Sunday, November 27, 2016

India on the verge of missing the wave in Mobility and Electronics – Again

Self-reliance, self-sustenance, country made goods - high sounding words like this resonated throughout the history of national freedom struggle and post independent India. It was like, we as Indians can remain isolated from the world (only preach good things to others) and manufacture all things we wanted. However, soon we realized that even in agriculture we are not producing enough. So, came PL470. Export quotas didn’t allow us to become competitive in global markets and import quotas made the best out of the hands of Indians.

We moved light years away from those days. Now BMW, Volkswagen, Honda, Toyota cars are carrying Indian families; Harley Davidson is roaring in Indian streets; Zara and Gucci are there in shopping malls; Johny Depp, Christian Bale, Peter Dinklage etc. are no more some guys in distant Hollywood but familiar household names.                                                                                                                                                                      
However, there were other side effects as well. On one side, we opened markets and started exporting software. On the other hand, India manufactured very less electronics items. Most of electronics goods currently available in India passed through assembly lines in China, Vietnam, Thailand, Malaysia etc. I can understand if we are importing huge quantity of oil, gas, minerals, rare earth materials etc. Nature didn't bless us with those items in abundance. I can understand even if it is food items; in a highly populated country it is not easy to grow all food items to feed 130 crores (1.3 bn) stomachs.

What I can't understand is, why we are still depends heavily on imports for electronics parts.

State of Mobile Phone Manufacturing in India

Consider the case of mobile phone manufacturing. This is same for computers, industrial robots, high end machines used in healthcare etc. as well.

A joint study carried out by IIM Bangalore and Counterpoint Researchers, analyzes the current state of mobile phone manufacturing in India states that,

1. Contribution of domestically manufactured mobile phones has increased from 14% (2014) to 67% (2016). Estimated to reach 96% by 2020.
2. 67% of the handsets manufactured in India contributes to just 6% of the ‘true local value addition’
3. Most of the OEMs are still importing Semi Knocked-Down components (SKDs).
4. Out of 50 facilities (OEMs, ODMs, EMS, component suppliers) involved in manufacturing of mobile phones in India; almost 3/4ths are Indian manufacturers, followed by Taiwanese (10%) and Chinese (10%)

In terms of number of smart phone users, India is second largest market. By 2022 we may have half a billion smartphone users. This means we are going to consume more than US$80 bn worth of components.

When we are standing at 6% in terms of true local value addition; China reached 70%; South Korea and Taiwan crossed 50%; What more; even Vietnam reached 35% and Brazil is at 17%.

As of now, the key components - PCB assembly, display housing, battery, camera, charger continued to be imported.

Earlier this year we reduced import duty from 29.44% to 12.5%. This made less incentive for OEMs to set up a factory here. However, keeping the tax high only take more money out of consumer's pocket. So increasing the import duty is not a good way to promote local manufacturing.

It is to be noted here that, there are some improvement in local assembly.

During the last 18 months, 40 new mobile phone assembly units and 12 new component/accessory manufacturing units have started in the country as part of Digital India initiatives

For the future

If we are not taking the rights steps now to produce high end electronic parts and equipment we going to lose a great opportunity.

Consider the case where we will be when,
a. 5th Generation mobile networks and equipment started capturing the market.
b. World will start mass production of automated industrial robots.
c. When the world switch more towards solar power and high end batteries.

The money involved here may cross billions and reach the order of trillions.

This is an opportunity which India can't miss.


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