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A $250 billion opportunity: How India can replace China as world's factory

Rajeev Karwal     October 13, 2020

I started my career in the electronics industry in 1984. Those were heady days for the industry, colour transmission was being rolled out across the country and colour television manufacturers were importing kits and assembling TVs to cater to domestic demand.

Foreign brands were not allowed and even Philips had to call itself as Philiivison. The industry was experiencing increased demand, yet it was tightly controlled.

Then we saw the arrival of N Vittal, a 1960 batch IAS officer. It was perestroika time. He made the Department of Electronics a frontrunner in adjusting to the new industry-friendly policy, encouraging Foreign Direct Investment (FDI) from IBM, Motorola and others, and expanding the technology park scheme for electronic hardware, creating special economic zones around India.

In 1996, ITA 1 agreement was signed by India to bring in a zero-duty regime for IT hardware products by 2005.

Also Read: 1,000 foreign firms mull production in India, 300 actively pursue plan as 'Exit China' mantra grows

Manufacturing industry inputs were not considered, which led to a reversal of the process of indigenous manufacturing and local innovation.

In 2009, when the government realised the importance of the Electronics, IT, Telecom industry and the fact that the import bill of these products may cross the oil import bill, it reached out to various industry associations and decided to launch the MSIPS incentive scheme for manufacturing and the Electronic Development Fund to promote R&D in electronics.

Both these initiatives were not implemented well due to bureaucratic ways of working.

There was some progress here or there on local manufacturing but was hardly of any major consequence to India's global competitiveness or reduction in import bill.

This year the government has come up with a Production Linked Incentive (PLI) scheme that provides 4-6% incentive for volume mobile manufacturing and the development of component ecosystem to India.

This should also be extended to other product categories, but it remains to be seen whether this scheme would succeed in making Indian manufacturers globally competitive without the manufacturing of key components in India.

There was a time when we made picture tubes, compressors etc. in India, but as the technology shifted, we were not able to keep pace.

Today, no critical component or cutting-edge tech is made in India, be it the above two components, or inverter motors, magnetrons or chips.

We need a strong R&D culture and ecosystem, we need fabs, we need an entire reimagination of the way the industry is run, but it needs dialogue and a long-term road map.

Atmanirbhar Bharat, Make in India or Make for the World, should not be viewed as a China-centric reaction to appeal to the hurt nationalistic sentiments.

Also Read: Coronavirus impact: Asian factories bear the brunt of shutdown in China

The goal of self-sufficiency and global competitiveness cannot be achieved with a tactical approach, by protectionism, by penalising businesses, by saving jobs or by reserving them. It cannot be achieved overnight across sectors. It cannot be achieved in a society with fault lines or fissures working at cross purposes.

It must be calibrated by identifying sectors based on national importance and their potential to achieve global competitiveness.

It requires a strategy for decades from people who have a strategic understanding of an industry or sector and the ecosystem required around it to make it globally competitive. Not every bureaucrat may have the expertise to head every sector.

My take on the path to be taken to go beyond assembly of manufactured goods and beyond making in India, for India is as follows:

1. Privatise ports for import and export on a world-class and world scale.

2. Privatise customs clearance to ensure speedy and correct clearance of shipments for export or import. Something like when passport allotment was privatised.

3. Ensure uptime of 100% for trade and business services portals maintained by the government.

4. Ensure proper road, rail and air connectivity with ports.

5. Reduce input costs by reducing duties on raw materials. Do not penalise by imports, incentivise globally competitive local manufacturing.

6. Ensure 24x7 electricity.

7. Reduce credit cost. Privatise the banking sector and ensure it gives credit on stringent evaluation of merit.

8. Reduce time taken for land transactions and other approvals.

9. Reduce delay in refund of taxes.

10. Bring labour reforms to improve labour productivity.

11. Improve skill sets of workforce by making education system churn job-ready employment seekers. Have a strong check here.

12. Improve quality standards for manufacturing, import or export by setting up many design studios, innovation labs, and strengthening of standards and quality infrastructure. Handhold Indian companies, do not penalise them.

13. Before trying to be competitive on finished goods of new tech become a component manufacturing hub. If required, let government-owned companies have joint ventures with an exit path for the government built-in. Real competitiveness will be there in industries where we make core components of finished products in India.

14. Make well thought out policies and don't keep tinkering with them continuously. Take out electoral calculations from policymaking. Wait for these policies to bring real results and then claim them as historic steps.

15. Weed out corruption in the government-Industry interface.

16. Make law enforcement and judiciary clean at all levels.

17. Make Indian society believe in universal brotherhood and equality without bias towards any religion, caste, class, creed, or colour etc. Make peace, let no riots happen on the above counts. Businesses invest in stable environments.

Does it look like a pipe dream? Well, China exports more than $250 billion worth of consumer electronics alone per year while India does $1 billion worth of exports annually. It is a huge opportunity and if we can achieve the above slowly but surely, no power would be able to stop us from making India great, again.

Also Read: India can be 'world's office' if China is 'world's factory': Uday Kotak

(The author is the Chairman of Milagrow Robots. He started his career with Onida and has worked with LG, Philips, Electrolux, Reliance Digital over the last 36 years)


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