This month, if I do not mention the outfall of the steep fall of the Indian Rupee against the US Dollar, particularly its impact on the electronic security systems market in India, I would be failing in my duty.
The rupee has lost 57 percent of its value against the US currency since it peaked at 39.40 rupees to the dollar in February 2008. This steady decline that has accelerated in the past few months has sent jitters down the spine of the largely import based security systems industry in India. The cost of CCTV, access control, intrusion alarms and all other types of security equipment which are not made locally has zoomed.
Importers have lost huge amounts as their supplies for projects under execution have become dear and the clients have refused to increase already agreed rates. Expecting the exchange rates to stabilize, the importers hung on bravely for a while, but last week we saw a major importer finally revise his prices upwards.
The slowing economy coupled with the current pre-election political paralysis has sent prices soaring and the demand drop, especially in the infrastructure sector, leading to the current business slump. The ‘non starter’ Mumbai city surveillance project has only added to the low sentiments of the otherwise ‘ever vibrant’ electronic security system projects market.
However, the silver lining of the story is that weakened rupee will result in the growth of exports as other major global economies revive. Strong inflows of funds from Indians settled abroad will also translate into availability of more rupees. A bumper monsoon should also help in reviving the rural economy of India. As a result, I expect Tier 2 and 3 cities will witness enhanced consumption of CCTV and other consumer oriented security systems. A falling job market resulting in increased crime rates will also drive the demand for such equipment in Tier 1 cities.
The Electronics Industry, reportedly at US$ 1.75 trillion, is the largest and fastest growing manufacturing industry in the world. It is expected to reach US$ 2.4 trillion by 2020. The demand in the Indian market was US$ 45 billion in 2008-09 and is expected to reach US$ 400 billion by 2020.
At the current rate of growth, domestic production can only cater to a demand of US$ 100 billion in 2020 as against a projected demand of US$ 400 billion! The rest would have to be met by imports! This aggregates to a demand supply gap of nearly US$ 300 billion by 2020! Unless the situation is corrected, it is likely that by 2020, electronics imports may far exceed the oil imports of India.
Therefore, when your back is against the wall, going forward is the only way out. In the long term, manufacturing electronic security equipment locally will make a lot of sense.
SECURITY TODAY will track this movement closely from here onwards.
Till we meet next month,
Cheers & Happy Reading
Editor, Security Today