INDIAN ECONOMY

FOR MAINS
Sectoral Issues in Industry
Topics to be covered
Electronics
Sector

Sectoral Semi-
Textile
Sector
Issues in conductor
Industry Industry

Pharmaceu
tical Sector
Electronics Sector

Way Status and

Forward Potential

Government Issues /
Initiatives Challenges
Electronics Sector
• Domestic production has grown from USD 29 billion in 2014-15 to nearly USD 70 billion in
2019-20 (Compounded Annual Growth Rate of 25%).
• Furthermore, continuing on the path of import substitution, India's domestic electronics
market is estimated to reach at best USD150-180 billion from the current USD65 billion
over the next 4-5 years.
• Thus, exports of USD120-140 billion are critical to reach the USD300 billion mark for
electronics manufacturing.
• This, in turn, is key for the USD5 trillion economy, USD 1 trillion digital economy, and the
USD 1 trillion export target envisaged by MeitY (Ministry of Electronics and Information
Technology) and the Ministry of Commerce and Industry, respectively.
Why & Government Initiatives
Why? = Benefits + Potential Govt. Initiatives
Economic Reasons
• Rapid Growth = Production & Exports • Modified Special Incentive Package
• Labour intensive manufacturing Scheme (M-SIPS)
• Employment Generation = 4 crore jobs by 2025 & 8 crore by 2030. • National Policy on Electronics, 2019
• Integration with the Global Value Chain (GVCs) = High export • Declared as ‘Priority sector’ under
potential Make in India.
• Rising market demand (Industry 4.0) • 100% FDI in the electronics sector.
• Diversification of economy (Agriculture – Knowledge Economy) • Electronics Development Fund (EDF)
• Attracting foreign investment such as Samsung, Amazon.
• Electronics Manufacturing Cluster
• Import substitution (Decline of CAD)
Scheme 2.0
• Replacing the position of China.
• Production Linked Incentive Scheme
Other Benefits – Social, Technological & Strategic
(PLI)
• Atmanirbhar Bharat
• Industry-Academia convergence
• Boost skill development such as cloud computing, AI, machine
learning.
• Indigenous manufacturing is key in defence & aerospace.
• Facilitate the spread of 5G technology and boost ICT sector
• Boost R&D in the country.
Challenges & Suggestions
Challenges
Economic Reasons
• Pool Local value Addition (Between 5% to 15%)
• Limited indigenous capability in upstream industries. High
Import Dependence (Majority coming from China = Trade
Deficit)
• Poor Infrastructure and weak supply chain
• Absence of Foundries - Shortage of semi-conductor chips
• Reasons: Massive capital expenditure; high capital
depreciation; lack of interest by domestic players.
• Low R&D investment –> ‘Brain Drain’
• Inverted Duty structure
• Low FDI as compared to other sector (<1% of total FDI inflows)
Other Issues
• National Security Considerations (Issues of Cyber Security)
• High E-waste and toxic elements/chemicals = Water Pollution
• Absence of Rare Earth Metals (China = Dominant leader)
Suggestions
• Increasing investments especially in the
components such as semiconductor chips.
• Building of scale through incentives and
removal of cost disabilities.
• Swift changes in the existing policies –
stability in import tariffs, decrease in
import tariffs, development of skill sets, etc.
• Reducing the inverted duty structure.
• Industry – Academia Convergence
• R&D needs to be promoted.
• Encouragement of major foreign
manufacturers
• Focus on aggregate domestic value
addition.
• Chinese Model of attracting MNCs through
various incentives
Semi-conductor Industry

Way Status and

Forward Potential

Government Issues /
Initiatives Challenges
Current Status
• India currently imports all chips and the market is estimated to touch $100 billion by 2025
from $24 billion now.
• The semiconductor industry is not evenly distributed and is dominated by a few countries,
mainly U.S., Taiwan, South Korea, Japan, China, and Europe.
• There is no single region with the entire production stack in its territory.
• Companies across the semiconductor value chain operate in different processes and
technologies (like design, fabrication, and assembly) in pursuit of economic efficiency.
• However, no region has achieved strategic autonomy in the industry. The US companies
rely on foundries in Taiwan to manufacture the chips.
• Thus, the technological complexity and need for scale have led to the emergence of a large
number of players with business models focused on a specific layer of the semiconductor
value chain
Why & Government Initiatives
Why? = Benefits + Potential Govt. Initiatives
Economic Reasons
• Make in India – Global hub for
• Heart and brain of all modern electronics and ICT products. Electronic System Design and
Lifeblood of the modern information age.
Manufacturing (ESDM)
• Hike in Demand – Covid-19 + WFH + Industry 4.0
• Global scramble for the same raw material (Electric
• Production Linked Incentive (PLI)
vehicles) Scheme
• Industry 4.0 – AI, IoT, 5G or the automotive sector. • Design Linked Incentive Scheme (DLI)
• India’s semi-conductor demand – Imports all chips • Digital RISC-V (DIR-V) program
• Multiplier effect on the entire economy (value chain for
semiconductors)
• India Semiconductor Mission
• Semicon India - $10 bn fiscal and non-
Other Reasons fiscal support.

• Digital sovereignty of India. Critical infrastructures such as

communication, power transmission, etc.
• Exceptional semi-conductor design pool. (20% of the world’s
semiconductor design engineers)
• Diversification of supply chain and alternatives to China.
• Geo-political tensions.
Challenges & Suggestions
Challenges
Economic Reasons
• High Investment Required: Technology-intensive sector, high
risk, long-gestation and payback period.
• Inadequate fiscal and policy support from the government.
• Inadequate grants under PLI Scheme
• Absence of Foundries and extremely expensive fab setup
• Resource inefficient sector – High clean water demand,
extremely stable power supply, lot of land and highly skilled
force (technological skilled).
• Economies of scale – high volume production is required
• Uncertainty of Indian market and poor cost efficiencies.
Other Issues
• Rapid changes in technology
• Scarcity of raw materials – silicon, germanium & gallium
arsenide and silicon carbide
• Disposal of hazardous wastes.
• Supply chain constraints – Palladium (40% of global supply by
Russia) and Neon (70% production by Ukraine).
Suggestions
• Policy Framework – Stable, Consistent and
Long-term.
• Sufficient fiscal support for all elements –
tax holidays, subsidies, zero duty financial
investment, etc.
• Maximising self-reliance – Developing an
ecosystem from design to fabrication to
packing and testing.
• Role of Public Sector Enterprises (PSEs) –
BEL or HAL = semiconductor fab foundry.
• Supporting infrastructure.
• Semicon diplomacy action plan – Pivotal to
India’s Act East policy.
• Leveraging groupings such as QUAD – Quad
Semiconductor Supply Chain Initiative.
India Semi-conductor Mission (ISM)
• The Vision of ISM is to build a vibrant semiconductor and display design and innovation ecosystem
to enable India’s emergence as a global hub for electronics manufacturing and design.
• It will formulate a comprehensive long-term strategy for developing semiconductors & display
manufacturing facilities and semiconductor design ecosystem in the country in consultation with
Government ministries / departments / agencies, industry, and academia.
• It will facilitate the adoption of trusted electronics through secure semiconductors and display
supply chain, including raw materials, specialty chemicals, gases, and manufacturing equipment.
• It will enable a multi-fold growth of Indian semiconductor design industry by providing requisite
support in the form of Electronic Design Automation (EDA) tools, foundry services and other
suitable mechanisms for early-stage startups.
• It will also promote and facilitate indigenous Intellectual Property (IP) generation and encourage,
enable and incentivize Transfer of Technologies (ToT).
• ISM will also enable collaborations and partnership programs with national and international
agencies, industries and institutions for catalyzing collaborative research, commercialization and
skill development.
Pharmaceutical Sector

Way Status and

Forward Potential

Government Issues /
Initiatives Challenges
Current Status
• India is the largest provider of generic drugs globally. It supplies over 50% of global demand for various
vaccines, 40% of generic demand in the US and 25% of all medicine in the UK.
• The Indian pharmaceutical market is estimated at USD 40 billion and pharma companies export another USD
20 billion generating a trade surplus.
• However, this is a miniscule portion of the USD 1.27-trillion global pharmaceutical market.
• Over 80% of the antiretroviral drugs used globally to combat AIDS (Acquired Immune Deficiency Syndrome)
are supplied by Indian pharmaceutical firms.
• Globally, India ranks 3rd in terms of pharmaceutical production by volume and 14th by value.
• India has more than 30% share in the global generic market but less than 1% share in the new molecular entity
space.
• New Molecular Entity: A novel compound that has not previously been approved for use in humans.
• Price competitiveness and good quality has enabled Indian medicines producers to be dominant players in the
world market, thereby making the country the “Pharmacy of the world”.
• Although a prominent player in formulations, the country is significantly dependent on the import of bulk
drugs that are used in the formulation of medicine. In certain cases, import dependence varies between 80-
100 percent
Current Status
Why & Government Initiatives
Why? = Benefits + Potential Govt. Initiatives
Benefits
• Tapping the potential of Demographic Dividend. • Scheme for the promotion of Bulk Drug
• Longevity dividend --> Healthy ageing population Parks (3)
• Trade surplus • PLI Scheme for Bulk Drugs
• Medical Tourism • PLI Scheme for Pharmaceuticals
• Universal Health Coverage – SDG 3 (Affordable • PLI Scheme for promoting Domestic
Quality healthcare for All) Manufacturing of Medical Devices
• Rising burden of NCDs • First Global Innovation Summit pf the
• Soft Power pharmaceuticals sector, 2021.
Potential
• One of the lowest manufacturing cost. (33% lower than
that of US)
• Medical Diplomacy
• Export Potential
• High economic growth + Increasing health insurance
• Policy support
• Increasing investments especially in post-pandemic world
Challenges & Suggestions
Challenges
Challenges
• Low public expenditure on R&D - 1% less than China (2.1%),
Brazil (1.3%)
• Lack of funding
• Lack of Capabilities in Innovation Space – Lags in innovation
infrastructure.
• Import of Active Pharmaceutical Ingredients (APIs) – 80% from
China ---> Supply disruptions and uncertain price fluctuations.
• ‘Hollowing out’ manufacturing in India
• Quality Compliance Inquiry – Highest number of FDA
inspections since 2009.
• Spurious medicines (Harmful FDCs in the market)
• Stronger IP regulations – TRIPs+
• Price Capping – Impacts the net profits of the pharma
companies.
• Fragmented regulation – lack of coordination between central
and state drug control organisations.
• Unregulated online pharmacies
• Unethical practices by big pharma companies and inherent
profit motive.
Suggestions
• Increasing value share in global basket.
(Volume + Value Share) – Emerging
opportunities: biosimilars, mRNA and other
new-generation vaccines.
• Targeted financial incentives →
Manufacturing of diagnostic kits and other
medical devices.
• Boost R&D investment: 1% increase in R&D
→ Rise in output between 0.05 – 0.15%.
• Invest in research initiatives and talent to
grow India’s innovation.
• Research Linked Incentives (RLIs) =
Investments + Academia – Industry linkages
• Boost to the domestic production to APIs
• Continuous investment for upgrading
quality standards
• Better Drug Pricing policy – Developing new
molecules
Textile Sector
• Improving the size of firms. (Scale ) -->
CoP + Productivity = Global benchmarks
• Mega apparel parks (Organised sector)
• Modernisation of the obsolete
machinery and technology
• Comprehensive blueprint for the textiles
sector
• Environment friendly manufacturing
• Specialisation – Focus on man-made
fiber apparel manufacturing (Global
fashion demands)
• Logistics infrastructure
• Resource mobilisation
• FTAs with countries to boost exports
• Amended Technology Upgradation
Fund Scheme (2015)
• Scheme for Integrated Textile Parks
(SITP)
• SAMARTH (Scheme For Capacity
Building In Textile Sector)
• Power-Tex India
• Silk Samagra Scheme
• National Technical Textiles Mission
• PLI Scheme for Textiles Sector
• HSN Codes for Technical Textiles
• 100% FDI under Automatic route
• New Textiles Policy, 2020
Textiles Sector • Higher GDP growth for the country
• 7% of the industrial output.
• Labour-intensive sector especially women.
(>21% of the total employment)
• Export earnings. (12% of export). ---> USD 1
billion exports = 1.5 lakh new jobs.
• 6th largest producer of technical textiles.
Way Status and • 2nd largest producer of silk in the world.
• Largest producer of cotton and jute in the
Forward Potential world.
• Highly fragmented (Unorganised sector)
• Outdated technology (== Global standards)
Govt. Issues / • Tax Structure --> GST = Expensive garments
• Rising labour wages and worker’s salaries.
Initiatives Challenges • Lack of economies of scale --> Mushrooming
of 1 person apparel firms (Small size of firms)
• Limited FDI to the sector.
• Stagnating exports
• Inflexible labour laws (high min. wages, etc.)
• Poor logistics infrastructure --> High costs
• Discrimination in export markets.