Indian electronics industry has great potential to be a global frontrunner. But it requires timely support from the government in the form of policies with respect to manufacturing. ELCINA, on behalf of the industry, has impressed upon the government the urgent need to act without further delay. Robert John, president and Subhash Goyal, vice president, ELCINA, spoke to Richa Chakravarty of Electronics Bazaar at the EFY Expo 2011, on the association’s initiatives to help the government to come up with conducive policies.
EB: What measures have been taken by ELCINA to help the government in framing policies that will take the electronics industry forward?
ELCINA has been lobbying with the government since many decades to influence policies in favour of the industry. Engaging with the Department of Information Technology (DIT) and other ministries, we are trying to highlight the consequences of the government’s inaction in promoting the manufacture of electronics components and hardware in India. The reasons are that the demand for electronics is growing exponentially and if steps are not taken to facilitate a favourable competitive environment, the Indian electronics industry may lose its chance of occupying an eminent position, globally.
We are closely working with other electronics bodies to help the government create suitable policies for the industry. The Special Incentives Package Scheme (SIPS) I, which was launched in 2007, did not have the expected impact. A new updated policy, SIPS II, which carries a host of new measures conducive to the industry, will help in encouraging greater manufacturing throughout the electronics value chain. This policy not only addresses fabrication of semiconductors and assembly, test, marking and packaging (ATMP) units, but also supports electromechanical, passive and chip components as well as discrete semiconductors. We are hopeful that the Finance Ministry will ratify this scheme soon, which will greatly benefit the electronics manufacturing industry.
In order to overcome disabilities such as higher cost of finance and energy, ELCINA has been recommending measures such as staggered payment of taxes, correction of inverted duties and setting up of clusters which would provide the essential and suitable infrastructure for high tech electronics manufacturing. While the industry is not looking for concessions and subsidies, but steps need to be taken to provide a level playing field to enable the industry to compete in a zero duty environment with intense global competition.
EB: What are the other bottlenecks that the Indian electronics industry faces?
Electronics manufacturing in India with high value addition faces disability costs amounting to about 8-10 per cent. This includes high cost of finance, high cost and poor quality of energy, logistics and procedural delays in conducting business. Uninterrupted and stable power supply is one of the critical demands today, lack of which is creating havoc for the industry.
The huge gap between demand and supply is a matter of serious concern as well as a challenge. Although domestic demand for electronics within the country is very high, less than 50 per cent is being met by domestic production. There is potential for the Indian electronics manufacturers to enhance their capacities but the required ecosystem is absent and we are importing electronics in huge quantities, estimated at about US$ 25 billion. Policies that create a favourable ecosystem and infrastructure can help in expanding manufacturing and reducing dependence on imports. Without a positive policy environment, investments will not flow into the industry and it will remain uncompetitive.
EB: What steps should the policy makers take in order to help this industry grow?
Demand for electronics in India is projected to touch US$ 400 billion by 2020. If the demand supply gap is not bridged and supply growth stays at the present level, the foreign exchange outflow would reach about US$ 300 billion, even more than the oil import bill. Thus, electronics is a major focus area for the government as there is a huge domestic demand to be addressed and we have to grow capacity to take advantage of the global market. To compete with global players, we cannot restrict ourselves to the domestic market and the government must support us by providing incentives on exports, which many other countries are already giving to their domestic players.
EB: According to estimates from ELCINA, the market for EMS companies is likely to expand rapidly and could reach US$ 150 billion by 2020. Which other industries are likely to see such an upsurge?
EMS companies will see an upsurge by 2020 because manufacturing will grow in India. But to support this in true spirit, we need to see how the demand for components is met by the domestic manufacturers. ELCINA’s major effort will be to see that there are government policies to aid higher value addition and growth of component manufacturing, the building blocks for electronics manufacturing.
With the demand and supply gap widening, the technology gap is also widening. There is an urgent need for higher investment in R&D, test & measurement and installation of hi-tech and sophisticated capital equipment. This can happen only when the investing community is confident that they have support of a favourable and stable policy environment and they have a chance to compete globally. The industry expects that the government will support and possibly also subsidise investments in capital equipment. This is one of the major demands that we have put before the government and suggest that this be implemented through setting up of electronic manufacturing clusters.
EB: Which vertical do you feel requires major attention and support?
SIPS, launched in 2007, aimed at galvanising investments in the semiconductor industry. This ambitious scheme got derailed due to the worldwide recession and also because the threshold limits for investment were very high. The global downturn further gave a jolt to the government’s endeavour to position India in the league of global hi-tech manufacturing destinations. Demand for semiconductors shrank and the investments could not come into India and the scheme could not succeed. We expect the government to come up with a revitalised version of SIPS with more flexibility and facilities.
While there is a need to establish a high tech manufacturing industry of IC fabs and ATMP of ICs, there is an equally compelling need for increasing production of ‘mainstream’ products such as electromechanical products. In addition focus has to be given to energy saving products such as LEDs, solar power, etc, and also SMD chip components. The investments in facilities for these components are not very high and entail lower risk while the market is expanding and huge.
Of course, the semiconductor industry is where India lags far behind vis-a-vis other developed countries. The threshold of investments in SIPS I for the semiconductor industry was Rs 20 billion, which is expected to come down in SIPS II, and this policy is expected to cover other segments mentioned above with lower and realistic investment thresholds to qualify for incentives.
EB: When do you think India can achieve an eminent position and what are the factors that favour the economy?
Multinationals are already looking for manufacturing destinations other than China, and India could surely be a preferred choice. As far as India is concerned, we have huge potential and a conducive climate for investments to go up significantly. We not only have skilled manpower, but also domestic demand for global players to strongly enhance their capacity within India. We need to seize the opportunity and to support this inflow of investments, a supportive ecosystem of favourable policies and infrastructure is required for investments to flow in.
EB: When will the recommendations made by the task force materialise? Has the government given any green signal?
We have impressed upon the government the need to act with urgency and that its inaction will make India a big loser in this domain. The government’s interest to be supportive to this cause is quite strong. But the Ministry of Finance, Department of Commerce and DIT have to align together and take a uniform decision. We have built the momentum but since the plans have not been inked, we cannot confirm anything. However, we do feel that with great interest and urgency in government circles, we could soon see the new policy for electronics manufacturing.