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Outlook bleak for India's electronics manufacturers

Posted: 15 Feb 2002 ?? ?Print Version ?Bookmark and Share

Keywords:software? hardware? electronics manufacturer?

Just as India's software industry is preparing to offer hardware design services, its electronic hardware manufacturing is in a shambles.

The bleak outlook for the future of hardware manufacturing in India was a major theme at the recent Componex/Electronic India seminar. Industry experts said that India needs a national plan to revive its small manufacturing sector before what little there is now closes up shop.

India's electronics-manufacturing sector faces extinction, said S.L. Sarnot, a top official in India's Ministry of Information Technology. "Policy measures have not contributed to the electronics sector. On the contrary, even existing manufacturing units are finding it difficult to survive," Sarnot said.

In the last five years, the sector's performance has been well below targets, he said, adding that the imminent globalization of trade under the World Trade Organization would add to Indian manufacturers' woes.

Among the reasons for the depressed state of manufacturing here are poor basic infrastructure, high customs duties, high interest rates on loans, low production volumes, long business cycles, low technology levels and inadequate investments in research and development, Sarnot said.

For instance, Indian customs duties on raw materials imported for electronic-equipment production can reach as high as 35 percent, compared with 2 percent in the United States and South Korea and 6 percent in neighboring China.

Such tariffs and avoidable costs arising from logistical bottlenecks together account for 48 percent of the selling price of electronic equipment. "These factors are not conducive to manufacturing," Sarnot added.

Other speakers said India ought to consider creating special economic zones like Shenzhen, China, as a way to jump-start electronics manufacturing.

India could learn from the example of manufacturing sites such as Subic Bay, the Philippines, which boosted its information-technology manufacturing from just $10 million in 1996 to $1 billion in 1999, said Samir Inamdar, a representative of the Electronic Components' Industries Association and managing director of Tyco Electronics India Ltd.

India, which has the second largest potential customer base in the world after China, offers opportunities for manufacturing, industry observers said, but the government must do away with cumbersome laws such as one that prohibits the use of the same plant to manufacture for both exports and domestic sales.

"India's relatively unexploited markets permit both rapid growth and market penetration. There also needs to be more focus on research and development and product design," Inamdar added.

Leveraging software

India's software exports, which are expected to total $87 billion by 2008, could create a $100 billion market opportunity for hardware manufacturers, Inamdar said, boosting overall economic growth in the nation. He cited the examples of Singapore and Malaysia, where exports of information technology and electronics constitute 47 percent and 65 percent, respectively, of the gross domestic product.

Given current tensions with Pakistan, Indian officials also warned that the current shortfall in hardware expertise could have consequences for Indian military and space programs. Inamdar said India should follow the model of Israel, which gives equal priority to its hardware and software industries. India's industry is heavily weighted toward software services.

Even though growth "is enviable" in consumer electronics, "the position is not good," said K.S. Raman, ex-president of the Consumer and Television Manufacturers' Association and managing director of Sunderson Electronics Ltd.

Raman said consumer electronics production could be an engine of this growth for the hardware sector. "India continues to lose ground to countries such as China and Taiwan," he said. "While India has 16 percent of the world's population, it builds only 0.2 percent of the global electronics."

Some observers predicted India could be a leader in global electronics manufacturing by 2005, but the government needs to work with the private sector to build a large electronic-component manufacturing base.

While some Indian TV brands are holding their own against Japanese and Korean exports, India's consumer electronics companies want to broaden their product range to manufacture Internet appliances, hubs, routers, electronic toys and digital cameras, Raman said.

"India is today seen by the world market to be a long-term nonplayer in electronic hardware manufacturing," he warned.

Industry observers said there has been no major investment in the manufacturing sector for some time. Worse, foreign direct investment in electronic and computer hardware manufacturing has instead gone to China, Singapore, Malaysia and the Philippines.

Manufacturers here also suffer from a reputation for shoddy work, inattention to standards, high production costs and inefficient low-volume production, according to Krishna Kumar, director of materials, components and photonics at India's Ministry of Information Technology.

Another key to getting the industry off the ground is a greater emphasis on exports, Kumar said. "The single most important objective?to promote hardware manufacturing in India?can only be achieved if and when exports are treated as prime activity for manufacturing," he said.

However, another Indian official acknowledged that "no action has been taken to provide for a conducive manufacturing environment for electronics and IT hardware companies."

? K.C. Krishnadas

EE Times

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