Tale of Two Brother Industries: IT and Electronics
Have we been caught unaware of this looming threat? The answer is both yes and no. Yes, because such a precarious situation could have been anticipated at least two decades back and corrective steps could have been taken to ward off the occurrence of such an eventuality, which has great economic ramifications. No, because despite being aware of the rollout of the sinister economic happening, there is not much that could have been done to prevent it.
Let me go into the history to set the stage. In the early 1980s, when we started looking at information technology, we had two fledgling sectors, connected to each other and had a lot in common: computer software and services and electronics hardware. Domestic production was limited for both these segments.
That time, we had almost a headstart in electronics. There were several companies manufacturing TV sets, radios, tape recorders and the like and there was only one channel, the state-owned Doordarshan which used to telecast for limited hours – in the wee hours of morning and in the evening.
In the meantime, computer software and services have been growing steadily. From a mere export of less than US$100 million in the late 1980s, it has peaked to US$100 billion, a big leap, forming a sizable chunk of India’s foreign exchange earnings. But the model of growth had its own flip sides. The growth was confined mostly to the external sector totally ignoring the domestic market. That trend even now continues. Of the total domestic production of computer software and services estimated at US$120 billion or so, 80 per cent is exported.
But electronics hardware depicts a different story. Not only has its production dipped, but also exports have stagnated at a low ebb of US$8 billion or so annually. With India signing International Telecom Agreement (ITA) in 1997, which envisaged bringing the import duty on electronics hardware goods to zero level by 2005, domestic production got crippled. Imports had become cheaper than domestic production. Major international brands imported heavily their gadgets instead of producing them domestically. That had a negative impact on the Indian industry.
Are things changing now? Happily, the perception is slowly gaining ground that the electronics sector can pick up riding on the back of two important programmes launched in the country – Make in India and Digital India, which are designed to give a leg-up to manufacturing and digital connectivity in the country. However, that alone will not bail out the electronics hardware in the country. There is heavy import of chips or semiconductors which are going into the manufacture of electronics goods in the country. These are costly inputs, making electronics production costly and exports uncompetitive. The chips or semiconductors are imported from countries like China, Taiwan, South Korea, etc.
There are two proposals with the government to manufacture chips in the country, one in Gujarat and the other in Yamuna Expressway in Greater Noida. There were proposals to manufacture chips in the country earlier also. One chip manufacturing facility was set up in Chandigarh, which was gutted and till date the exact reasons for the fire are not known. On the other hand, we do not have anything to showcase as chip manufacturing facility. Once these facilities come up, which some of the close industry watchers are skeptic on account of the high cost involved in the wafer chip manufacturing facility, things can look up. India will be in a position to push up the production of electronic goods and thus ward off the looming foreign exchange crisis on account of the heavy electronics goods import.
To become a world leader in electronics, we have to take on countries like China, Korea and Japan. Let us take China versus India in terms of the inherent strength for electronics goods manufacturing. There is no comparison at all. While India is toying with the idea of setting up two chip making plants, Chin has already over 100 units engaged in manufacturing. China has millions of electronic manufacturing units spread across the country. India has only 3,600 units in the organized sector found mostly in cities like Bengaluru, Hyderabad and Gurgaon.
While Chinese exports of electronics products are in several billions of dollars, it is miniscule from India.
Now the government is determined to create an ecosystem conducive for the manufacture of electronics goods. Many fiscal and financial incentives are framed to motivate major players to come to India. Digital convergence refers to harmony of four industries, such as information technology, telecommunication, consumer electronics and entertainment. The latest is that these technologies are blended together for creating newer products...See more
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