Even though the industry thinks that some of the components mentioned in the PMA guidelines have the potential to be manufactured in India, their manufacturing cannot take off because of hurdles like the inverted duty structure
By Nitasha Chawla
Thursday, July 18, 2013: The government had recently issued the Preferential Market Access (PMA) guidelines for desktop PCs, laptop PCs, tablet PCs, dot-matrix printers and smart cards, with the objective of giving a fillip to the domestic manufacturing industry and to put an end to the dependence on imports. However, the guidelines for these products do not mandate that all the components that go into making them need to be manufactured domestically. Electronics Bazaar studied all the guidelines in the PMA policy and our analysis suggests that only manufacture of bare PCBs and switch-mode power supplies (SMPS) will get a boost in India, as only these two have been mandated to be manufactured domestically.
But since the government hopes that the PMA policy will not only boost manufacturing of the five categories of products mentioned earlier but also the components that go into these products, we tried to find out which of the components have the potential to be manufactured in India, or whether this is just an unachievable dream.
Surprisingly, it was found that many local companies are not aware of the guidelines and the benefits they can derive from these policies, or have only very superficial information about them.
Some of them raised their doubts about India’s readiness to take up the manufacture of components—they disagree with the government’s view that India can start manufacturing the components that go into these five products.
Components manufacturing is viable…
Some industry experts feel the policy is a step in the right direction and it will definitely push domestic players to start manufacturing some of the components, as and when manufacturing of electronics products gets a boost and domestic demand for components increases.
Shares Rajiv Srivastava, president, Printing and Personal Systems Group (PPS), Hewlett Packard (HP), “Today, we have reached a level where it can be said that India has the technical capabilities to manufacture electronic products. However, the bigger question is, how practical is it for us to start manufacturing, and that too components? For instance, if a company wants to set up a fab here, it will only do so if high volume production and the export capabilities of India are favourable.” However, according to Srivastava, out of the several components that are listed in the PMA guidelines, domestic manufacture of the mouse, chassis, keyboards and components populating the motherboard can be taken up domestically.
Narendra Bansal, managing director, Intex Technologies, is of the view that there are certain components that will see a significant boost in domestic manufacturing. These components are wires and connectors, computer cases, mouse and keyboards. “These are not high-end products and India already has the technology to manufacture them. Also, these are basic products, and most of them are made of plastic and steel, so no major hurdles will be faced in manufacturing these products in India,” he says.
JV Ramamurthy, president and COO, HCL Infosystems Ltd, agrees. According to him, the components in parts or finished modules, besides PCBs and SMPS, which will witness a boom, are PC monitor chassis with imported glass panel, desktop chassis, keyboards and mouse. However, he feels, “Manufacturing of components for modules like the CPU, chipset, hard disk and optical drives, which constitute a large part of any bill of material (BOM), may not be feasible in India unless there are substantial gains compared to other countries like China and Indonesia.” And doing so requires setting up of fabrication units here. Setting up of fabs is an important factor in encouraging technology companies like HCL to derive benefits from the PMA policy.
Explains JV Ramamurthy, “Once we bid as a PMA vendor, we will get a chance to bid for a good percentage of the contract value, subject to matching technical qualifications and the L1 price (the least bid price for the tender) for the first year. However, with a stringent criterion of 50 per cent value addition from the second year onwards, the path looks rough unless the government takes the right steps to engage big technology companies to set up fabrication units here.”
… if major hurdles are removed
Even if experts in the industry think that some of the components mentioned in the five guidelines have the potential to be made in India, manufacture cannot take off because of hurdles like the inverted duty structure. India’s duty structure is such that the import duty on finished products is lower than the duty on parts or components used in manufacturing these electronics products. Under this duty structure, domestically produced goods cost more than imported substitutes. This is one of the main reasons why the industry is apprehensive to start manufacturing indigenously.
Explains Indrajit Sabharwal, managing director, Simmtronics Semiconductors Ltd, “If we want to manufacture motherboards in India, the customs duty on imported components or inputs used in a motherboard varies between 8 and 16 per cent. To this a lot of other costs get added when a motherboard is manufactured. Whereas, if a readymade motherboard is imported, the duty is around 16 per cent. So the duty on inputs is more than the duty on the final product; therefore, importing a complete product (a motherboard, in this case) seems more viable and profitable than manufacturing it indigenously.”
This discouraging duty structure has resulted in multinationals setting up manufacturing facilities in China or in other Asian countries. Therefore, the Indian industry feels that domestic manufacturers should be provided a level playing field vis-à-vis their overseas counterparts. Explains JV Ramamurthy, “The total input duty on components is higher than the output duty on the finished product, or the duty on imported finished goods. This is on account of the 4 per cent special additional duty (SAD) of customs levied on raw material imported for the manufacture of finished products. While the same finished product, imported for resale in India in a pre-packed condition, is exempted from payment of SAD. So, while the government is talking about encouraging manufacturing, such anomalies encourage the import of full products. Unless this is corrected, manufacturing in India will not be competitive.”
However, Rajan Shringarpure, managing director and director, operations, Vishay Components India Pvt Ltd, thinks that the duty structure is not an impediment for manufacturing. “Being competitive doesn’t only mean being cost-effective. We can still compete with the market with our skills and market strategies,” he says.
Major components that go into making of products that come under PMA policy
The PMA guidelines for desktop PCs, laptop PCs, tablet PCs, dot- matrix printers and smart cards, specify all the inputs that go into the making of these products. These include bare PCBs, SMPS, main PCBs, hard disk drives, LCD monitors, processors, the memory, keyboards, motherboards, the mouse, cartridge motors and paper feed motors, the front control panel, home position/paper end sensors, main printer cabinets, back covers, power modules, IC chip modules, and the plastic body of the smart card.
Among these inputs, only bare PCBs, SMPS, back covers, and plastic card bodies have been mandated to be manufactured domestically. The rest of the inputs can be imported and assembled domestically. However, in case of the cabinet, motherboard and power modules, in the first year, the policy mandates only domestic assembly and testing. The value of domestically manufactured components used in the assembly of the motherboard and power module should be increased to 10 per cent in the second year and 20 per cent in the third year. Domestic manufacture of cabinets will be made compulsory from the third year onwards.
Components that have the potential to be manufactured in India
- Bare PCBs
- Switch mode power supplies
- Mouse
- Chassis
- Keyboards
- Populating of components on the motherboard
- Wires and cables
- Connectors
- Computer cases
Electronics Bazaar, South Asia’s No.1 Electronics B2B magazine
