The Indian ACE (Appliance and Consumer Electronics) market is expected to grow by 10% CAGR approximately by 2022, according to PwC’s recent report “Championing change in the Indian appliance and consumer industry.” A comprehensive study on the growth possibilities of this segment, the report states that India has the potential to be one of fastest growing ACE markets in the world, not only in terms of consumption, but also manufacturing and job creation.
Several factors are expected to drive the growth of this segment including the emerging middle class, rising disposable incomes and progressive government reforms such as Digital India, Make in India and the Jan Dhan-Aadhaar-Mobile based governance. However, a key challenge for the ACE market continues to be the low domestic cumulative value addition in the production cycle, which is less than 40% for most new age ACE products and 7% for smartphones, far lower than the global average. Further, nearly 84% of the participants surveyed in this report stated that their overall domestic value add in production was less than 50%. This can be attributed to a limited domestic component ecosystem, high cost of finance and power, and inefficient infrastructure.
According to Sandeep Ladda, PwC India Partner, Global TMT Tax Leader and Technology Sector Leader: “The government’s efforts coupled with positive transformation of consumer behaviour and desire to adopt more modern technologies are likely to create a significant increase in demand for ACE products. However, to unlock the full potential of the ACE industry, we need to build an ecosystem of supportive regulations around technology enablement and a strong domestic R&D backbone supported with manufacturing competitiveness.”
As per the report, for domestic manufacturing to flourish in the ACE indsutry, India needs three critical enablers including:
Ø Creating large scale demand by easing the tax structure and encouraging financing firms to provide easy consumer finance. In addition, we need to tap the export market by reducing the paper work for exports, increasing the Merchandise Exports from India Scheme (MEIS) incentives for high domestic value-added products and expanding the free trade coverage to export to attractive geographies such as Africa.
Ø Making domestic manufacturing cost competive by lowering the cost of capital, creating a phased manufacturing plan for ACE products (similar to that for mobile phones) in which incentives will be linked to domestic value addition in India and ensuring low sourcing costs through development of a good supplier ecosystem.
Ø Making dometic maunufacturing easy by providing easy access to skilled manpower, providing better connectivity through roads and railways to reduce transit time and logistics costs on key industrial corridors and creating a strong intellectual property rights framework for IoT, among others.
With adoption of these structural reforms and innovation, the Indian ACE manufacturing industry can aim to increase value add by 2-3x by 2022. The growing domestic demand and the rising labor costs in alternative markets can lead to an increase in the number of jobs in this sector by more than 1.5-2x.
The report is based on inputs from 40+ C-suite executives of leading ACE players in India.