Business Standard

Crisil SME tracker: Inflation to hurt MSME growth in electronics sector

But growth will still be healthy as discounts and lower retail prices will cushion the fall

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Business Standard

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Consumption growth in the electronics sector is seen at 13-17 per cent this fiscal year (FY24), reaching Rs 14-15 trillion, as inflation affects sales of mobile phones and consumer durables, which account for 40 per cent of consumption. Last fiscal, the sector’s consumption touched Rs 12-13 trillion.

But growth will still be healthy as discounts and lower retail prices will cushion the fall.

Demand for mobile phones, and consumer and industrial electronics, which account for 50-55 per cent of total consumption, continues to get support from rising incomes, shorter replacement cycles, easier payment terms, increasing penetration of internet and 5G services, rising temperatures, developments in the auto, electric vehicle and power segments, and falling/stagnant prices.

Production of electronics is seen growing 15-20 per cent this fiscal, riding on the Production Linked Incentive scheme for manufacture of mobile phones, white goods, information technology hardware, and solar photovoltaic cells and modules.

This has implications for small and medium enterprises (SMEs), which play an important role in assembling consumer and industrial electronics. SMEs benefit from component outsourcing and account for 25-35 per cent of the industry’s consumption.

They are expected to log revenue growth of 7-12 per cent year on year this fiscal, driven by mobile phones, consumer and industrial electronics, computer hardware, and strategic electronics. But for inflation, growth would have been higher.

As for margins, after a range-bound performance last fiscal, SMEs are likely to see modest expansion of up to 20 basis points this fiscal, owing to softening of commodity prices, partly offset by appreciation of the dollar, which aids exporters.

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First Published: May 22 2023 | 3:42 PM IST

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