Time we face the hardware truths on manufacturing

NEW DELHI, INDIA: Budget 2008 is very crucial for the Indian electronics industry as it will decide if India will catch the bus for a second manufacturing revolution to emerge after China.

The global electronics industry is among the fastest growing industries, clocking a growth rate of 7.5 percent, more than twice the global GDP's 3 percent. Historically, the industry has been operating in three separate silos of hardware, software and services. India has been a leading player in the latter two but it will need to build its position in hardware if it has to stay relevant in this industry. Countries such as Vietnam, Czech Republic, Malaysia and Latin America are rapidly strengthening their manufacturing ecosystem. India contributes less than 1 percent of global production, where China outnumbers us almost 100 times.

This is an industry of scale?a key driver to bringing down costs. The first thing is to build the size of the PC market, which is the door opener for the entire ecosystem. It is no coincidence that the mobile phone manufacturing ecosystem began to develop once a critical scale emerged.

We need to create a stable and transparent tax structure. Over the last few years, frequent changes have resulted in shaky long-term plans. The excise duty itself has changed several times from 0 percent to 16 percent and subsequent re-adjustments. Even a week ago, a change in taxation rules based on MRP-based excise duty on IT products with low abatement rates are leading to an upward revision in costs.

The IT ministry's recommendations on reducing excise duty on all electronics, IT goods, components and parts to 12 percent from the current 16 percent and to ensure this as a stable tax structure across all parts of the value chain will create the right environment for the ecosystem to take root.

As a logistics-driven industry, a day's inventory represents a cash flow of several hundred million dollars, where price depreciates by 2 percent every week. Emphasis on cluster development is needed by building infrastructure and eliminating logistical bottlenecks like road permits, multiple forms, octroi etc. to encourage manufacturers.

We also need greater focus on futuristic technologies to tap the two inflexion point's a shift to mobility and laptops and a shift from CRT monitors to LCD monitors. India should focus on tomorrow's products such as laptops and TFT monitors and introduce a zero duty regime across the entire value chain.

Budget 2008 should undertake what it takes to build the right environment for manufacturing to take off.