July 2016

Electronics Manufacturing Braving the Odds

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S K Marwaha

The demand for electronics is growing exponentially in India and is expected to reach $400 billion annually. But if the imports are not reduced, the country will be able to reach barely a capacity of $100 billion, says S K Marwaha, Director & Scientist ‘F’, Department of Electronics & IT, Ministry of Communications & IT, Government of India, in an interview with Arpit Gupta of Elets News Network (ENN). According to him, one of the key components for consolidating the manufacturing ecosystem is to produce all the electronic devices and goods keeping in mind the country’s needs. Excerpts:

What are the major constraints that the industry is facing?
The major constraint is the information technology agreement. Basic customs duty is a protection to the industry, and in the absence of that, we have to compete globally. With so many disabilities in our manufacturing ecosystem, we are unable to provide a level playing field even with our neighbouring countries like Malaysia and Thailand.
The disabilities that currently exist in our manufacturing ecosystem are power, finance, rates of finance, the supply chain, etc. For example, in supply chain, there is hardly any component manufacturer left now. There are high transaction costs which are practically non-existent in our neighbouring countries, even in China. So, all of that is making our industry uncompetitive in a zero-duty environment.
Automobile industry did not face zero duty and to accentuate the problem, we have entered into free trade agreement (FTA) with several countries, such as Thailand, Korea, Japan and Russia, where those articles are also covered which do not have any IT agreement like consumer electronics and medical electronics. However, we have not signed the ITA II which is the expanded version of ITA.
Many countries got together in the WTO and proposed an expansion notice to include more items in the ITA which we did not sign. So, for at least those products, the duty protection continues else they would also have met the same fate. But the damage has been done, many units have been shut down and manufacturers have turned to traders. Now we have new policies, which is a kind of new sunshine, even in the challenge of zero duty.

“We have to promote both “Make in India” and “Design in India”. Replicating China is not what we are aiming at; they are volumecentric keeping in view the export market and it is very difficult to compete with them”

How can the manufacturer be insulated in such conditions?
What we are doing is compensating the disabilities for which we have put in place modified special incentive where we are giving a capex subsidy of 25 per cent. For example, if a mobile phone manufacturer invests `10 crore in a year then we are giving them back `2.5 crore the following year. In case the manufacturing unit is set up in a special economic zone (SEZ) where you already receive certain benefits, then the capex subsidy is 20 per cent.
Already, the government has received 195 proposals under the scheme amounting to `1,20,000 crores and we hope that in the coming years these proposals actually fructify into investments.
Actually this scheme was there in 2012, but was modified in 2015 and has been extended by another five years till July 2020. Besides infrastructure disabilities, we have put into place electronic manufacturing clusters. There we are supporting both green and brown field clusters. In greenfield projects, we are trying to co-locate the ancillaries along with the principal manufacturer which will reduce the cost of production, thereby seeping the benefits directly to the consumer. That’s what they did in China. There, we are giving a grant of Rs 50 crore per 100 acres of land limited to 50 per cent of the project cost.
Are there any significant interests on the part of state governments? What is there in store for the indigenous manufacturers? The state governments are enthusiastic about it. So far 44 applications have already come in from 18 states. Naturally, it will take time since everything has to be done from scratch. We have come up with another concept called brownfield clusters wherein an existing agglomeration can come up with proposals to set up common facilities. This will also be beneficial as the government chips in 75 per cent for common facilities. Once the project report is submitted, the government supports up to 75 per cent of the cost to the extent of `50 crore per project.
Another scheme for promoting manufacturing is the policy for providing preference to domestically manufactured electronics. If you manufacture in India and fulfill specified domestic value addition and technical specifications, then irrespective of the country of origin, you will get half of the order.
We are also supporting high-end manpower like industry-specific research scholars. We are supporting 3,000 PhDs till 2020, and these PhDs will be in areas identified by the industry.
We were trying to promote set top boxes in a big way. All tariff and other bottlenecks were removed. By 2016, the entire country will be digitised.

How is Make in India accelerating?
We have to promote both “Make in India” and “Design in India”. Replicating China is not what we are aiming at, at this moment. They are volume-centric keeping in view the export market and it is very difficult to compete with them. So we want to create our own unique product line and see wherever we can be competitive. There are emerging opportunities in mobile and tablets.
The local company which manufactures here will only pay 2 per cent excise and if they import they will have to pay countervailing duty of 12.5 per cent.
In the past one year, more than 20 units have come up. The production of mobile has gone up from 6 crore to 11 crore.

What is the way ahead?
From next year, we are planning to exclude the mechanical parts for mobile so that people start manufacturing it. In 2018, we will probably exclude the camera module and display to ultimately provide the benefits to those indigenous assemblers who will buy locally.
So by 2020, I am hoping something good will happen otherwise it will be impossible to sustain. With our ability in software and the spirit of entrepreneurship our youth has, we can create and promote our own line of innovative products.

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