January 24, 2015: To truly enable domestic manufacturing, the government needs to first ensure ease of doing business in India, in both letter and spirit. Disability factors like the slow pace of policy reforms, non-disbursements of incentives, lack of local sourcing, lack of encouragement to entrepreneurs and non-availability of the latest technology need to be addressed
By Richa Chakravarty
Electronics manufacturing in India has long been neglected due to multiple reasons including scale impediments, inadequate infrastructure, the absence of large scale manufacturing ecosystems, debilitating tax and duty regimes, etc. However, with the Make in India initiative, the government has woken up to these disabilities and is making efforts to offset them, especially since electronics manufacturing is now seen as a priority sector. This sector has the capability to bridge a rapidly increasing trade imbalance and create enormous employment opportunities for the skilled, semi-skilled and unskilled labour force. This concluding part of the article ‘Is India Ready for ‘Make in India’’ features the recommendations and investment plans of industry experts, which can put India on the global map as a manufacturing hub.
Focus on design-led manufacturing: For the country to become a favourable manufacturing destination, it is important that India sheds its traditional mindset of assembly-led manufacturing and focuses on design-led manufacturing. India has vibrant electronics design competencies.
Unfortunately, this has had limited impact on indigenous R&D and the contribution of electronics manufacturing to the economy. A recent report released by the India Electronics and Semiconductor Association (IESA) shows that India’s defence budget has grown to Rs 2240 billion, with 40 per cent of it allocated to capital spends and this may grow to Rs 1370-1540 billion by 2018. With this growth in demand, EMS firms are expected to provide employment to more than 0.2 million skilled and semi-skilled workers by 2015. Also, the Government of India (GoI) plans to meet 50 per cent of the demand for high impact products through high value added manufacturing. Hence, for India to take a giant stride and avail this huge opportunity, the country will have to focus on indigenous R&D and manufacturing.
“India has a large pool of talented R&D manpower that has the capabilities to build world class telecom products. The latest advancements in chip technologies allow the use of commodity off the shelf programmable chips (FPGA) and processors, which can be designed and programmed to create world class products. India is already a leader in this fabless system design space. In addition, manufacturing in many categories of electronics components such as PCBs, electro-mechanicals, magnetics, oscillators, mechanicals and passive components is already going on in the country. Thus, the ‘Make in India’ initiative is a great step taken at the right time, and it will attract global electronics components companies to make large investments in creating a common back-end infrastructure of electronic components, semiconductor fabs as well as EMS in India, thereby establishing a flourishing ecosystem within the country,” shares Sanjay Nayak, CEO and managing director, Tejas Networks Ltd.
Echoing similar thoughts, Rajan Shringarpure, managing director and director operations, Draloric/Beyschlag Division, Vishay Components India Pvt Ltd, points out, “Presently, the country is importing more than 85 per cent of its requirements for passive components and more than 90 per cent of active components. This scenario has to change before we can become a manufacturing hub for electronic products. At present, we are just doing assemblies or making modules, which is not sufficient. We have to address the complete supply chain in order to boost local manufacturing.”
Policy reforms: Experts unanimously feel that the government should address the key issue of making it easier to do business in India, in the true spirit.
“Indian manufacturing is facing considerable disabilities compared to other countries like China, Malaysia, Vietnam, Indonesia, etc. This makes it difficult for Indian manufacturers to compete with firms from those countries. “The duty free import of equipment from these countries has to be restricted to make local manufacturing viable,” adds
Subhash Goyal, managing director, Digital Circuits Pvt Ltd.
T Vasu, director, Tandon Group, feels, “As manufacturers make a large one time investment, the policies introduced must be such that they are able to sustain themselves through market jerks. Disability factors like high interest rates, high power tariffs and inverted duty structures need to be addressed as otherwise, the initiatives taken by the government may not bring about the desired results.” He adds that inverted duties for all manufactured electronics should be zero, and domestic power tariffs for the ESDM sector should match the international rates, particularly those of the neighbouring competing countries. Also, all the populated PCBs (PCBAs) needed in the country should be assembled within the country, with exceptions made only in the case of high tech products.
Raising concerns on export licences, the experts feel that there is a need to introduce certain reforms. Rajan Shringarpure feels that the government needs to focus on reforms with respect to applying for a licence for items in the Special Chemicals, Organisms, Materials, Equipment and Technologies (SCOMET) list. “The current system is time consuming, taking anything between six to eight months. No customer will wait that long and hence, we will lose the opportunity to export and earn precious forex.” He adds, “Electronics manufacturing is by and large a non-polluting industry and, in spite of that, most of the companies have taken adequate measures to mitigate the pollutants by setting up the appropriate treatment plants.
Manufacturing units that were set up on river banks years ago now have limited scope for expansion as these industries fall under RRZ (River Red Zone). There is an urgent need to relook at this policy and with due diligence, environmental clearances should be granted to all those industries who not only fulfil the norms but undertake more than is required by the government, in order to protect the environment.”
Sharing another policy concern, Sanjay Nayak says, “There is a need to solve the problem of the high cost of capital in India. The government must implement the ESDM industry’s recommendation of providing interest subvention, since Indian industry has a 10 per cent handicap as compared to its global peers, on the cost of capital alone.”
Efficient and timely implementation of policies: Creating a healthy business environment will be possible only when the administrative machinery is efficient. India has been very stringent when it comes to procedural and regulatory clearances. A business friendly environment can be created only if India can demonstrate that it can ensure easier approvals of projects and set up hassle free clearance mechanisms. The government, in consultation with the industry, has formulated several forward looking policies and schemes such as the Preferential Market Access policy (PMA), the Modified Special Incentive Package Scheme (M-SIPS), the National Electronics Policy (NEP/NTP) 2012, etc, to incentivise and create a vibrant domestic industry. However, efficient and timely implementation at the ground is missing. So these operational aspects should be tackled on a priority basis by the new government. “M-SIPS should be modified to cover all R&D costs (including manpower costs), since R&D driven manufacturing can dramatically increase domestic value addition. Currently, only 7.5 per cent of the R&D manpower expenses are eligible as ‘project costs’ under the M-SIPS policy, which should be increased to at least 80 per cent considering that ESDM is a knowledge-intensive sector. The PMA is not being implemented in letter and spirit by several government agencies, which continue to circumvent this policy by including as an eligibility criterion, a company’s prior track record of having proved itself in global markets.
This prevents Indian companies with indigenously developed products from being able to bid in certain government commercial tenders. Similarly, many of the large R&D funding programmes announced for the ESDM sector such as the US$ 2 billion Electronics Development Fund (EDF) and the US$ 3 billion Telecom Product Fund (TPF), have not been operationalised yet,” laments Sanjay Nayak.
Developing skillsets: We need to develop the skillsets required for the current products and technologies as well as consider future technological trends and products. This calls for tremendous efforts, right from having competent knowledgeable teachers to creating the infrastructure to make personnel employment-ready. Adds Ramadass Patil M, head SSL business, Moser Baer India Ltd, “Indian industry requires expertise and talent in electronics manufacturing. This will eventually lead to good control on quality, increased service levels, environment friendliness for long term benefits, constant improvements in features and designs, etc. The ‘Make in India’ initiative turning into action will be the biggest ever boost to Indian talent.”
Encourage local sourcing: To support the electronics manufacturing base, Indian industry needs good quality raw materials at competitive prices. Says Rajan Shringarpure, “Raw materials and components are not available in India and, therefore, almost every company relies heavily on imports. We need to recognise this and boost this area on a top priority. There should be significant efforts in developing and setting up industries that support the electronics components industry. Our efforts should be towards achieving 100 per cent local sourcing.”
Incentives for start-up companies: The government should encourage the setting up of more start-up funds like the one introduced in the recent Budget. This will encourage Indian electronics entrepreneurs to design and manufacture products with Indian IPR. “This is a high risk, high reward proposition; hence, a large number of entrepreneurs must be promoted. Along with this, the government should also introduce a ‘speed-up’ fund to promote domestic companies that have gone past the start-up stage and can grow exponentially. Start-ups supported by speed-up funding have survived infant mortality and therefore provide the best risk/reward trade-off, as they have already proven their business potential by winning against established global players,” says Sanjay Nayak.
JVs and technological tie-ups with foreign partners: India’s small and medium-sized industries can play a big role in making the country take the next big leap in manufacturing. India should be more focused on novelty and innovation in these sectors. The government should chart out plans to give special sops and privileges to these sectors. “There are some road blocks and hiccups in the implementation of the NEP 2012.
However, trade associations like ELCINA and others are trying to resolve them in association with the Department of Electronics and Information Technology (DeitY). But the key is the PMA policy—its effective implementation can really drive the manufacturing industry forward. The electronics industry needs a strong innovation and technology ecosystem to compete with the latest sophisticated imported products that come out with improved models every quarter. Hence, joint ventures along with technological and financial tie-ups with foreign partners will help in achieving this faster,” adds Subhash Goyal.
Investment roadmap
India must also encourage high tech imports and R&D to fast track ‘Make in India’ and give neck to neck competition to its Chinese counterparts. For this, India has to be better prepared and motivated to do world class R&D. The government must ensure that it provides a platform for such research and development.
As per the M-SIPS policy, the government plans to launch 200 clusters. So far, two clusters in Madhya Pradesh have already received approvals, with eight in-principle approvals in line. This clearly shows the government’s interest in setting up the appropriate platforms to boost the manufacturing scenario, which in turn has bolstered the confidence of manufacturers to make investment plans and place bigger bets on the industry. Here are some of the investment plans lined up by key manufacturers.
