India’s manufacturing storyline has been well-scripted by the government so far, with announcements such as Make in India and Digital India taking centre-stage. When it comes to electronics manufacturing, steps such as redrafting the National Policy on Electronics System and Design Manufacturing, revisiting the National Telecom Policy 2012, Preferential Market Access Policy, and other such incentives have helped unlock India’s manufacturing capability. As it stands, electronics manufacturing has seen the rise of semi-knocked down (SKD) manufacturing units. Unfortunately, a lot of companies are importing finished goods in an unassembled form and merely assembling them in the country, resulting in a value-add only in terms of testing and packaging. Despite several fiscal incentives, the government’s objective of spurring growth of completely knocked down (CKD) units has not come to fruition. At present, value addition within the country is at 5-10 % and India is looking at building a robust value chain with 20-25% of domestic content by the year 2020.
However, focusing on the domestic market alone is inadequate, as volumes are low. Therefore, domestic manufacturing has to be paired with an export oriented approach, as it will help fulfill global demand, build a strong business case to attract investment in the component ecosystem and enhance the competitiveness of IT exports. The domestic market for locally produced products and components needs to be expanded by creating a clear distinction between that are imported and those that are manufactured here.
The government can achieve this by providing incentives to locally manufactured products, that, in turn, affect pricing. Imports must also be curbed so as to enable electronics manufacturers to cater to local demand. Design-led manufacturing must be encouraged with emphasis on R&D and IPR. So far, incentives announced have been capex based, while they should be throughput and based on what is being manufactured and the extent of value addition by a manufacturing unit. In fact, production subsidy must be extended to include all components as well as raw materials.
The three main focus areas that will allow for India to scale the global manufacturing ranking are PCB assembly (laying the foundation for design), setting up of a component manufacturing ecosystem and aggregation of demand for electronics. Component trading hubs or bonded cargo warehouses must be established. Domestic manufacturers can procure components from these hubs, and components that are not manufactured in India, can be imported and stored in these facilities.
As a starting point, we could build a component ecosystem to support the top 10 globally competitive product lines. Increased technology proliferation is the only catalyst to transform India into a digital and knowledge economy. Today there is a demand for electronics but it is in silos. There is a growing need to collate the requirements of the Centre and as well as the state and create a depository of demand. This will encourage more manufacturing, as well as bring in the advantage of pricing. Procurement must be streamlined and improvised, so that locally manufactured products are obtained easily by government agencies.
Reports indicate that the ministry of electronics and IT is looking to expand its phased manufacturing programme to encompass product segments other than mobile phones. India’s mobile manufacturing progress proves that the nation has the capability of becoming a large manufacturing powerhouse. The existing ecosystem that has been established should now be further utilised to fuel the expansion of manufacturing of other related products. It is also important that India engages and empowers SMEs, as we look to become self-sufficient in electronic manufacturing and propagate more local value addition.
India must focus on an export-oriented strategy by increasing the Merchandise Exports from India Scheme (MEIS) rate to incentivise domestic manufacturing, provide throughput based incentive, increase basic customs duty rates for select non-ITA goods and promote PCBA manufacturing.
Next, GST rates must be revisited and GST issues resolved. The refund of GST paid on capital goods when used in export / zero rated supplies, should be at 18%, irrespective of size. A clarification is sought on refund of input tax credit in the case of inverted duty structure.
India moved up 30 spots to secure a place among the top 100 countries on World Bank’s Ease of Doing business ranking list, only recently. More can be done in this area through the establishment of an ICT convergence cell, with a single investment facilitation window. Going forward, government’s engagement with the industry should be one of collaboration, where all policies are drafted in consultation with industry leaders and reviewed periodically. Only constant engagement will yield consistent results and ensure India realises its true potential on the electronics manufacturing world stage.
The writer is executive director, MAIT