“It is important for India to become an innovation hub, besides a manufacturing base

Since 1989, Electronics and Computer Software Export Promotion Council (ESC) has been primarily focusing on assisting small and medium ICT entrepreneurs in their export promotion efforts. As a link between the government and its own members, ESC provides a platform for interaction on policy and procedural related matters.

“From time to time, we propose certain measures to boost the growth of SMEs. Recently, the government has approved our proposal to make 20 per cent of government purchases from SMEs as a compulsory requirement,” informs DK Sareen, executive director, ESC, in a conversation with Nitasha Chawla of Electronics Bazaar. He shares his thoughts on how India can have an edge over its competitors as an export hub, and estimates that the targets set for electronics and computer software exports for the fiscal 2012-13 will be met.

EB: What are ESC’s views on the announcements made in the supplement of the Foreign Trade Policy 2012?

Several of ESC’s recommendations have been included in the annual 2012-13 supplement on Foreign Trade Policy 2009-14 and the Handbook of Procedures. A number of new electronics hardware items have been included in the Focus Product Scheme. For some of the products, the level of duty has been increased to 5 per cent. The zero duty EPCG Scheme has been extended up to March 31, 2013. Earlier, the focus market scheme covered 110 countries, out of which 39 have now been shifted to the ‘special focus market’ category. Two new countries—Mexico and Cuba—have also been brought under it, taking the total to 41 countries. These 41 countries are eligible for 4 per cent benefits on exports as compared to the 3 per cent available under the Focus Market Scheme. The remaining 71 countries under the Focus Market Scheme will continue to get the 3 per cent benefit.

EB: What are the procedural bottlenecks faced by new companies that want to enter the business of electronics exports in India?

I would say that the procedure to start exporting has smoothened out over a period of time, but it still remains comparatively cumbersome. In India, around 25-30 signatures are needed before you start exporting, whereas this is not the case in other countries. Besides, there are problems faced by small companies in getting finance for their ventures. We have raised these issues with the government at various forums and I think the process will take some time to be streamlined even further.

EB: Which foreign markets offer good business opportunities to Indian electronics exporters?

European Union countries are the top destinations for India’s export of electronics hardware. Export to this region is estimated to be Rs 91 billion during 2011-12. The next major destinations for India’s export of electronics hardware are the Middle East, followed by South Asia, North America, Africa, the Commonwealth of Independent States (CIS), Latin America and the Oceanic countries.

EB: Which Indian electronics products/hardware are most in demand in foreign markets.

The major items of export from India, in the electronics hardware category are mobile phones, printed circuit boards, solar cells, X-ray equipment, rectifiers, invertors, UPS systems, television reception apparatus, transformers, etc.

EB: India witnessed a 14.8 per cent decline in exports in July 2012. By what percentage did electronics exports shrink in the same period? Do you see ICT exports improving over the remaining months of the year?

During the period April to June 2012, export of electronics goods registered a growth of 16 per cent in rupee terms and export of computer software and services grew by 8 per cent. Based on the performance of the industry, ESC estimates that the targets set for electronics and computer software exports for the fiscal 2012-13, will be met.

EB: Last year, ESC had projected a 15 per cent growth in India’s ICT exports in the FY 2011-2012. Has this target been achieved?

The export of electronics goods registered a growth of 5.51 per cent during 2011-12 over 2010-11. In value terms, the export of electronics hardware during 2011-12 is estimated to be Rs 88.81 billion, up from Rs 88.67 billion estimated in 2010-11. However, the effect of the slowdown was felt during 2011-12 and the growth has come down. ESC feels that the various initiatives announced by the government will help the electronics industry’s exports to grow.

EB: What policy changes are required for the smooth export business?

The electronics industry in India suffers from several disabling factors related to the cost of power, infrastructure, logistics, cost of finance, levies such as central sales tax (which is not reimbursed), cascading of multiple state and central levies and above all, the high transaction costs. All these adversely impact competitiveness in the domestic and international markets. The Indian electronics hardware manufacturers experience a higher level of taxation, cost of power, finance and freight, along with poorer infrastructure compared to their competitors. Consequently, the cost of production of most electronic goods in India is at least 8 to 10 per cent higher than South East Asian countries.

However, the government has now taken certain steps on the export front by adding a few more electronic export items under the focus product scheme (FPS), offsetting the effect of many of the issues I just mentioned. I think we don’t have a holistic solution to these issues since fluctuations in these costs is dependent on the overall development of the economy, therefore, those problems can’t be addressed overnight.

EB: Then how is it possible for India to compete with countries like China?

It is not important for India to compete with China. What is important is, in addition to being a manufacturing base, India should also become an innovation hub. At present, China has the advantage in terms of volume manufacturing, in which we will take a long time to beat them. Since it is not possible to cut down on the costs of manufacturing, what we can develop to our advantage is innovation. Doing so would help us in the long run because the manufacturing dynamics has changed the world over. What we see in India today was applicable 10 years back in the US. Electronic items will now be manufactured at places which are highly competitive both in terms of sources and sourcing as well as in terms of assembly and innovation.

For example, the best selling product in the US—the Apple iPhone—is so popular, but it is not manufactured there. Yet Apple commands the entire supply chain, the copyrights, etc. That is why it can dominate the market for these phones. And I believe that we certainly have the capability to do the same.

EB: How does Indian electronics hardware fare in terms of technological advancements and quality?

India is recognised as an important country in terms of electronics design, and as a result, a number of MNCs have already opened their R&D centres in India. A huge domestic market and increasing export opportunities have placed the Indian electronics industry in an enviable position on the global map.

EB: What are the advantages that India enjoys over other exporting nations?

India is well recognised for its R&D hubs, design and engineering services and ESDM. India has and is gaining recognition as one of the best low cost destinations for manufacturing. In the recent years, with costs rising in exporting countries like China, India has been able to further get recognition on the cost front. The other benefits India enjoys are strong and growing domestic demand; a highly talented workforce (especially for design and engineering services) with good communication skills; and the recently announced strong government push in the form of various incentives such as Modified Special Incentive Package Scheme (MSIPS), cluster manufacturing, large scale manufacturing, etc.

EB: What are the main challenges faced by the Indian electronics exporters, particularly the SMEs? What could some of the solutions be, to these challenges?

The hardware manufacturing industry often suffers due to the long duration of the transaction process, especially in the light of the high rate of obsolescence of IT products and components. Increased delays and transaction costs have been a major deterring factor of doing hardware business in India. In order to cut down on the transaction time, efforts must be stepped up to simplify the customs clearance system.

Another step which should be taken up on the financial front are term loans for capital investments and working capital loans. These should be made available to hardware manufacturers at internationally competitive rates as prevalent in countries like the US, Japan and the EU.

EB: What are the recent proposals which ESC has put up to the government?

ESC plans to organise an India electronics hardware show wherein major international manufacturing companies will be invited to witness the capabilities of Indian EMS companies.