The FTA With Vietnam And Thailand Has Hampered The Domestic Manufacturing Industry

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Sunil Patwari, CEO,
Rashmi Rare Earth Limited

The global marketplace is constantly evolving and the electronics industry is at the centre of this evolution. It is crucial for electronics manufacturers to have the right processes in place for making new products as and when the demand arises. EFY’s business correspondent, Nijhum Rudra, in an exclusive interaction with Sunil Patwari, CEO, Rashmi Rare Earth Limited, discusses the major impediments to electronic component manufacturing in India, the benefits of the current Budget to the electronics industry, and how the latter is going to shape India’s economy in the years ahead.

EB: Could you highlight some of the major impediments that Indian electronic component manufacturing companies are facing? How do we tackle these challenges?
One obstacle that the Indian electronic component manufacturing market is currently
facing is a heavy dependence on imported parts from countries like China, Vietnam, etc.
Other challenges include high infrastructure costs, the lack of a skilled workforce, the global
economic setbacks, sustainability and more. The Indian EMS industry, despite moving towards indigenous production, is still highly dependent on sourcing a large portion of the raw materials from international markets like China. With the rapid spread of the novel coronavirus handicapping the Chinese economy, technology companies operating in various parts of the world have faced a huge setback in terms of manufacturing.

Developing a strong home-grown manufacturing base to cater to these needs will help businesses stay afloat during times of crises. We need to build a component ecosystem, which may take three to four years. However, once an ecosystem is built, India might not face the challenges we’re dealing with now.

The FTA (Free Trade Agreement) with countries like Vietnam and Thailand has hampered the domestic manufacturing industry. Many companies are sourcing components through the FTA route. A recent announcement by the government states that, “Importers claiming preferential rates of duty under any trade agreement will now have to declare that the goods qualify as originating goods and must possess sufficient information about their origin criteria, and regional value content.” This might help the domestic manufacturing industry to grow.
However, it would be beneficial if stringent anti-dumping or safeguard duties are applied to the imports as it is causing serious injury to the domestic industry.

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EB: At this moment, where do you think India stands in electronics manufacturing, including component manufacturing? Where do you see us in the coming five years?
The Indian electronics manufacturing industry has a bright future with growing opportunities. The government has now grown aware of the potential that EMS has, and is thus supporting it by developing policies that will aid domestic manufacturing and encourage exports.  Research also suggests that India could become the fifth largest manufacturing country in the world by the end of 2020 – a dream that we wish to contribute towards. The aim of the government is that this sector alone should achieve a 25 per cent share of GDP, creating 100 million new jobs by 2022. Therefore, thefuture we see is of growth, impact and sustainability.

EB: The Budget has proved to be fruitful for many electronics companies with operations in India. But according to you, will it help domestic electronics manufacturing companies or is it going to benefit only the multinationals, as many have claimed?
The 2020-21 Union Budget has given hope to industry stakeholders like us who have been waiting for the government to support the scaling of our businesses. The proposed policy is likely to encourage manufacturing of electronics and semiconductors in India. Although the details of the scheme haven’t been unveiled as of now, we are hoping that they bring respite not only to larger MNCs but also to domestic manufacturers.

Incentives on the production of mobile handsets may be a waste of funds from the public exchequer. All major MNCs have already invested large amounts of money in the last three years. Hence incentives for the production of mobile handsets will not attract further investments from mobile companies. Rather, they may reduce their own capacities and just outsource to EMS companies. We have requested MeitY to consider incentives for those products that are currently not manufactured in India, like TWS (true wireless speakers), POS terminals, laptops and desktops, barcode scanners, IoT devices, smart home devices, IoT modules, VTS, and many more. An incentive policy is required to build integrated design houses (IDHs) to manufacture components like camera modules, sensors, high precision tooling, moulding, lithium cells, etc.

Our focus should be on developing a complete ecosystem and drastically lowering our dependence on any foreign company.

EB: Though India is progressing in this sector, we still import 80-90 per cent of the components from China, which is why the domestic electronics manufacturing sector is also suffering due to the recent outbreak of COVID-19. How long do we have to depend on China and other Southeast Asian countries? What are your suggestions?
Owing to China’s immense manufacturing base, India imports a majority of its industrial raw materials and components from there. However, the current restrictions have affected the demand and supply chain, resulting in obstructions for manufacturing projects in India. While certain supplies have reached India, the products are undergoing advanced sanitisation before dispatch, causing a delay in deliveries. We believe that if the government successfully creates policies to develop electronic components manufacturing bases in the country and allows subsidies for growing businesses it would encourage companies to export instead of importing. The government should impose heavy import duties on components, which will encourage companies to invest in manufacturing those components in India. Currently, the import duty on most of the components is zero, and hence there is a lot of dumping from China and other Asian countries. future we see is of growth, impact and sustainability.

EB: The Budget has proved to be fruitful for many electronics companies with operations in India. But according to you, will it help domestic electronics manufacturing companies or is it going to benefit only the multinationals, as many have claimed?
The 2020-21 Union Budget has given hope to industry stakeholders like us who have been waiting for the government to support the scaling of our businesses. The proposed policy is
likely to encourage manufacturing of electronics and semiconductors in India. Although the details of the scheme haven’t been unveiled as of now, we are hoping that they bring respite not only to larger MNCs but also to domestic manufacturers.

Incentives on the production of mobile handsets may be a waste of funds from the public exchequer. All major MNCs have already invested large amounts of money in the last three years. Hence incentives for the production of mobile handsets will not attract further investments from mobile companies. Rather, they may reduce their own capacities and just outsource to EMS companies. We have requested MeitY to consider incentives for those products that are currently not manufactured in India, like TWS (true wireless speakers), POS terminals, laptops and desktops, barcode scanners, IoT devices, smart home devices, IoT modules, VTS, and many more. An incentive policy is required to build integrated design houses (IDHs) to manufacture components like camera modules, sensors, high precision tooling, moulding, lithium cells, etc.

Our focus should be on developing a complete ecosystem and drastically lowering our dependence on any foreign company.

EB: Though India is progressing in this sector, we still import 80-90 per cent of the components from China, which is why the domestic electronics manufacturing sector is also suffering due to the recent outbreak of COVID-19. How long do we have to depend on China and other Southeast Asian countries? What are your suggestions?
Owing to China’s immense manufacturing base, India imports a majority of its industrial raw materials and components from there. However, the current restrictions have affected the demand and supply chain, resulting in obstructions for manufacturing projects in India. While certain supplies have reached India, the products are undergoing advanced sanitisation before dispatch, causing a delay in deliveries. We believe that if the government successfully creates policies to develop electronic components manufacturing bases in the country and allows subsidies for growing businesses it would encourage companies to export instead of importing. The government should impose heavy import duties on components, which will encourage companies to invest in manufacturing those components in India. Currently, the  import duty on most of the components is zero, and hence there is a lot of dumping from China and other Asian countries.

EB: Can you describe the business model of Rashmi Rare Earth Ltd (RREL)? What is the rationale behind founding the company?
Our business model is to specialise in planning, large scale manufacturing, raw material procurement, pooling all resources together, shippingand giving value added services like  spares and repair sourcing. RREL intends to support the government’s flagship programmes such as Digital India and Make in India, with the vision to transform India into a digitally empowered society. RREL specialises in manufacturing high-end 5G mobile phones, set-top boxes, LED TVs, smart meters, all kinds of PCBAs for home appliances, and other high
precision products with boxbuilt solutions.

The Rashmi Group is one of the largest players in the manufacturing of ductile iron pipes, pig iron, sponge iron, pellets, sinter, billets,TMT, wire rods and cement. The one word that defines us is ‘innovation’. Our vision has helped in expanding the group into various verticals, from steel and dredging to EMS and IoT. We adapt and innovate to provide unique consumer experiences, based on strong engagement, customer communities, insightful analytics, win- win partnerships, world-class capabilities andskilled manpower. Our vision is to connect every Indian with the most affordable and ‘value for money’ mobile technologies, which create opportunities for the growth and development of the country. Our vision is also to position ourselves as a high-quality and reliable manufacturer in the industry.

EB: What are the various electronics segments in which RREL is offering services and products? Do you have any expansion plans?
As mentioned earlier, RREL specialises in manufacturing high-end 5G mobile phones, set-top boxes, LED TVs, smart meters, all kinds of PCBAs for home appliances and other high precision products with box-built solutions. Since the development of 5G networks is accelerating and is delivering significant advantages for IoT and M2M networks, our advanced SMT setup is ready for upcoming 5G technology in cellular phones.RREL has two working SMT lines and two SMT lines in thecommissioning stage; so four SMT lines will be operational by the end of June 2020. We also have two assembly lines and four lines in the  commissioning stage, and two MI lines and packaging units with the latest technology.

We are also building a customised smart ecosystem that allows control over lighting, curtains, surveillance, climate control and background music through smartphones/tablets and touch panels.

EB: What are the business strategies of RREL that help you stay ahead of the  competition and what are your other major differentiating aspects?
Our primary guiding principles are quality and credibility—we use our expertise to understand requirements and use top-notch methods to execute all technical programmes as per  expectations.

We aim at providing toplevel quality in our services, which aids in maintaining our position as a reliable company. To ensure flexibility, we have a well-defined methodology that meets the standards of quality and, at the same time, we are open to customising the technical programmes as per the customer’s directives. We are part of a wellestablished group with a turnover of more than US$ 1 billion in2018-19. So, our stakeholders’ investments have given financial stability to this new company.

EB: How many R&D centres and manufacturing facilities do you have in India? Do you have any plans to increase the numbers?
Currently, we have one manufacturing unit in Noida. However, we are in discussions with the Union Territory of Jammu & Kashmir for setting up a comprehensive electronics unit spread over 18 acres with an R&D facility, electronics manufacturing facilities for all our new product lines, a tooling and moulding unit, a software and application development centre, as well as a skills development centre.

EB: What is your roadmap for the coming years?
The consumer electronics market is constantly evolving and is growing at a fast pace. This is allowing us to expand our operations rapidly. In the current financial year, our target is to grow by 50 per cent, add on toour existing capacity of SMT and assembly lines, and aim for a further 50 per cent increase in revenue by June 2020. We will be venturing into developing modules for IoT products and smart home devices, and setting up high precision tooling, moulding and painting factories.

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