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  Date: 15/07/2014

Can IT and electronics manufacturing in India take off?

While the worldover PC sales are falling, where as in India notebook computer sales are rising. During the year Apr 2013 to Mar 2014, Notebook PC has grown significantly by 55% among households, as per the latest study by MAIT.

Other market findings by MAIT on India IT products include:
The total PC sales between including desktop PC, notebook PC and netbooks were at 11.85 million (118.5 lakh) units, registering a growth of six per cent during Apr 2013 to Mar 2014 compared to same period year ago.
Tablets PCs are growing at 76%
Smartphone reports a phenomenal growth of 244%
Computer server segment showed 58% growth
Notebook sales among Establishments during 2013-14 ended with a rise of 39%.The growth is mainly accounted by SMB.
Overall printer sales grew by 6% during 2013-14 over the last fiscal year. The sales at 2013-14 stood at 3.10 million (31.0 lakh) units.
The total IT Hardware market to touch $ 12.43 billion

Above figures says the market demand force is quite strong. This demand is expected to become a Tsunami size demand by 2020 at a total electronics products worth US$400 Billion. Large enough to destabilize the economy, if much of this is imported. Its not IT products alone, itís all-round demand for wide range of electronics systems.

India's manufacturing in IT and electronics hardware is not even 20%. Let's look at the some of the hurdles India faces in local manufacturing and solutions to clear those hurdles:

Hurdle 1: No major electronics component manufacturing in India: electronics component constitute 25-30% of electronics product cost. In that 60-70% is the cost of semiconductor IC and other semiconductor components.

Solution: India to get two semiconductor fabs, but they going to produce IC chips only 2 years from now. More fabs and component manufacturing need to be supported. Rules and taxes must be extremely supporting to component manufacturers. Here speed is the name of the game.

Hurdle 2: No big distributor stocking electronic components in India. Though they give best support to the local customers, for every order, they import the component from off-shore ware house. The product differentiating components are not easily available from many distributors in India.

Solution: Stocking latest cutting-edge technology component in India need to be given high priority. Though big companies find it to easy to import, SMEs and design focused startups and pure design companies find it difficult to import product differentiating just-released components in small quantity. There is also a problem of fake components, where some action is required from the Government.

Hurdle 3: Inverted duty structure or some sort of taxing not benefiting India.

Solution: The latest budget has taken care and answered to the woes of IT manufacturers. More tax sops for ESDM companies is required.

Hurdle 4: Infrastructure support: India lacks sophisticated infrastructure for precision manufacturing.
Solution: There is lot of positive changes happening but still lags compared to other electronics manufacturing regions. Government not only need to take care of industrial infrastructure but also personal infrastructure such as safe and fast public transportation, safe roads not only in terms of traffic but also safety for women commuters.

Hurdle 5: Easy clearance of goods at ports
Solution: Instead of traditional process some smart processes can be used by authority for clearance of goods.

Hurdle 6: Lack of specialized talent

Solution: Courses such as precision manufacturing need to be offered in atleast 25% of the engineering colleges. Only one or two colleges are offering precision manufacturing as subject in engineering. These days computer programming subjects are more expanded and lesser and lesser importance is given to some important subjects such as "Material Science". The trend of software-more hardware-less need to be stopped, if not reversed.

Hurdle 7: No corruption and nepotism

Solution: This is most important. Every one is responsible for this . Do what ever is possible for a clean system.

Electronics manufacturing is less electronics and more mechanical and applied sciences, as India evolves into an automotive manufacturing center, the precision manufacturing is a natural next step.

There is a high chances of India becoming world factory. If you wish to replace the old English word 'hurdle' in this article with the motivating word 'challenge', that may give some extra energy to jump over. Finally it is the mindset to win! We will try to update this page as India wins over these challenges and new challenges India faces.

Below are some of the announcements made in the recent budget (July 2014) specific to electronics industry:

1. Special Additional Duty (4%) on all inputs/components used in the manufacture of Personal Computers (laptops/desktops) and tablet computers is being exempted.

2. Duty structure on imported and manufactured computers have been brought at par by withdrawing exemption of CESS (0.3%) on imported computers.

3. E-book readers has been exempted from BCD (7.5% earlier), benefiting education and other sectors.

4. Some telecom products (non-ITA) have been made liable to 10% BCD whereas all goods required for manufacture of aforesaid telecom products would continue to enjoy exemption from BCD. This will encourage manufacturing.

5. Government has proposed a fund of Rs. 100 crores for setting up virtual classrooms as Communication-Linked Interface for Cultivating Knowledge (CLICK) and online courses.

6. SMEs given lot of emphasis. Rs. 10,000 crores corpus proposed for venture capital to encourage start-ups and entrepreneurs in the MSME sector.

7. e-Governance Projects: All govt depts, ministries to be integrated through E-platform by 31 Dec 2014.

8. Rs. 7060 crores have been allocated for Smart City projects. This will significantly push ICT deployment and ICT device penetration.

8. Government has initiated a number of actions including increasing FDI limit in defense and insurance sectors which will improve the investment climate.

9. Finance Minister has initiated a discussion with states to work out GST-related implementation issues.

10. Provide investment allowance at 15% for 3 yrs to manufacturing companies which invest more than Rs 25 cr in plant and machinery.

11. Investments in roads and ports will improve infrastructure connectivity, improving the ease of doing business.

If you wish to read the comments made by the industry people, below are those by MAIT and IESA.

Amar Babu, President, MAIT:

"MAIT welcomes the long pending correction of inverted duty structure from the IT Hardware sector perspective. Also, some telecom products (non-ITA) have been made liable to 10% basic customs duty whereas all goods required for manufacture telecom products would continue to enjoy exemption from BCD.
These steps will definitely help boost domestic manufacturing"

Anwar Shirpurwala, ED, MAIT:

"There are several positive signs in the budget that would go a long way in making India as an investment destination. Increasing FDI limit in defense and insurance sectors are some steps in that direction. We also welcome government's commitment to address retrospective taxes. MAIT had made several other recommendations and hope that they would be addressed in the near future."

Debjani Ghosh, VP, MAIT:

"Encouraging to see the Government act on its election promise to leverage technology to accelerate development across sectors and drive higher technology adoption across the country. The Rs 500 crore allocation for Digital India initiative would help accelerate broadband connectivity at village level, increasing technology penetration and usage, along with providing a much needed boost to e-governance. Allocation of Rs. 100 crores for setting up virtual classrooms as Communication-Linked Interface for Cultivating Knowledge (CLICK) and online courses is also a good move."

Nitin Kunkolienker, Vice President, MAIT:

"We welcome emphasis given in the budget on SMEs. Rs. 10,000 crores corpus proposed for venture capital to encourage start-ups and entrepreneurs in the MSME sector is a step in the right direction. We also welcome revision in the definition of MSME in relations to terms of raising its capital ceiling."

Mr. Ashok Chandak, Chairman, India Electronics and Semiconductor Association (IESA) :

"Manufacturing incentives at 15% for extended period of 3 years for manufacturing company that invests more than 25 crore plus would create massive push to the MSMEís in electronic sector. This will lead to the inclusive growth of the electronic manufacturing clusters coming up in the seven states, setting up of electronics units, investment/employment opportunities in the non-urban parts of India and help build component eco-system."

"Support in the form of Investment Linked Deductions for Semiconductor wafer manufacturing units would help build the Semiconductor Fabs and ATMP unitsí cohesive ecosystem potentially contributing to more than 40,000 crore FDIís and job creations."
Author: Srinivasa Reddy N
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