Wearables: Next big leap for Indian electronics sector

In FY 2022-23, India’s production of electronic wearables experienced a remarkable surge in value, reaching Rs 8,000 crore. The industry is optimistic to achieve a two-fold increase in its production to reach Rs 15,000-17,000 crore in the FY 2023-24.

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The global wearable industry is expected to reach a value of US$ 87.67 billion by 2027, with a CAGR of 15.5% from 2020 to 2027. The growth of the market is driven by factors such as increasing awareness about health and fitness, rising disposable income, and technological advancements.

India’s electronic wearable production, including earphones and smartwatches, witnessed a huge transformation, reaching a value of Rs 8,000 crore in 2022-23, as compared to insignificant levels in the previous fiscal year. This growth can be attributed to the phased manufacturing plan (PMP). The industry is optimistic about doubling its production to Rs 15,000-17,000 crore in FY 24.

This is a massive leap for an industry that is highly dependent on imports from China. Wearables have been projected to contribute a sizeable US$ 8 billion (Rs 65,000 crore) in the government’s vision to achieve US$ 300 billion in electronics manufacturing by 2026.

Currently India accounts for 4-5% of the global wearables market by value, according to a study by Feedback Advisory and India Cellular and Electronics Association (ICEA). The implementation of the electronic Production Linked Incentive (PLI) scheme on wearables last year helped to boost domestic production, increasing it from negligible levels in 2021 to 40% of the local market in 2022.

Till March 2023, the government has released Rs 2,874.71 crore to beneficiaries of the PLI scheme. A majority of beneficiary companies were from sectors like electronics, telecom, pharma and food processing. Large-scale electronics manufacturing was at the top of the list of disbursals, with Rs 1,649 crore.

PMP impact and way forward

The implementation of PMP has resulted in a manufacturing growth of nearly 400% for wearables, leading to the direct employment of approximately 30,000 individuals. Top brands like Boat, Noise, and Firebolt are expanding their manufacturing operations in India, with companies now producing locally instead of relying on imports.

To encourage local production of components for wearables, the PMP program reduced custom duty on most components to zero in FY ’23, with a plan to gradually introduce duties between FY ’24 and FY ’26, at a rate of 5-15%. For example, the duty on wearable batteries was cut from 15% to zero in FY ’23.

Starting from FY ’24, a duty structure will be implemented on wearable components, with a 5% duty on batteries in FY ’24, 10% in FY ’25, and 15% in FY ’26. The Feedback-ICEA study predicts that the Indian wearables market will grow to US$ 4 billion by 2026, with manufacturing potentially reaching US$ 8.2 billion, including US$ 4.2 billion in exports.

Despite India’s efforts to boost its electronics manufacturing industry, it still faces a cost disadvantage compared to countries like Vietnam and China. Currently, India’s cost disability differential against Vietnam is around 7-9%, while against China, it is even higher at around 17-19%. This gap needs to be significantly reduced if India wants to attract global vendors and become globally competitive in the electronics manufacturing industry.

According to the study by Feedback-ICEA, if the Indian government implements positive policies to encourage local manufacturing of electronics, such as wearables, the domestic market could be fully served by locally produced products. Additionally, the study suggests that if such policies are implemented, India could capture 8-10% of the global market share for wearables through exports by 2026.