For atmanirbharta in electronics…

…we need to make hardware PLI more responsive and take a pragmatic view on Chinese investment in India in the space

The China issue is an emotive one for Indians, which makes it difficult to have a logical discussion, even among policymakers, and it remains the proverbial elephant in the room.
The China issue is an emotive one for Indians, which makes it difficult to have a logical discussion, even among policymakers, and it remains the proverbial elephant in the room.

By JS Deepak

Distinguished economist Steven Landsburg believes “people respond to incentives; all else is commentary.” Nowhere is this better illustrated than in the rise of China. In 1982, India’s per capita income exceeded China’s. Today, it is less than a fifth. By 2000, the Chinese economy had grown to twice the size of India, and by 2010 it was four times as large! This has many drivers but certainly incentives for industry is one.

With some fiscal space now, India needs to leverage WTO-consistent subsidies for ramping up investment and growth. The PLI scheme for mobile phones is an excellent start. In spite of the slow start due to the pandemic, it is expected to place the rapidly growing production and export of mobile phones in an altogether different orbit. But the PLI scheme for IT hardware requires fixing. There was only 50% off-take with many reputed firms not participating. This, at a time when about 80% of laptops and 60% of tablets sold in India, a $7-billion market and growing, come from China. Further, 60% of the $250-billion electronics manufacturing target of India for 2026 will have to be met by products other than cell phones.

While many interventions are possible, four steps are urgent and imperative. One, the IT hardware PLI scheme needs to be reviewed to make it a trigger for both exports and import substitution, by getting the big boys to bite. There are only 5-6 large manufacturers of laptops and tablets globally. HP and Dell have made only lukewarm bids under the PLI scheme. Apple has not participated, and Samsung needs to be roped in, too. In addition, at least a couple of domestic players like Lava and Dixon will have to pull their weight to make India a manufacturing hub for the fast-growing IT hardware segment.

Second, for manufacturing to be competitive in this sector, we need to create a domestic components ecosystem. This requires a review of the tariffs on inputs. The migration of industry from China to Vietnam instead of India, post the US-China trade war, is a much-lamented fact among the Indian elite. But few appreciate that this has happened because of the low tariffs of many non-ITA products in Vietnam compared to India, following its tariff liberalisation under the CPTPP and the RCEP.

Three, it must be realised that building the components ecosystem afresh from greenfield investments can take decades. A quicker option would be to facilitate its shift from China. Most US companies do not themselves manufacture electronics products but sub-contract the same. While Taiwanese EMS companies manufacture iPhones, Apple uses Chinese companies extensively for the manufacture of iMacs, iPads, AirPods, Macbooks and iWatches in China. For making its GVCs for these products resilient, it can nudge these companies to set up manufacturing in India. But, alas, this is not possible, as post the Galwan incident, India has, vide Press note 3 of 2020, banned investment from China in India. This measure has, in effect, led to Chinese investments flowing to our Asian neighbours and completely closed the door for Chinese companies even in non-sensitive sectors in India.

The China issue is an emotive one for Indians, which makes it difficult to have a logical discussion, even among policymakers, and it remains the proverbial elephant in the room. But the time has come to squarely address it. A pragmatic and calibrated approach requires facilitating investments from our neighbours in priority but non-sensitive sectors. Proposals could be appraised case by case, even bringing in appropriate requirements of JVs and transfer of technology rather than completely shutting the tap. Unless this policy is revisited, history may hold us responsible for losing a golden opportunity of promoting import substitution and enhancing exports, clearly fundamental pillars of an Atmanirbhar Bharat.

Four, developing skills needs attention. If we start from scratch, it will take us 4-5 years despite our expansive vision of skills development. Shifting a part of the electronics ecosystem from China can accelerate this process by facilitating the diffusion of these skills to Indian manufacturers, who would otherwise struggle. It could also be critical in helping Indian OEMs to be able to become part of GVCs without, in a manner of speaking, having to reinvent the chip!

We have some promising schemes in the electronics sector. If we can review the PLI scheme for IT hardware to make it more responsive and revisit Press note 3 of 2020, and do it with speed, it can give us the scale we so desperately need to reach the target of $250 billion of electronics manufactured by 2026. On the other hand, business as usual can restrict us to a level of $120 billion, with corresponding impact on our ambition of becoming a trillion-dollar digital economy with a $5-trillion GDP.

The author is Former secretary (Telecom, Electronics & IT), GoI, & Ambassador of India to the WTO

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