Page 74 - Nuvama | IC Report 2023

• MANUFACTURING • NEW ENERGY • URBANISATION • CONSUMPTION PREMIUMISATION • EQUITY SAVINGS CULT

Software (policymaking) – A reboot underway

Along with the progess in ‘hardware’ underway, we think ‘software’ too is likely to play a critical role.
The latter entails a combination of changing external and internal environments. On the external
front, as argued in the De-globalisation, global supply chains are recalibrating. The West is moving
from “offshoring” to “friend-shoring” or “home-shoring”. There is a clear intention among global
corporates to diversify their supply beyond China. Domestically, India’s relatively low indebtedness
(versus rest of the world), and a favorable demography add up to a huge advantage. And just like
the government is showing activism towards pushing infrastructure, there is a concerted effort to
support manufacturing as well. We highlight three key focus areas.

PLI: Electronics a key focus

In recent years, the government has been making a conscious effort to promote certain industries that
India has an can help scale up India’s manufacturing base. One such space is electronics/network products. The
opportunity FY20 economic survey provides interesting insights on this count. The survey argues that the entry,
to step up in rise, survival and relative decline in network products is consistent with the “wild geese flying model”.
electronics and Wild geese always fly in orderly ranks, forming an inverted V, which essentially means having a leader
gain market share geese with followers and eventually laggards. Export market participation of several Asian countries,
in this segment
over the years, indeed depicts an “inverted V” pattern. Early entrants were Japan, Korea and Taiwan;
they were followed by China, Thailand and Vietnam. India and Indonesia have been laggards.

For each of these countries, the ‘entry’ is through assembly of end-products, which are labour-
intensive. Eventually, the nature of activity evolves to specialised parts and components. In Japan, the
inflection point of assembly hit in 1995, and China seems to be following suit with its assembly hitting
an inflection point. This gives India an opportunity to step in and gain market share in this segment.

Exhibit 6: 30 Japan 0.8
% share Share of China Share of
of electronics 25 electronics electronics
exports – will exports 0.6 exports India
India be a
new China? 20
15 (%) 0.4
(%)
10
0.2
5

0 0
1962 1970 1978 1986 1994 2002 2010 2018 1962 1969 1976 1983 1990 1997 2004 2011 2018
Japan China India

Source: India’s economic survey 2019-20, Nuvama research

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