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‘Atmanirbhar’ Through Make-In-India For Consumer Durables
One of the key sectors that could drive home the Atmanirbhar goals for India is the consumer durable sector, with a size of $10.9 billion in 2019
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Since the Covid-19 outbreak, many countries are contemplating how to become self-sufficient (‘atmanirbhar’, in India) and are exploring alternate routes to their key suppliers. One of the key sectors that could drive home the “atmanirbhar” goals for India is the consumer durable sector — with a size of $10.9 billion in FY19, of which only $4.6 billion was contributed from domestic manufacturing. In the pre-Covid scenario, the sector was estimated to double by 2025, reaching a market size of $21 billion.
In the consumer durable industry, China has emerged as the manufacturing hub for the world. The present dependence of India on China cannot be underestimated, with 45-50 per cent of completely built units and 70 per cent of components for consumer durables imported from China. The consumer durables sector presents opportunities for companies and the government to achieve Make-in-India objectives.
Local behaviour and products indigenisation: Consumer needs are shifting towards convenience, automation and home consumption as people are moving towards do-it-yourself. More exposure to products is highlighting the need for customising to Indian habits such as high oil content in food, type of utensils, home size, type of flooring, environment, etc. to enable performance and adoption in the market.
Underpenetrated domestic market and export market: Household penetration levels for most consumer durable categories are lower for India, compared to other countries – the penetration level of ACs are at 4-6 per cent, refrigerators at 30-33 per cent and washing machines at 11-13 per cent. With low domestic manufacturing, opportunity to localise products and manufacturing is seen to be abundant. In 2018, white goods exports from China stood at $75 billion. The export of appliances from China to the world is expected to exceed $100 billion by 2025 — presenting a larger opportunity to cater to South Asian diaspora across the globe.
Reduction in trade deficit: In FY20, India saw a trade deficit of more than $48 billion with China. Out of the total imports of $65 billion from China, 30-35 per cent are electrical and electronics goods. Even though the dependency on China for electrical and electronics goods has declined, manufacturing in India will help in reducing trade deficit.
Re-energise private investment and generate employment: This sector has attracted $14 billion of investment in the past five years for capacity expansion. The higher import percentage provides business opportunity to manufacture goods locally which can attract even more investment from Indian players. Presently, the sector employs 2.54 lakh people, primarily across the five products including air conditioners, refrigerators, washing machines, television and audio. With increased localisation, it has the potential to employ additional 1.54 lakh people in next five years. India has a competitive advantage of blue-collar and white-collar workforce available at lower cost against China that can drive higher productivity.
Positive impact on component manufacturers and adjacent sectors/ MSMEs: Consumer durable products are dependent on components and India is heavily dependent on China for import of critical components such as compressors, motors, electronic chipsets and more. Localisation of these components, at scale, can enable cost parity and also re-vitalise the micro, small and medium enterprise (MSME) sector and open up opportunities for further downstream value additions. The government has set up industrial parks to facilitate clusters like the auto cluster in Chennai, to enable Make-in-India in this sector.
Drive operational efficiencies: Due to increased supply chain localisation, dependency on external factors can be reduced and hence efficiencies can be driven in supply chain, operational processes, inventory levels and logistics.
Economies of scale and automation: China is the world’s largest home appliance manufacturing and exporting country driven by its large domestic market and initial investment in scale. The number of units sold for AC, washing machine and refrigerator in China are 19 times, 65 times and 8.55 times that of India. China has the largest AC compressor manufacturing hub, with total installed capacity of 86.2 per cent in the world.
Stronghold in global markets: China has emerged as a low-cost manufacturing destination for consumer durables, accounting for 33.5 per cent of the global AC exports and 23 per cent of global refrigerator exports.
Lower raw material and operational costs: Raw material costs account for 50-70 per cent of total costs of consumer durables. China enjoys ease-of-availability of raw materials for commodities like copper, steel, aluminum, plastic and ancillary components/ parts.
Innovation-focused supplier and R&D ecosystem: Many private sector companies have played a pivotal role in building ecosystem partners to design and develop smart hardware products. Consumer appliance products have evolved into smart appliances through internet of things, app-based control and automation using artificial intelligence. In China, 43 per cent of consumers of electronic products have at least one type of smart device.
Integrated infrastructure: China has made its industry hubs more efficient through its integrated infrastructure like large ports, well-connected highways and multi-modal logistics, which are important to drive international trade. Its industrial hubs are designed in such a way that factories and their suppliers are placed close to each other to minimise expenses. After the launch of the Belt and Road Initiative (BRI), export of China’s appliances to the BRI (Brazil, Russia, India) countries increased from about $154 billion in 2012 to over $204 billion in 2018.
In the current environment, when the world is looking at an alternate hub, India is amongst the list of consideration for most manufacturers. It presents an opportunity to the Indian manufacturers to step up and make a mark at the global level in the consumer durable industry.
This article was first published in the print issue of (10 July - 25 July) BW Businessworld. Click Here to Subscribe to BW Businessworld magazine.