Nation wide survey across four Manufacturing Sectors
(Food Processing, Textile & Clothing, Leather & Leather Products and Electronics & IT hardware) on
behalf of National Manufacturing Competitiveness Council (NMCC), DIPP, Ministry of Commerce and
Industry, GoI. The objective of this stakeholder survey is to identify and understand major constraints
that are hindering the growth of manufacturing sector in the path of productivity growth and export
competitiveness and to suggest Sector Specific recommendations to NMCC with a view to enhance
sectoral/manufacturing productivity and export competitiveness.

(Please fill as per instructions given with each question.


Write codes/ values in the box provided at the right hand side)
1.0
2.0

3.0
4.0

Sector (1= Food Processing, 2 = Textile & Clothing, 3 = Leather &


Leather Products, 4 = Electronics & IT Hardware)
State (1 = AP, 2 = Delhi & NCR, 3= Gujarat, 4 = Himachal Pradesh,
5=Maharashtra, 6=Karnataka, 7 = Kerala, 8 = North East, 9 =
Rajasthan, 10 = Punjab, 11 = Tamil Nadu, 12 = UP,
13= West Bengal)
Location (1= Industry Centre, 2 = Cluster, 3 = EPZ, 4 = SEZ,
5=Others
Factory/Unit/Organisation specific information
Company Name & Address:

website if any:----------------------------------------------------------------

4.1
4.2

4.3

Contact Persons Name--------------------------------------------------------------Telephone if any:


e-mail address if any:
Year of Establishment
What is the Primary Business of your company ?
(1=Manufacturing, 2=Trading Company, 3= Multinational company,
4=Others, _______________________________________________
What is the nature of your company?
(1= Small Scale Sector, 2=Informal Sector, 3= Registered
Manufacturing, 4= Others)

4.4
4.5
4.5.1
4.5.2

What is the category of your company? The primary Business


(1= Small, 2=Medium, 3=Large, 4=Other,)
Does Your organization has Quality Accreditation like ISO 9000,
HACCP etc? (1= yes, 2=No)
If yes, please specify the name of the accreditation:
If yes, please specify whether the accreditation has helped in
boosting business growth? (1= yes, 2=No)

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Annual turnover of your organization/Company/Enterprise (Rs lakhs)


2003-04
2004-05
2005-06
2006-07
2007-08
4.7
Average profitability (Profit After Tax) of your enterprise
during 1991 to 2000 (considering 1991 as base year) (1=
Increased, 2= Decreased, 3=No Change)
4.8
Average profitability (Profit After Tax) of your enterprise
after 2000 (keeping 2000 as base year) (1 = Increased, 2=
Decreased, 3=No Change)
4.8.1 What was the extent of increase in profitability after 2000
(keeping 2000 as base year) (1=0-5%, 2=5-10%, 3=10-25%,
4=25% & above)
4.8.2 What was the extent of decrease in profitability after 2000
(keeping 2000 as base year) (1=0-5%, 2=5-10%, 3=10-25%,
4=25% & above)
4.9
Share of Foreign Direct Investment in your Enterprise
(1=0-5%, 2=5-10%, 3=10-25%, 4=25-50%, 5= Above 50%,
6=Not Applicable)
4.10
What is the extent of foreign ownership of your company?
1=No foreign ownership, 2=Foreign partner(s) have less than or
equal to 50% ownership, 3=Foreign partner(s) have more than
50% ownership, 4=Other)
4.11
Did your organization acquire any firm in other countries?
(1=No acquisition, 2= Full ownership, 3=less than or equal to
50% ownership, 4=more than 50% ownership,)
4.12
Extent of Usage of ICT in firms operation/production.
(1=0-5%, 2=5-10%, 3=10-25%, 4=25-50%, 5= Above 50%,
6=Not Applicable)
4.13
Did your Organisation conduct/commission any Research &
Development (R &D) during the last five years? (1= yes,
2=No,)
4.14
Did your Organisation get any product patented during the
last five years? (1= yes, 2=No,)
4.14.1 If yes, please mention the number & name of the product
4.6

Did your Organisation introduced any product innovations


during the last five years? (1= yes, 2=No,)
4.15.1 If yes, please mention the number & name the innovation
4.15

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5.0

Employment Related Information

5.0

Total Number of Employees in your organization (Nos)


2003-04
2004-05
2005-06
2006-07
2007-08
Employment growth in the organization during the last five
years. (1= Increased, 2= Decreased, 3=No Change)
If Increased, please specify the range of increase in
employment during the last five years?
(1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above)
If decreased, please specify the range of decrease in
employment in your organisation in the last five years? (0=15%, 2=5-10%, 3=10-25%, 4=25% & above) (specify)
The casualisation of labour during the last five years has
(1=Increased, 2=decreased, 3=No change, 4=Dont know)
Growth in wages/salary in the organization after 2000 (with
2000 as base) (1= Increased, 2= Decreased, 3=No Change,)
If Increased, please specify the range of increase in
wages/salary in your organisation in the last five years?
(1=0-5%, 2=5-10%, 3=10-25%, 4=25% & above)
If decreased, please specify the range of decrease in
wages/salary in your organisation in the last five years? (1=15%, 2=5-10%, 3=10-25%, 4=25% & above)
Trade Related Information
Is your organization engaged in Exports
(1=Yes, 2= No)
If yes, what is the percentage of Export to Total Sales
(1=1-10%, 2=10-25%, 3=25-50%, 4=50-75% 5=Above 75%)
Growth in export during the last five years. (1= Increased, 2=
Decreased, 3=No Change,)
If Increased, please specify the range of increase in export
during the last five years?
(1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)
If decreased, please specify the range of decrease in export in
during in the last five years?
(1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)
Is your organization engaged in Imports
(1=Yes, 2= No)
If yes, what is the percentage of Import to Total Sales
(1=1-10%, 2=10-25%, 3=25-50%, 4=50-75% 5=Above 75%)
If yes, the level of import of raw material for your
companys production requirement.
(1=0-10%, 2=10-25%, 3=25-50%, 4=50-75% 5= 75 & above)
The level of import of finished products by your company?
(1=0-10%, 2=10-25%, 3=25-50%, 4=50-75% 5= 75 & above)

5.1
5.1.1

5.1.2

5.2
5.3
5.4

5.5
6.0

6.1
6.2
6.2.1

6.2.2

6.3
6.3.1
6.4

6.5

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6.6
6.6.1

Please specify the major country from where you are


importing finished products.
___________________________________________
Please mention your export destinations
Product Description
Countries you were trading in the past

6.6.2

Product Description

Countries you are Currently Please mention the


trading with (Country Name) name of competing
Countries
Also specify the
Competitive
Advantage of that
Country: (1=Cost of
Product, 2= Latest
Technology,
3=Quality of
product, 4=Other)

6.6.3

Product Description

Countries you are planning to trade in near future

6.7

The factor (s) hindering the quantity of imports


(1= Import pricing Scheme,2= Import licenses, 3=Import quotas,
4=Import prohibition, 5=Quantitative safeguard measures,
6=Export restraint arrangement,7=Non trade Barriers, 8=Any
other)
The factor (s) affecting the export of your products
(1=Export taxes, 2= Export quantitative restriction,
3=Certification, 4=Inspection fee, 5=State trading administration,
6=Dual pricing schemes, 6=Non trade barriers,7=Any other)
Domestic Market Related Information
What is the market share of your product? Please specify the
range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)
What is the percentage of Domestic Sales to Total Sales
(1=1-10%, 2=10-25%, 3=25-50%, 4=50-75% 5=Above 75%)
Growth in the domestic demand of your products after 2000
during last five years. (1= Increased, 2= Decreased, 3=No
Change)

6.5.1

6.8

7.0

7.1
7.2

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7.2.1

7.2.2

7.7

8.0

8.1

8.2

8.3
8.3.1
8.3.2
8.3.3
8.3.4
8.3.5
8.3.6
8.3.7
8.3.8
8.4
8.4.1
8.4.2
8.4.3
8.4.4
8.4.5
8.4.6
8.4.7

If Increased, please specify the range of increase in the


domestic demand of your products in the last five years? (1=15%, 2=5-10%, 3=10-25%, 4=25% & above)
If decreased, please specify the range of decrease in the
domestic demand of your products in the last five years? (1=15%, 2=5-10%, 3=10-25%, 4=25% & above)
Extent of competition in the domestic market from local
companies? Please specify the range [1=Intense (>20 players),
2=Medium (10to 20 Players), 3=Low (0-10 Players), 4=No
Competition]
Cost Related Information
The Cost competitiveness of your company during the last five
years. (1= Increased, 2= Decreased, 3=No Change, 4=Other)
If Increased, please specify the range of increase in cost
competitiveness of your products in the last five years? (1=110%, 2=10-25%, 3=25-50%, 4=50% & above)
If decreased, please specify the range of decrease in cost
competitiveness of your products in the last five years? (1=110%, 2=10-25%, 3=25-50%, 4=50% & above)
Please indicate the Current percentage (%) contribution of the following
components to total cost of production
Wages & Salaries (1=1-10%, 2=10-25%, 3=25-50%, 4=50% &
above)
Other labor related cost (1=1-10%, 2=10-25%, 3=25-50%,
4=Above 50%)
Raw Materials (1=1-10%, 2=10-25%, 3=25-50%, 4=50% &
above)
Fuel and Energy (1=1-10%, 2=10-25%, 3=25-50%, 4=50% &
above)
Interest Charges (1=1-10%, 2=10-25%, 3=25-50%, 4=50% &
above)
Security (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)
Taxes (1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)
Others(1=0-10%, 2=10-25%, 3=25-50%, 4=50% & above)
Please indicate the Change in contribution of the following components
to total cost of production
The share of wages and salaries in the cost of production over the
last five years (1= Increased, 2= Decreased, 3=No Change)
The share of Other labor related cost in the cost of production over
the last five years,( 1= Increased, 2= Decreased, 3=No Change)
The share of Raw Materials in the cost of production over the last
five years, (1= Increased, 2= Decreased, 3=No Change
The share of Interest Charges in the cost of production over the
last five years, (1= Increased, 2= Decreased, 3=No Change)
The share of Security in the cost of production over the last five
years, (1= Increased, 2= Decreased, 3=No Change)
The share of taxes in the cost of production over the last five
years, (1= Increased, 2= Decreased, 3=No Change
The share of other elements in the cost of production over the last

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five years, 1= Increased, 2= Decreased, 3=No Change)


8.5.1 Is there any increase in cost of production of your product in
recent years due to increase in exports of raw materials. (1=
Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%,
3=10-25%, 4=25% & above)
8.6.1 Is there any increase in cost of production of your product in
recent years due to decrease in imports of raw materials. . (1=
Yes, 2=No). (1= Yes, 2=No)If yes, please specify the range (1=15%, 2=5-10%, 3=10-25%, 4=25% & above)
8.7.1 Is there any decrease in cost of production of your product in
recent years due to increase in exports of raw materials? If yes,
please specify the range (1=1-5%, 2=5-10%, 3=10-25%, 4=25% &
above)
8.8.1 Is there any decrease in cost of production of your product in
recent years due to increase in imports of raw materials. (1=
Yes, 2=No) If yes, please specify the range (1=1-5%, 2=5-10%,
3=10-25%, 4=25% & above)
9
Price Related Information
The Price competitiveness of your products during the last five
years. (1= Increased, 2= Decreased, 3=No Change)
9.1.1 If Increased, please specify the range of increase in Price
competitiveness of your products in the last five years? (1=010%, 2=10-25%, 3=25-50%, 4=50% & above)
9.1.2 If decreased, please specify the range of decrease in Price
competitiveness of your products in the last five years? (1=010%, 2=10-25%, 3=25-50%, 4=50% & above)
9.2.1 Is there any increase in Price of your product during the last
five years due to increase in imports of raw materials? (1= Yes,
2=No) If yes, please specify (1=1-5%, 2=5-10%, 3=10-25%,
4=25% & above)
9.3.1 Is there any increase in Price of your product in last five years
due to increase in exports of raw materials. (1= Yes, 2=No) If
yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%,
4=25% & above)
9.4.1 Is there any decrease in Price of your product in last five years
due to increase in imports of finished goods. (1= Yes, 2=No) If
yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%,
4=25% & above)
9.5.1 Is there any decrease in Price of your product in last five years
due to decrease in exports of finished goods. (1= Yes, 2=No) If
yes, please specify the range (1=1-5%, 2=5-10%, 3=10-25%,
4=25% & above)
10.0
Factors Affecting Productivity
10.1
The Labour Productivity (out put produced relative to
number of workers/employees used) of your firm during the
last five-year (1= Increased, 2= Decreased, 3=No Change)
10.1.1 If Increased, please specify the range of increase in Labour
Productivity in your enterprise in the last five years? (1=1-5%,
2=5-10%, 3=10-25%, 4=25% & above)
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10.1.2 If decreased, please specify the range of decrease in Labour


Productivity in your enterprise in the last five years? (1=1-5%,
2=5-10%, 3=10-25%, 4=25% & above)
10.2
The Total Factor Productivity (i.e., output produced relative
to all inputs used) of your enterprise during the last five-years
(1= Increased, 2= Decreased, 3=No Change)
10.2.1 If Increased, please specify the range of increase in Total
factor Productivity in your enterprise in the last five years?
(1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)
10.2.2 If decreased, please specify the range of decrease in Tota
factor Productivity in your enterprise in the last five years?
(1=1-5%, 2=5-10%, 3=10-25%, 4=25% & above)
10.3
Identify the main factors that have affected labour productivity in your
Enterprise in the last five Years (Please mention five)

0.4

Identify the main factors that have affected Total Factor productivity in
your Enterprise in the last five Years (Please mention five)

Have you introduced any measures that have enhanced the


labour productivity of your enterprise in the last five years?
(1= yes, 2= No)
10.5.1 If yes, (Please Specify)
10.5

If No, Please indicate the reasons

Have you introduced any measures that have enhanced the


Total Factor Productivity of your enterprise in the last five
years? (1= yes, 2= No)
10.6.1 If yes, (Please Specify)
10.6

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10.6.2 If No, Please indicate the reasons

11.0

Factors responsible for Competitiveness


The competitiveness of your company during the last five years.
(1= Increased, 2= Decreased, 3=No Change)
11.1
Availability of Raw materials for production?
1=Imported, 2=Within country, 3=Within Region/State, 4= Other
(Please specify)
11.2
Availability of Quality Human Resource in the last five years
(1= Increased, 2= Decreased, 3= No change)
11.3
Does the present Educational system in the country is catering
to the industrys requirement? (1= yes, 2= No)
11.4
Labour relations in the state are productive? (1= yes, 2= No)
11.5
Are you satisfied with the quality of infrastructure (both Social
and physical) available in your state? (1= yes, 2= No)
11.5.1 If No, Please specify the physical infrastructure that requires
attention towards development and maintenance? (1= Road, 2=
Rail, 3=Airport, 4= Port, 5= Power, 6= ICT, 7= Cold storages &
warehouses, 8=Other) (Please Specify)
11.5.2 If No, Please specify the social infrastructure that requires an
attention towards development and maintenance?
(1=School, 2= Higher Education, 3=Technical Institution, 4=
General Hospital, 5= Specialized Medical Centres, 5=Other) (Please
Specify)
11.6
Are you satisfied with the Governments interface with
business/private sector ? (1= yes, 2= No)
11.7
Is your State government is friendly towards investors?
(1= yes, 2= No)
11.8
Are you satisfied with the extent of computerization of
government records? (1= yes, 2= No)
11.9
Corruption level in the government during last five years.
(1= Increased, 2= Decreased, 3=No Change)
11.10 Are you satisfied with the Transparency in your government?
(1= yes, 2= No)
12.0 Identify the main factors that have affected the competitiveness of your
industry in the last five Years (Please mention five)
1
2
3
4
5
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13.0 What measures have you taken over the past five years to boost
Competitiveness in the domestic and export markets?

14.0 What are your views regarding the enhancement of Productivity and
Competitiveness in India? (Please mention)

15. Policy Interventions that are urgently required from the Government for
enhancing productivity and competitiveness of your sector (Please mention five)
1
2
3
4
5

16.0. Any other comments : (Please specify )

Thank you

Name of the Official/Investigator:-----------------------------------------------Signature

: -----------------------------------------------

Place of Survey

: ---------------------------Date: -----------------

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Annexure 2
List of Electronics & IT Hardware Manufacturing Units - Field Survey
Sl. No. Company Name & Address
A - Z Group of Companies, P.T. Usha Road, (Near Maharaajas College),
1
Ernakulam, Kerala
A.D. Enterprises, Plot No. E-99, GIDC Electronics State, Sector-26,
2
Gandhinagar-382028, Gujarat
3
A.L. Paul and company, Hand Kuteer, D-88, Marg-9, Saket, Delhi-110017
ABC Consultants and Engineers Parkash Kuteer, M-71 Saket, New Delhi 4
110 017
Abhishek Electronic, Distributors for ERD Range of Products, No. 85, S.P.
5
Road, Bangalore-560 002
Adobe Systems (I) Pvt.Ltd., Tower, 1-1A, City Center, Sector 25 A Noida
6
201301
AGD (India) Pvt. Ltd. , 203 NSIC STP complex Okhla Industrial Estat,New
7
Delhi
8
Ahuja Radios 215, Okhla Industrial Estate, New Delhi-110020.
9
Allied Informations System Pvt. Ltd., 133, HPSIDC, BADDI
Apex Information System Private Ltd., X - 57 Okhla Industrial Estate, New
10
Delhi - 110 020
11
Applical Electro Magnetic Pvt. Ltd., B-58, Sector 2, Noida 201 301
Arenis Soft (India) Pvt Ltd., Software Technology Park Complex, Block-1,
12
IInd Floor Sector -29, NOIDA
Ashbee Systems Pvt. Ltd., C-64, Okhla Industrial Area, Phase-I, New Delhi13
110020
Aura Systems Pvt. Ltd., D-6 Sector 6, Distt. Gautam Budha Nagar, Noida14
201 301
15
Avon Inudustries , 82/9-10, HPSIDC, Baddi
Bangalore Electronics Enterprises, Sadar Patrappa Road, Bangalore - 560
16
002
17
Bangalore Electronics, No. 124, Sadar Patrappa Road, Bangalore-560 002
Barko Electronic System Private Ltd., A-5, Sector 5 Gautam Budha Nagar,
18
Noida- 110 001
19
Beltex Engg. Services, 79, Ph.Iind. Area Pandchkula
20
Bestronix, 56 Sudershanpura Industrial Area, Jaipur-302006
Bhaskin packard Elutronics (P) Ltd.,, C-122, Industrial Area Phase VIII
21
Mohali Punjab
Bhayana El;ectronics Industries Pvt. Ltd.,-D-10/5 Okhal Industrial Area
22
Phase-I New Delhi
23
Bhurfi Super-Tek Industries Pvt. Ltd., 272, Udyog Vihar Phase -II, Gurgaun
24
Bionites Engg. Co., 26 & 27, Okhala Indst. Area, New Delhi - 20
Birla Soft Ltd., SIW Tech. Park Complex 2nd Floor Block-III, Ganga 5/WT
25
Complex Sector-29 NOIDA.
26
Caral Telecom Pvt. Ltd., C-25, Sector 7, Noida - 201 301
27
Caturia Products Ltd.E-15, Sector 8 Noida
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Central Electronics Industries, F-108, Sector-8, NOIDA


Central Electric Coporation, 53 South Park Appertments, Kalkaji, New
Delhi
Cenzar Industries Ltd., 67 HPSIDC Industrial Area, Baddi - 173205
Chuchill India Ltd., Unitech Business Park Block F, Sector 41, South City
Phase I, Gurgaon
Color Plant system Private limited plot No.28, sector-34 electronic hardware
Technology par. Gurgaon
Computer Mar, G.F.-15, Harisidhh Chamebr, Income Tax Cross Road,
Ashram Road, Ahmedabad
Condence Design System (I) Pvt. Ltd., Plot No. 57A &57B NEPZ, Noida201305
Cyber Graphics, B-166, Okhla Industrial Area, Phase-I, New Delhi-110020.
D.N. Technologies, 60-61, EPIP-II, Thana Baddi
Darshan Infoneedia, 84 2nd floor, mannis Tower, JC road, Bangalore 022
Dynalog (India) Ltd., Kailash Vaibhav, Parksite Vikhroli (W)
Elchem Circuits, Vill Kirpalpur-Nalagarh
Electro Magnetic DeviceBIEC, ECIL, X Road, Hyderabad 500062
Electronic Ballot & Fan Controller, E-38, GIDC Electronics Estate, Sector26, Gandhinagar(Gujarat)-382026
G.S. Elutions Pvt. Ltd.,E-69m, Industrial Area. Phase 8, Mohal
Genus Power Infrastructures Limited, SPL-3, RIICO Industrial Area
Sitapura, Jaipur-22
Gilard Electrovics Pvt Ltd.,, C132, Industrial Area Mohali Phase VIII
Grace Products, E-188, Kisc Electronic Estate, Kundhingor
Green Field Comrol System & Ny, E/78, GIDC. Sector, 26, Gandhinagar
Hi-Tech Electronics, 91/B, S.P. Road, Bangalore 560 002
IMPEX ELECTRONICS PVT LTD., E-108, GIDC Electronics Estate,
Gandhinagar-382044, Gujarat
JE TECHNOCRATS, H-949, PH.-III, RIICO, SITAPURA
JMD IT Solutions, No. 1, 1st Floor, 1st Cross, Kaggadaspura. C.V. Raman
Nagar, Bangaore, 560 093
Karthik Business Machines (P) Ltd., 35MG Road, Banglore 1
Lambda Microwavy Tenh. Micro work Technology, 76 A HPSIDC HP
Lambex Electronics Ltd., 6-2/231/5 B, Kukkadpally, Hyderabad-72,
Leitz Tooling Systems India Pvt. Ltd., No. 486C, IV Phase, 14th Cross,
Peenya Industrial Area, Bangalore-58
Linkwell Tele Systems Pvt Ltd., 1-11-252/1/A Gowra Classics Behind
Shoppers Stop, Becumpet, Hyderabad.
Lygen System, 59, Electroni Hardware Tech., Park Sec. 34, Gurgaon
M/s. Amrita Lakshmi Electronics, Plot No. A-28/1/17, Road No. 15, IDA,
Hyderabad-560076.
Malya Electronics, J-391, Sitapura, Industrial Area, Jaipur-302022
Masibus Automation & Instrumentation P.L. B-30, GIDC Electronics Estate,
Sector-25, Gandhinagar - 382044
Modern Communication and Broadcast Systems Pvt. Ltd.,B-138/139, GIDC,
Electronic Estate Gandhinagar-25
Monad Electronics, G1 805, Sitapura Industrial rea, Jaipur
Moscrbaer India Ltd., 15/34, 4th Cross Annapoornehwari Tower, Bangalor

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Naina Solavis Ltd.,, C-37, Iind Floor, Okhla Ind. Area,Phase-1,New Delhi
Omega Electronics, 28 E & F Malviya Industrial Area, Jaipur
OSI Group, Plot No. 1 & 9 Chala palli, Hyderabad-51
Pacific Electronic & Componants, Juddi Kalan Village, Baddi Solan
Process & Machines Automation Systems, G-695, RIICO Industrial Area,
Sitapura
Promay India, 82/8 HPSSDC, Baddi, H.P.
Purohit Electron, No. 82, NGM Comples, SP Road, Bangalore 2
R.P. Infosystems Pvt. Ltd., $th Floor, Regent House 12, Govt, Place East,
Kolkata 700 069
Radetron, 27 B, Malviya Industrial Area, Jaipur - 17
Ravindranath Chnnel softech (P) Ltd., S-5, 2nd Floor, SC Road,
Seshadrputram, Bangalore 24
Rochees Watches Pvt Ltd., E-280, Road No. 14, Vishwakarma, Industrial
Area, Jaipur-302013.
Ruchi Tellcom Pvt. Ltd., F-81, Khanpur Ext., Behind DTC Bus Depot, New
Delhi- 110044
Sheth Enterprise, No. Dorpon Six Road, 5, 2nd Floor, Gitanjalee Shopping
Centre Navirengar, Ahmedabad-14
Siemenns Ltd.,Kalwa Works, Post Box No.85, Thani-Belapur Road, Thane400601, Maharashtra
Siemens Ltd., PB No. 85, Thane-Belapur Road, Thane 400601
Simoco Telecommunications (South Asia) Limited, Block EP & GP, Sector
- V, Bidhannagar, Kolkatta - 91
SM Creative Electronics Ltd., 51 Bhanlikalan, Baddi, H.P.
Soghalt Technologies by,37, DIC Industrial Area, Baddi
Sohna International, 16, 17 Jharmajri, Baddi
Soynia electronics,E-63, Phase VIII Mohal
STK Salit India Ltd., 42, 43, 44, 114 Ind. Area, Baddi
Stuti Technologies, FF/7, Smita Tower, Opp. Auda Garden, Gurukual Road,
Ahmedabad-52.
SUCAM Power System Ltd., 7 Apparel Park cum Industrial Area, Katta
Baddi
Sunrise enterprises, B-250, Industrial Area, Phase-I, Okhla, Delhi-110020.
Team Engineers Pvt., Uppal Industrial Area, Hyderabad
Timex Gror I , 10, IA, Katha Batlikalan 175 005
Electronics (India) Plot No. E-115-GIDC, Electronics Estate, Sector, 26,
Gandhi Nagar
Veeral Controls P. Ltd., B/29, GIDC Electronics Estate, Sector - 25,
Gandhinagar - 382 024
Vision Power, 182/19, Pathnam Milaya, 6th main,10th Vasanathnagar,
Bangalore 560 052
VXL Instruments Limited. House of Excellence, No. 17, Hosur Road,
Electronics City, Bdangalaore-560100.
Zulu Infotech, B-7, 3rd Floor, Dipika Tower, Opp. Amts Bus Stop. Nanda,
Ahmedabad

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Annexure - 3
Methodology Adopted for Partial and Total Factor Productivity
Estimations
Productivity can be measured in terms of both partial and total factor productivity
methods. Most commonly used partial productivity measures are Labour Productivity
and Capital Productivity estimations. The partial productivities are measured as a ratio
of Gross Value Added per worker or per unit of capital invested.
The partial productivity methodology is based on the premise ceteris paribus that
only two factor inputs used in the production process such as labour and capital.
Details regarding the data construction and estimation procedures are given as below.
A. Labour Productivity

Labour input is considered as the total number of persons engaged in the


production process. The data has been compiled from Annual Survey of Industries
summary results for factory sector data base for various years. The Gross Value
Added data has been first deflated by the whole sale price index for the textiles(Broad
Category). The formula for calculating the labour productivity can be given as
follows:
Labour Productivity (LP) =

((Gross Value Added/Price Index) X 100)


No. of Persons Engaged

Labour Productivity Growth

Once the labour productivity has been calculated, we can estimate annual
labour productivity growth using the growth rate estimation formula :
Labour Productivity
Growth

Labour Productivity t Labour productivity t-1


Labour Productivity t-1

100

Labour Productivity Growth Index:


To understand the trends in Labour Productivity Growth, we can construct year to
year growth rates as an index of Labour Productivity Growth Rate. Initial value of the
series is considered equal to 100 and the subsequent years Labour Productivity
Growth Rates are added to it cumulatively. This will provide us an index of Labour
Productivity Growth for the textile and garment sector for the years starting from
1995-96 to 2005-06.
B. Capital Productivity
Since capital investment is given as the book value in the ASI data, we have to
estimate the capital stock in operation for every year. The Capital stock
estimation follows the procedure given below.
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Capital Stock Estimation

To calculate capital stock we have used Perpetual Inventory Method. Capital stock
has been estimated from the book value of Gross Fixed Capital compiled from the
ASI Database.

Fixed capital data from ASI for the textiles and garments sector taken for the
years 1995-2006.

The book value of fixed capital at 1995-96 is multiplied by Gross net ratio of
capital for getting initial year capital stock.

Incremental capital during the year 1996-97 at constant prices (deflated with
the machinery and machine tools prices at 1993-94 prices) is added to the initial year
capital stock of 1995-96 for getting the capital stock for 1996-97at constant prices.
Incremental capital = ((Fixed capital 1996-97 - Fixed capital 1995-96)
To calculate the capital productivity we have divided Gross Value Added at constant
prices by the estimated fixed capital. The formula used to calculate the capital
productivity is as follows:

Capital Productivity= ( Gross Value Added at constant prices


Capital stock at constant prices

Capital Productivity Growth


Capital Productivity
Growth Rate =

Capital Productivity t - Capital Productivity t-1 x 100


Capital Productivity t-1

Capital Productivity Growth Index


As in the case of Labour Productivity Growth Index, Capital Productivity Growth
Index is also constructed on a scale 100.

Gross Value Added Growth Rate =

GVAt GVA t-1


GVA t-1

x 100

Capital Productivity Growth Index:


To make the index of Capital Productivity Growth Rate, first of all assume the initial
value of series equal to 100 then add subsequent terms of the Capital Productivity
Growth Rate cumulatively. This will give us the index value of Capital Productivity
Growth Rate.
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C. Total-Factor Productivity Growth (TFPG)


Total Factor productivity Growth has been estimated using the Divisia index method.
Here, it is considered that Total Factor Productivity Growth is the result of technical
progress. Technical progress or TFPG is estimated as a residue of the difference
between output growth rates and input growth rates.

TFP = GVA [WL x Labour Productivity Growth + WK x Capital Productivity Growth]

Where
WL + WK = 1
and
WL = Wage Share in Total Cost
WK= Capital Share in Total Cost
Total-Factor Productivity Growth Index
As in the case of Labour and capital productivity , Total Factor Productivity Growth
Index can also be constructed with the base 100 for the initial year and adding the
subsequent growth rates cumulatively to it.

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Annexure 4
Concordance between 4-Digit Level of NIC-98 & 3-Digit Level of NIC-87 for Converting
NIC-87 based data in terms of NIC-98
3000
358+367
3210
368
3220
365+396
3230
366
3330
382
ASI 98
3000
Manufacture of office, accounting and computing machinery
3210
Manufacture of electronic valves and tubes and other electronic
components
3220
Manufacture of television and radio transmitters and apparatus for line
telephony and line telegraphy
3230
Manufacture of television and radio receivers, sound or video recording or
reproducing apparatus, and associated goods
3330
Manufacture of watches and clocks
ASI 87
358
Manufacture of office, accounting and computing machinery
365
Manufacture of apparatus for radio broadcasting television transmission
366
Manufacture of TV receivers; radio telephony/video recording turn table,
record-players, cassette-players
367
Manufacture of computers & computer based systems.
368
Manufacture of electronic valves & tubes & other electronic components
nec
396
Repair of apparatus for radio-broadcasting or television transmission:
radar, radio remote telephony
382
Manufacture of watches and clocks

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