Manufacturing: A dream no more

A robust electronic or IT hardware manufacturing ecosystem has always been India's dream. But by the time Indian government seriously began efforts to breath life into the pigmy manufacturing ecosystem, the world had gone miles ahead. In particular China, Tiwan, South Korea and Indonesia, among others had become the manufacturing bases as they supplied everything the world needed at much lower prices and at much faster speed. In vanilla words, India had missed the bus.

However, India suddenly woke up from its age old slumber when it realized that by 2020 India's electronic import bill was going to surpass its oil import bill. It was an unaffordable proposition for a country always starved of foreign cash reserves. The previous government swung into action, made changes in the policy and wooed companies to set up their factories in India. It was not suffice as India did not seem to offer any value to the manufacturers. Plus, the infrastructure required to set up manufacturing bases was in a lousy state. However, things changed a little when the Narendra Modi government, after assuming power, launched a full-fledged programme called 'Make in India' on September 25, 2014. A lot of eyeballs were set on it. The IT hardware industry cheered the initiatives and the incentives given to the manufacturers. The move to encourage global and local companies to make in India did not go unnoticed.

As a result of the new program, India witnessed the entry of several global players to manufacture in India. Foxconn, the company which manufactures iPhones for Apple, invested in India to set up factories in India. Besides, a number of smartphone and electronic companies set up their assembly lines under the 'Make In India' plan. Most of the experts are of the opinion that India may perhaps not become China but it might become a strategic destination for the Middle East and African region.

Business Opportunity

If India succeeds in its drive to build manufacturing ecosystem in the country, it will help the country grow in many ways. There would be more jobs. Plus, the income of the country will grow significantly helping the country to move further. India's dependence on agriculture would come down. However, it is important to outline how big is the business opportunity in the IT hardware manufacturing. If ASSOCHAM-EY study titled ‘Turning the Make in India dream into a reality for electronics and hardware industry’ is to be believed, the Indian electronics and hardware industry is expected to grow at a CAGR of 13%–16% during 2013–18 to reach US$112–130 billion by 2018 from current level of $75 billion. The growth is expected on the back of rising consumer demand, growing disposable incomes, declining prices of electronics, and numerous government initiatives such as wider broadband connectivity, e-governance programs and others, notes the study.

The study also highlights the key demand-side and supply-side challenges faced by companies in this sector. The study presents some of the policy recommendations to strengthen electronics manufacturing in the country. Growing reliance on imports for electronic components and rapidly increasing demand for electronic products makes it crucial to enhance as well as strengthen India’s electronics manufacturing capabilities. Around 50%–60% of the demand for electronic products and the demand for nearly 70%–80% of the electronic components market is fulfilled through imports.

India has the best opportunity to make most of the problems in the Chinese market. Milan Sheth, Partner and Leader – Technology, EY, earlier was quoted saying, “The Make in India initiative, combined with global manufacturers looking to relocate their manufacturing base from China to alternate locations such as India, Vietnam and Indonesia due to mounting labour costs provides a strong impetus to the Indian electronics and hardware industry. It presents an opportunity to become a manufacturing-led sector in India from being predominantly consumption-driven.”

Early fruit

As a result of the efforts made by Indian prime minister through his visits globally, India received US $63 billion in FDI in 2015. Although a large portion of this total FDI belonged to the eCommerce, manufacturing received a significant portion.

Industry too sees a ray of hope in the program and has begun to evaluate the early action. “Make in India is most certainly making a positive impact on the Indian manufacturing ecosystem. We see large investments coming in from outside. Many mobile companies are setting up manufacturing shops in India and this will continue this year as well,” accounts MN Vidyashankar, President, IESA.

The government's efforts yielded early results as the incentives attracted the mobile companies. The regulations allowed them to make phones at lower cost in India. In the previous year, most of the mobile handset companies publicly shared their plans to make in India. Many of them put their plants in action as the stories of their handsets truly made-in-India began to emerge in the latter part of 2015.

While mobile companies are optimistic and have set up their factories in India, they expect the government to further support them through easy regulations and a proper ecosystem in place. “We need an ecosystem where the government puts in place a manufacturing ecosystem by ushering in policy reforms, regulatory frameworks, fostering technology adoption, sprucing up infrastructure, ensuring last mile connectivity and structure a proper base for handset manufacturing to enthuse handset vendors to set up manufacturing facilities in the country,” says Arvind Vohra, MD, Gionee India.

‘Make in India’ has immense potential because of many factors. India's domestic consumption is a huge factor to attract companies to make in India for India. “The manufacturing in India need a shot in the arm and Make in India can be just that. If we take the case of smartphones, I think there’s definitely room for optimism. Chinese manufacturers like Lenovo, Xiaomi – the latter also paving the way for Foxconn to make its long overdue presence in India,” says Manish Sharma, President & CEO Panasonic India and South-Asia.

Regulating the regular

In an attempt to incentivize manufacturers, the biggest roadblock has been the irrational tax structure and regulations. While the government brags to rationalize the tax structure for promoting 'Make in India', the industry wants a few more reforms to take place. GST has been the biggest challenge.

IESA underlines that the policies and push factors in position are adequate to bring a positive momentum in the nation. “This is the best possible opportunity for us to become the manufacturing and start-up capital in this part of the world. Implementation of the policies, approval of the projects as well as the disbursement for the approved projects need to be fast tracked. In order not to miss the present opportunity which stands in front of us, we require laser focused approach,” says Vidyashankar of IESA.

According to IESA, the key initiatives, inter alia, include Greenfield Electronic Manufacturing Clusters (EMC) in seven locations, support to promote chip making facilities in the country, strategic thrust to boost the economy by strengthening design-led electronics manufacturing, accelerate employment generation and attract substantial foreign capital inflows into the country. Also, the missions like ‘Make in India’, ‘Stand up India’, ‘Startup India’ and ‘Digital India’ will certainly push the industry growth in a significant way. These initiatives are interwoven to complement each other in a positive way. However, it remains to be seen how they pan out in the changing economic scenario.

Companies like Panasonic and other Japanese counterparts are excited to see movement in the non-conventional sectors. “If you look at non-conventional sectors too, there is a great opportunity for ‘Make in India’ to make an impact. In the renewables sector I was excited to see Softbank and GE foray into the solar and wind segments respectively. These are signs that investment isn’t just happening along conventional sectors but also across eco-solutions which will be of benefit to India,” says Sharma. He further adds that it was encouraging to read that IIT’s pushed for core companies when student recruitment season kicked into gear. The reciprocation by the students showed that if the government is serious about initiatives like ‘Make in India’, their best minds will not be deterred from taking up such jobs in core companies.

Panasonic is bullish about the manufacturing opportunity. Sharma shares with Dataquest, “Considering our focus on manufacturing in India, we also want to make India a centre point for manufacturing in the larger Asia-Pacific region. We have a case study in place where the findings would help us emulate India’s manufacturing capabilities in Africa, ASEAN and other South Asian markets.”

Getting the Infrastructure in place

The industry has for long accused the policy makers as well as those in the government for neglecting the need for robust infrastructure to bolster manufacturing in India. There has always been a lack of proper support system which allows companies to make products and ship to various parts.

Of late, the government has realized the need to build infrastructure capable of supporting manufacturing ecosystem in the country. In last couple of years, India has introduced major reforms and is poised to become the third-largest economy of the world by 2030. Every state in India has developed industrial parks for setting up of industries. In addition, the government is developing the Delhi-Mumbai Industrial Corridor (DMIC) as a global manufacturing and investment destination utilizing the 1,483 km-long, high-capacity western Dedicated Railway Freight Corridor (DFC) as the backbone.

“Components ecosystem and common industry infrastructure are still mature. The issue has already been taken care with various policies and taxation supports from Gov. We can expect a better ecosystem in the years to come to enhance Make in India Products,” says Vidyashankar.

Mobile companies are betting big on the Make in India initiatives. “The government of India provides sector specific subsidies for promoting manufacturing for example in order to boost manufacturing of electronics, the Govt. of India provides capital subsidy of up to 25% for 10 years. The government is promoting development of electronics manufacturing clusters throughout the country to provide world class infrastructure and facilities. In terms of Infrastructure, India is a potential market for Make in India initiatives,“ further adds Vohra of Gionee India.

Where to go

India needs to board the missed bus again by expediting its efforts to create a harmonious envirnment for the manfucatuers and the industry. However, we must not try to be another China and avoid mistakes which others did. As a country, India should focus on complementing the demand for goods in the domestic as well as the neighbour markets. But it is important to play a strategic destination for Middle East and Africa which are underserved markets and are poised to grow. To conclude, India has not missed the bus since the global economic environment favors India. It is up to us as a country to take advantage of the situation.