With the current economic slowdown, there is a need to focus on sectors which could help in reviving economic growth. In order to achieve the targets set by the present government such as achieving a $5 Tn economy or increasing the manufacturing contribution to GDP up to 25% by 2025, it is important that we focus on sectors other than automotive which are equally critical and at the same time has the potential to develop large scale manufacturing within the country and help in increasing the exports.
One of the key sectors that could help in achieving these targets is Electronic Hardware Design and Manufacturing (ESDM). This sector has a high strategic advantage over other manufacturing sectors in terms of global outreach and global demand.
The Make in India campaign realises the importance of making India a manufacturing hub. Under the Prime Minister’s leadership, the government understands that it’s inevitable to transform India from a services sector economy to a manufacturing-driven economy, in order to meet the growing aspirations of new India. As the number of unemployed youth is rising, it is important to find new ways to meet the growing demand for jobs in India. Manufacturing and especially electronic hardware can help meet this objective.
The electronics hardware market is expected to reach $400 Bn by 2025, thereby becoming the fifth largest consumer electronics and appliance industry which would make it a future goldmine of export opportunities. Though other South-Asian countries like China, Vietnam, Malaysia, etc. have capitalised on the opportunity of becoming global hubs for electronic manufacturing and its exports, India has not been able to overcome its inherent disabilities which in result has created major hindrances for the industry.
Therefore, to become globally competitive, there is a need for India to shift the approach from the existing import substitution strategy to an export-led electronics manufacturing strategy.
It is pertinent to note that exports are directly proportional to large scale manufacturing which caters global demand. Therefore, two points need to be kept in mind in order to develop a successful export-led ecosystem first, to increase large scale manufacturing, India needs to be promoted as a manufacturing hub and second, existing and upcoming manufacturing companies should get the required help from the government. Exports will automatically increase if these two strategies are implemented.
Currently, mobile phones, personal computers, and datacom products have a global market of $495 Bn, $237 Bn and $47.40 Bn respectively. These three key products have the most potential to make an impact in the global market. In 2018-19, India exported mobile phones worth $1.61 billion to cater to the global demand. But with the NPE goals set at exporting mobile phones worth $110 billion by 2025, India needs to develop its own component manufacturing ecosystem within the country which will make us the country less reliant on other countries for imports of components.
It is worth noting here that the electronic manufacturing industries suffer around 14-18% disabilities in exports on account of taxes, lack of component ecosystem, infrastructure, transport and logistics, connectivity, etc.
It is not impossible to achieve this ambitious goal, but there needs to be the right strategy, to begin with.
As recommended by the paper launched by MAIT on enhancing the export competitiveness, first of all, there is a need to provide financial support of a minimum of 8% which is WTO compliant. Since taxes cannot be exported, reimbursement of taxes could be the best way to provide support. Other fiscal supports could be in the form of giving tax holidays, fiscal stimulus for skills training of workforce and employment of women.
Secondly, there is a dire need to develop a component ecosystem in this country and thirdly, there is a need to remove inherent disabilities ingrained in the country. Starting from easing out the transport and logistics infrastructure and making trans-shipment point in India to providing uninterrupted power supply and clean water supply.
It is important to take notice of what other electronic manufacturing hubs are doing. For example, China has a model called Plug n Play, where the government provides readymade infrastructure to the manufacturing companies to operate. They have established the clusters across their coastlines for easy transportation.
Vietnam provides tax holidays to the new manufacturing companies. Malaysia gives production-based fiscal supports to its electronics manufacturing industry. There is a need for the government to notice these developments in other countries and implement those measures following the situation herein. This would make India a global manufacturing giant.
The increase in exports would help India become a net foreign exchange positive economy. Currently, India’s import bill is much higher than its export bill with electronics sitting in the second position after oil imports. India’s electronic imports for 2018-19 were worth approximately $55 Bn and export at merely $8.80 Bn.
In-house manufacturing and exports around the globe would help in bridging this gap. If India promotes itself as a manufacturing option for the electronic hardware industry, it would help to bring in investments and would contribute to generating employment opportunities as well. Moreover, an increase in exports of electronics would also help in leveraging the current FTAs in India’s favor.
With the announcement of the scheme called Remission of Duties or Taxes on Export Product (RoDTEP) and cutting corporate taxes, the government has shown its willingness to help the manufacturing industry. Therefore, to become a $5 Tn economy and fulfill its Make in India objectives, it is necessary to focus on the sectors which could benefit the economy and the electronics industry is one of them.
[The article is co-authored by Kazim Rizvi and Ayush Tripathi, Policy Research Associate at The Dialogue.]