Covid-19 impact on India and employment: A chance for Indian electronic manufacturing sector

The Indian manufacturing sector is one of the three most important pillars of the economy, along with the services and agricultural sectors. It is estimated that the overall manufacturing sector contributes about 18% to the Indian GDP, which is almost one-third of the services sector.

The sector also recorded a gross value addition (GVA) of $397.14 billion in FY20PE, with a CAGR growth of 5% in the past 5 years. One of the largest employment generators, the recent estimates suggest that the sector employs 60 million people.

Within the manufacturing industry, the electronics manufacturing is a major segment. The sector accounts for 3% of global electronic production. Armed with the mission of making India a global electronics manufacturing hub, the sector holds tremendous potential for growth and employment creation.  

However, the complete manufacturing industry, including the electronics segment, faces several challenges. In order to maximize the full potential, it is important to acknowledge these challenges, consider the positive emerging factors, explore the opportunities and focus on the areas which will lead to growth and employment creation. 

Impact of larger challenges 

The electronics manufacturing is definitely vulnerable to the larger challenges faced by the overall manufacturing sector. Even before the pandemic hit India, the manufacturing industry was facing subdued demand from the market last year. As per the Economic Survey 2019-2020, the overall industrial sector showed an estimated growth of 2.5% in 2019-20 — a drop of over 4% from 2018-19. The manufacturing sector grew by 2.0% during 2019-20.

Today, the most obvious and pressing challenges faced by the sector is the impact of COVID 19, which has led to a contraction of about 40% in the first quarter of the fiscal year 2020-2021. The recent estimation of 9.5% overall GDP contraction in FY2021 as recently announced by the RBI Governor does make the situation even more challenging for the sector as it does for the Indian economy.

The tremendous impact on the job front should also indeed be acknowledged. As per CMIE, India lost around 19 million salaried jobs by July 2020. However, the informal jobs sector has shown revival despite being hit by the lockdown, growing by over 8 million in the same period. Needless to say, salaries also got impacted, with manufacturing companies noting a 7% fall on wage bill. However, there are several positive factors and stimuli which will drive the sector towards growth and employment generation in the recent future.

The positive environment

Despite the pandemic continuing to affect the economy, the impact is more transitory in nature. Multiple factors are contributing towards creating a positive environment in the Indian manufacturing space, and especially in electronics manufacturing. Internationally, the recent dissatisfaction with the biggest manufacturer in the world is creating a conducive environment for countries to invest in India.

Furthermore, the major development efforts of the Indian Government is expected to benefit the manufacturing sector. The renewed push towards Digital India, with initiatives like National Digital Health Mission, and towards infrastructure, through the National Infrastructure Pipeline (with a budget of 102 Lakh Cr.), encompassing power and energy, road development and modes of transport, as well as social and industrial infrastructure, will create a huge demand for electronic products as well as build the right environment for attracting foreign direct investments.            

Furthermore, the government initiatives specific to the sector will further drive India to become a global hub for Electronics System Design and Manufacturing. These initiatives include the launch of the National Policy on Electronics, with the aim to generate a revenue of US$400 billion in 5 years. There are other smaller schemes including the Electronic Development Fund, Modified Incentive Special Package Scheme, Production Linked Incentive Scheme, and Modified Electronics Manufacturing Clusters (EMC 2.0) Scheme, amongst others.

These schemes have several benefits, including covering risk to both industry and academia for R&D of new electronics technology; boosting domestic manufacturing; and giving a financial incentive of 25% on capital expenditure for an identified list of electronic goods, amongst others.

The impact on employment generation

As a result of these efforts, the sector is going to open up with a range of job opportunities across domains.  Today most of the manufacturing industry is operating with about 75% capacity utilisation. With a stronger environment and demand, they will soon be fully operational which would create a significant number of direct jobs across top, mid, and bottom levels. These will range from project managers, electrical engineers, component makers, designers, specifiers, panel builders, circuit builders, testers, and service and repair professionals, amongst many others.

As the manufacturing output grows, more people would be needed in the various verticals such as warehouse and plant management, transport, printing and packaging, smart accessories and so on. This will create space for many indirect jobs.  Also, India cannot be a global manufacturing hub without a strong R&D. This is expected to be one of the best spaces for high-end electronics employment generation.

As more OEMs and ODMs increase their productivity, the support from component manufacturers would need to be amplified manifold which will create job opportunities at Indian MSMEs. It is to be noted that many International enterprises would now be looking at India to significantly address their needs for electronic components. Furthermore, there will be more employment generation at wholesale/retail and supply chain partner levels.

Last but not the least, the adoption of digital technologies would be creating a significant number of jobs for electronics and IT professionals in areas like medical electronics, consumer electronics, IOT, automation, defence electronics, and so on. 

The time may appear tough today but the sector is on a strong foundation. There is a need for the industry to be more agile and flexible and build more resiliency by adapting to the new normal. If we respond to the favourable winds fast enough, there is no doubt that the industry will advance rapidly and the electronics segment will be a sunshine sector for employment generation.