What ails domestic manufacturing in the Indian electronics industry, and how do we overcome these obstacles? Here are some insights.
By Srinivasa Moorthy S.A.
Having worked in India throughout my career, at various organisations including C-DOT (which changed the profile of the Indian telecom industry), I had hoped that the Make in India programme would succeed at least in the Indian electronics industry, as it had in the case of the Indian auto industry. However, that doesn’t seem to be happening, yet.
Recently, I happened to be in Shanghai as well as in Shenzhen to source 17.78cm tablets (remember, importing a tablet and paying duty works out cheaper than making it in India).
My stay was a revelation! We decided to meet three vendors—one for plastics, one for electronics and the last one for the battery. The experience I had was amazing.
The plastic vendor’s infrastructure was as good as any I have seen in India, so I wondered why we are not able to get things done here. What I noticed was the attitude of the vendor. He made himself very clear, regarding the terms of business, and did not query us about the volumes at all. He clearly put forth his conditions— he would do the tooling and supply the plastics, but was not interested in the business if we wanted him to do only one of those tasks. Second, he named his price based on the volume. In India, this is never possible. Vendors will first ask you how many thousands you will buy, even before trying to understand what needs to be done.
Interestingly, I did get an Indian vendor for a different plastic part in this model, who was willing to work with me on the basis that we would scale up volume as we went along. You will be surprised to know that he was able to get us tooling for a price that was just as cheap as any Chinese vendor, and plastics at a price that was 60 per cent lower than the existing vendor. But the effort I had to put in to work with him was the same as when working with a Chinese vendor.
We discovered that with electronics too, the Chinese solutions house (as they call themselves!) would do the design only if we committed to also buying the assembled electronics from them. The firm’s turnaround time was a few weeks. Having been in the design services business, I realised that unless your design is back-ended with manufacturing, pure design services will never succeed. I have experienced this when I was heading an engineering design organisation of an EMS vendor.
In India, we try to do these connected things, separately, which leads to failure. So-called EMS providers in India are assembly houses or can take up mature products, but they are very weak in the vendor development process. Having worked in C-DOT, I know the difference between supply chain and vendor development. India’s automobile industry succeeded primarily due to its vendor development process and supply chain process. In India, especially in electronics, this is a big gap that needs to be filled.
The government has listened to the industry and slapped punitive taxes on imported finished goods, but unless the back-end is fixed, this move is not going to make any difference. There is no concerted incentive mechanism for manufacturing basic electronic components. I was involved with a potential investor in setting up a multi-layer PCB plant. While the investment was in the range of ` 7 billion (US$ 100 million approximately), the investor’s main request was for the government to set up a common effluent treatment plant (ETP) for the industrial estate, as pollution is a big issue in the PCB industry. Those in the concerned government department never understood the importance of this, but kept on asking the company to commit to making the investment, which without the ETP plant could never have taken off! Eventually, the company lost interest and shelved the plan for the plant.
What I realise is that if Make in India has to succeed, the ecosystem is critical. By ecosystem, what I mean is the essential common infrastructure that has to be provided by the government. The best examples that prove my point are Tamil Nadu and Maharashtra. In these states, when they start a new industrial area, they get the basics in place even before they start promoting the project. Most other states have never done this. Just offering land alone will never meet the needs of manufacturers.
There are two essentials in the electronics field that need to be heavily subsidised for Make in India to succeed—the manufacturing of printed circuit boards, and the development of lithium-ion battery technology. Tax holidays are also needed for extended periods till the industry stabilises. Unless this is done, Make in India will never succeed, at least in the case of the Indian electronics industry.