A Rs 76,400 crore sector is pivotal to reducing dependence on Chinese imports – The Economic Times

SynopsisComplete indigenisation of the consumer appliance components sector can speed up Aatmanirbhar Bharat.

Quoting Swami Vivekananda, who had written that Indians should produce for themselves and find markets in other countries, Prime Minister Modi shared his vision of ‘Aatmanirbhar Bharat’. It was a vision to turn the COVID crisis into an opportunity by empowering manufacturing in the country and becoming a more active contributor to the global supply chain. While in the last few years, the goal of self-reliance by empowering manufacturing in the country and strengthening the MSME sector has been clear in the government’s policies, the COVID crisis is motivating the government to speed up efforts.

The opportunity
To progress rapidly towards achievement of this ambitious goal that has been set in front of the country, it becomes critical to identify champion sectors which can become significant contributors. Clocking $10.9 billion (about Rs 76,400 crore) in the Financial Year 2019, the consumer appliance industry is one such sector. Statistics show that domestic manufacturing contributed only $4.6 billion of this. Thus a major portion is generating income for other countries, for instance – according to CEAMA dependence on China for components still ranges between 25-70 percent. The Indian appliance component industry has an opportunity to concentrate on capacity building to earn a greater share.

In the last few years, Indian appliance and component manufacturing has proved its competence by mastering technology and producing top quality. Most top-running brands are happy to use components manufactured in India. Pre COVID crisis estimates indicated that the sector size would double to reach $21 billion by year 2025 (As per IBEF Report: Indian Consumer Durable Industry Analysis published in September 2020) With ease of doing business and constant policy support it is possible for Indian manufacturers to enhance their capabilities and capacities and improve their position as preferred providers. It is a tough challenge, but it is being observed that there is a new generation of dynamic business persons in the country who are realising such growth prospects and the need to be future ready.

Compared to other countries the household penetration levels for most consumer durable categories are lower in India – penetration level of ACs are at 4 to 6 percent, refrigerators at 30-33 percent and washing machines at 11-13 percent. Such categories will rapidly go up with changing lifestyles, increased access to such products and greater penetration of electricity. Catching the pulse of the market, Indian manufacturers, especially MSMEs, can benefit from the abundant opportunity.

About 30 percent of the air conditioning parts in the country are directly imported, and of the 70 percent that are made in India, about half necessitate imported components. Recently Prime Minister Modi also cited ACs as a priority sector, besides furniture, leather and footwear, for the government’s Make in India push to generate jobs. In the wake of the supply chain disturbance and the need for India to reduce import of raw materials, there is a dire need for a robust ecosystem to maximize internal procurement with high level indigenisation. With the rising affordability and the demand for comfort at home, ‘Made in India’ ACs have a huge scope for growth.

India’s electronic bill is second in the import basket, after oil and before gold.Employment generation
Even in recent tough time, consumer appliance and appliance component industry has maintained some momentum. Not that the industry has not been affected, but we expect the industry to go back on the growth track soon, both in India and across the globe. If Indian component manufacturers can make a space for themselves in the future of this industry, they have the potential to create significant levels of employment and value. The consumer appliance sector employs 2.54 lakh people across categories and it is estimated that with increased indigenisation, it has the potential to employ an additional 1.54 lakh people in next five years.

Reducing dependency
India witnessed a trade deficit of more than $48 billion with China in the financial year 2020. Out of the total imports of $65 billion from China, 30-35 percent are electrical and electronic goods.

Manufacturing in India can assist in the reduction of trade deficit and also reduce dependency on China for electronics and critical components. Indigenous manufacturing of these components, at scale, can enable cost parity. A strategic support and encouragement to interested and capable MSMEs can create disruption. This will also have a ripple effect on related industries.

Mobilise investment
The sector has attracted $14 billion investment in the past five years, particularly for capacity expansion. By nurturing a quality component manufacturing ecosystem, we can attract more domestic and foreign investment. Globally there is an increasing goodwill for Indian manufacturers and players.

When the aim is economic development and economic well-being of the country, then there is no alternative to betting big on manufacturing locally. Manufacturing drives productivity growth, which is the lifeline of technological development and innovation. A perfect setting to see this phenomenon play out is the consumer appliance and appliance component industry. It can and will play a pivotal role in recovery of the economy and make headway towards ‘Aatmanirbhar Bharat’, but it needs a significant space in the strategy and continuous support to accelerate sustained growth.

Gurmeet Singh is Chairman and Managing Director, Johnson Controls-Hitachi Air Conditioning India Ltd.

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