Hardware sector: Create “Go to India” opportunity

By : |November 8, 2005 0



Industry experts have always lamented the fact that the Indian hardware industry has not learnt a thing or two from its other Asian counterparts who started as component assemblers years ago but are world leaders in IT manufacturing today.

A couple of years ago the new economy companies dominated the NSE, with traders extensively trading software and pharmaceutical companies. Automobile, cement, textiles and infrastructure companies today outnumber the new economy counters balancing the list and mirroring India’s capabilities in different sectors.

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It’s a pity that the needs of electronics, particularly in IT and telecom hardware segments, are increasingly met by imports. It would be wrong to say that India doesn’t have the skills and capability to excel in this segment after having demonstrated its technological and entrepreneur expertise in number of manufacturing segments.

With our engineering and electronics skills being harnessed by MNCs for outsourcing a range of manufactured products, there is no reason why we cannot become a global low-cost manufacturing hub in electronics hardware manufacturing. When we have successfully designed and developed satellites and the equipment for launching them, we can surely excel in hardware segment.

If we look at the trajectory in other manufacturing segments such as automobiles, a rapidly growing domestic market has provided the critical mass for our industry to develop and become globally competitive.

Fortunately, rapid growth in domestic demand for hardware products is now close to providing that critical mass. We are now the fifth largest telecom network in the world and the second fastest growing telecom market in the world next only to China. We are now adding over 20 million mobile phones each year. In 2004-2005, Indian consumers would buy around four million personal computers. In 2003, the demand for all kinds of electronic hardware was around Rs 100,000 crore or around $21 billion and local manufacture could meet less than a third of it.

The demand multiplying quadruple to cross $85 billion by 2010, to continue with the current scenario, India would be importing nearly $65 billion of this demand. With the skill set and expertise available in the country, a huge opportunity awaits us to cater to the Indian market and rapidly growing global market

China, South Korea, Taiwan and Malaysia have successfully exploited the global opportunity, and the size of the hardware industry in these four countries alone is over $500 billion. This commands a huge share of the nearly $1,400 billion global market.

With both domestic and global demand as robust drivers, India has the option of building a $100 billion plus hardware industry over the next decade. The Indian story in hardware can be as exciting as it is in software. Millions of new jobs can be created across the skill spectrum and the industry can be a powerful force for GDP growth

If we have failed in this area, it is not for want of entrepreneurial effort. In recent years, over a dozen private and public sector companies have entered this sector only to close down, with the list inclusive of MNC’s.

One of the primary reasons why the electronics hardware industry is struggling to sustain and grow is due to the continuous failure to understand the needs of this industry and lopsided policies. An inverted customs duty structure with duties on finished products lower than those on inputs and components, the differential is very less which gets vaporized with multiple taxation systems, and it becomes insignificant if customers can import with out duty for their capex.

Policies such as these have consistently discouraged local manufacturers and value addition, and have encouraged imports. This cites why India, unlike Taiwan, Malaysia and China, has failed to join the global supply chain in hardware.

Complications in the local indirect tax structure and high rates of excise and sales taxes have only added to the industry’s woes.

The step-motherly treatment meted out to this industry is also evident from the fact that while pharmaceutical and auto companies are encouraged to do R&D through a 150% write-off on expenditure, no such facility has ever been extended to hardware. Again, while labour laws have been amended for software and BPO industry, no such initiative has been thought of for hardware. Similarly, while efforts have been made to develop textile or auto component clusters, such support for hardware has been lukewarm at best.

The list of problems can be endless. What is heartening is the undying spirit of entrepreneurship that has seen a significant investment in this sector through R&D centers and manufacturing hubs. Also the needed recommendations have been put forth by visionaries, industry associations, and committees appointed by the government.

With all the ingredients such as, skill sets, infrastructure, investments and entrepreneur spirit and the most important a proliferating domestic and overseas market in place, it is indeed a restless period while we await the wind of transformation into a super power in

In hardware manufacturing, we need to create world-class products at low price levels using local talents, GO TO CHINA should become GO TO INDIA. Till then, India’s claim to being an IT superpower would lack credibility.

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