While the government was formulating the first steps that could lead to a fulfillment of the grand vision of Make in Indiacampaign, the work at Nokia’s manufacturing plant at Sriperumbudur had already come to a standstill. Why did Nokia fail to successfully run a mobile manufacturing unit in India, a country that boasts of close to a billion mobile phone subscriptions?
The closure of Nokia’s plant in Sriperumbudur is linked mostly to the legal and tax related issues that the plant had been facing for many years. But the electronics industry in general is optimistic about the future of Electronics Manufacturing in the country.
Anwar Shirpurwala, Executive Director, MAIT, says that such plant closures definitely bring the industry’s morale down, but the industry’s interests are best served by looking towards the future, rather than the past. It is not in the industry’s interest to be bogged down by such events. We should look towards the new opportunities that the government’s Digital India programme is presenting.”
The Information, Communication, Technology and Electronics (ICTE) industry is ranked amongst the world? fastest growing sectors. The products and services developed by this industry are being used by every other section of the economy. It is now widely accepted that ICTE industry is a key enabler of development. While India is doing well in software and telecom, its electronics manufacturing sector is a laggard. It is estimated that the country produces just 5% of its total electronics consumption.
The demand-supply mismatch
According to a MAIT-KPMG report, Indian electronics hardware production constitutes around 1.31% of the global production. At the current rate of growth, the domestic production can cater to a demand of $104 billion in 2020 and the remaining would have to be met by imports. Reports from Department of Electronics & Information Technology estimates that the demand for electronics to reach $400 billion by 2020, and at that point of time our electronics import bill will overtake the petroleum import bill.
Now that the government is planning to build several Smart Cities in the country, and there is the massive Digital India programme, it is possible that that the demand for electronics goods could surpass the estimated $400 billion by 2020.
Sunil Padmanabh, an Independent IT Advisor, feels that the timing of Make in India initiative is perfect and it is the logical next step to the ?igital Indiaprogramme launched earlier by the Modi Government. “This is a great opportunity to revive electronics/IT manufacturing at a time when China has started losing its low cost manufacturer advantage due to rising wage costs. This initiative will be critical for boosting economy by enhancing domestic production and taking on the competition from China and other nations. The success of this initiative will lead to a dramatic change in the way the products manufactured in India are perceived.”
“The government in the past it have also made efforts to bring a change with new policies, but this time the Government seems to be working in a more focused manner,says NK Goyal, President Telecom Equipment Manufacturers Association of India (TEMA).
“Single window clearance and better communication between the state governments as promised by the new government will lead to a positive change,” Goyal says. “The Digital India programme is not only about big spending by the government, it also involves new ideas and restructured schemes. The implementation will be closely monitored by a committee, chaired by the Prime Minister himself.”
So why is the electronics industry in India in a poor shape today? According to Padmanabh, a combination of factors are to blame for the state of affairs. He points out to factors like the non-existence of business friendly ecosystem, poor infrastructure, complex multi-tier tax structures. He points out, “It is time for the stakeholders to learn from the past experiences and introduce the necessary changes.”
Identify and rectify
Many electronics manufacturers who choose to set up production facilities in India have been plagued by problems. Indrajit Sabharwal, MD, Simmtronics, says that it has been a challenging experience for his company to manufacture in India. Headquartered in Delhi, Simmtronics has four manufacturing facilities, two of which are in Roorkee and Bhiwadi.
Sabharwal notes that the cost of production in India is higher as compared to China. The lower costs in China is primarily due to the numerous subsidies from the government. Such subsidies are not being provided by the Indian government.
“Also the market prefers to buy cheap Chinese products as compared to products made in India. That is why we are now exploring international markets like Dubai and Singapore for export of made in India products,he adds.
Padmanabh’s view on this is in-line with what Sabharwal says. Padmanabh says that it is the higher cost of production that is the root cause of the lack of investments in electronics manufacturing in India despite the fact that we are the world? largest consumer of electronics products.
If you speak to the senior officials in telecom equipment manufacturing companies, they will tell you that instead of promoting domestic products as per PMA (preferential market access) policies, many government tenders include highly restrictive eligibility related requirements, which make the Indian product companies ineligible to bid. The domestic players also suffer because they fail to get the pricing support from component suppliers, which increases the cost of their production. But they still have to compete on L-1 price against large foreign companies
It gets worse for domestic players as due to high-volumes they don? get the required pricing support from component suppliers, but they still have to compete on L-1 price against much larger foreign companies, which have been lobbying hard in the country. It then becomes a vicious circle, and the companies are not able to get business and thus they fail to survive.
The government should not only think of creating an ecosystem to make in India, it should also enable the companies to sell in India. Both, creating and selling, are equally important for driving the ecosystem.
Also, there is a need for a stringent PMA mandate for all government IT/telecom procurement,as in the current socio-political environment, India cannot afford to be dependent on foreign players alone. The country will not reap benefits of local manufacturing till there is significant domestic value-addition
New areas of growth
Rajiv Mahajan, Senior Vice President, Tejas Networks feels that the telecom will be a crucial sector in the entire digitisation plan. He says that Tejas has been working with almost all leading telecom operators in the country. His company is looking at the 4G networks with interest, as they feel that 4G will open several new opportunities for domestic players like Tejas.
“The government plan looks promising, but its success will depend on the way it is implemented,says Mahajan.
Agrees, Shirpurwala of MAIT. He says, “All the OEMs (Original Equipment Manufacturers) that we have been in talks with want to manufacture in India, but the government needs to clear the basic operational roadblocks. The reason why many companies are hesitant to manufacture in India is due to lack of stringent IPR (Intellectual Property Rights) regulation in the country.”
Yolynd Lobo, India Director, BSA, the trade organisation working with international governments to advance the goals of the software industry and their hardware partners, says, “Innovation is key for making the Indian Government’s Make in India initiative a success. Hence we need strong IPR Law and Trade Secret legislation. Trade Secret is any information that derives economic value from not being generally known to the public. Protecting a company’s trade secrets is critical to encourage innovation and thereby, IT manufacturing in India.”
Also since most domestic manufacturers are start-ups, they need lot of hand holding and guidance to survive in the market. This, Shirpurwala says, is the key reason behind the creation of the SME chapter under MAIT. “It is our initiative to bring SMEs from across the country onto a single platform and give them an opportunity to update their knowledge about various business opportunities, latest technologies, and investment opportunities available in India and abroad.”
Look for new trends in electronics
“As the world of technology is fast changing, it is imperative that the government and the industry should have a futuristic approach,” says Shirpurwala.
“Electronics Manufacturing is a business that typically witnesses long periods of gestation. The development of the production facility itself is a time consuming exercise. The initial investment is also fairly high. Hence the Indian manufacturers who aspire to be a part of the Make in India campaign should look beyond the areas that are already crowded. Be on the look out of the trends,” he advises.
Padmanabh states that set top boxes, wearable electronics, medical electronics, telecom equipment , infrastructure (for bridge monitoring systems, disaster warning systems), smart energy metering systems and infrastructure for Smart Cities, are the key segments in which we should watch out for. These are the areas where the new investors will lay down their money.
Up to 40% FDI is now permitted in the defence sector, and about 60% of defence products consist of electronics. The electronics manufacturing industries sees light in the area defence. It is believed that India might soon have global electronics giants participating in the creation of defence related products.
As of now India does not have a single Semiconductor Wafer Fabrication (Fab) Manufacturing unit, even though the consumption of FAB in the country is more than $10 billion. But now the government has started working on this crucial area. Two consortiums have been given the permission to set up their FAB units in the country and land where the units are to be set up has also been identified.