Indian manufacturing needs to grow beyond assembly

However, the big need now is to focus on indigenizing the manufacture of parts, rather than just hosting the cheapest high-quality assembly lines. To this end, the government’s recently-announced production-linked incentive (PLI) scheme incentivizes the indigenization of components in a graded manner along assembly lines.

Consultations with the India Cellular and Electronics Association to work towards achieving this goal, by acquiring technologies through joint ventures and encouraging domestic manufacturing as well as supply chains, will enable India to be emerge as a major centre of electronics. The world is seeing hubs develop for such manufacturing, and creating a complete ecosystem that includes processes of research holds the key for India to become one. Many small enterprises are carrying out innovations, but they lack scale and market share, which makes them uncompetitive. Here, handholding is required in ways that would enable them to get picked preferentially by Indian manufacturers for their procurement chains. This will enhance quality, deliver better technologies, and encourage local manufacturers to expand their manufacturing capabilities.

Electronics is a vital component of not just mobile phones, but all white goods, cars and other durables, even as artificial intelligence makes inroads in sectors like power, manufacturing and infrastructure supply chains. From a cyber security point of view, too, it is important to have components increasingly indigenized, given the increase in cyber attacks, some of them sponsored by enemy states. There have been instances of such attacks across the globe.

We need to accelerate the development of a modern electronics base within the country, especially for use in the communication, banking and power sectors.

It is pertinent to note that India has the world’s second-largest mobile phone market. While there was already an explosion of mobile phone usage in cities over the past few years, it has grown exponentially in rural areas as well. Further, our market is poised to grow rapidly over the years. As this happens, demand for display units will soar. India also has the world’s third-largest automobile market, which too is among the world’s fastest-growing (if recent lockdown troubles are taken as temporary). As all new cars come with display screens that are integrated with information systems, this sector is also projected to generate a lot of demand for display units. There is also reasonably robust demand in India for TV sets, laptops and tablets. Add to it the work- and study-from-home routines ushered in by the pandemic that have boosted the market for laptops in the last year or so. All these sectors will be major sources of demand for display units. Also, there exists a lucrative export market, given that just four countries currently manufacture display fabrication units.

But there are issues that need to be addressed for India to be able to take a well-planned path towards this goal, with benchmarks to chart the progress. According to MeitY, electronic hardware and component manufacturing in India faces immense challenges on account of numerous local hurdles, including inadequate infrastructure, the high cost of finance and logistics, and inverted custom duties. Even if India has the capability to manufacture printed circuit boards, other critical components like diodes, chips and transistors are not made in the country. These components should be made locally. The government’s Digital India and Make in India initiatives have issued a clarion call for this. Strengthening our ecosystem for component manufacturing requires the country to encourage investment in such projects. Our duty structure should be revised to incentivise component manufacturing within the country.

Indian industry is still operating at the lower end of manufacturing. It merely assembles most electronic products, usually from imported kits. This makes the government-set target of achieving a turnover of $400 billion by 2025 a steep challenge. Also, trends indicate a decline in cathode demand, a field in which India was a major manufacturer. Demand is shifting towards components such as integrated circuits and diodes, optical discs, magnets and radio frequency tuners. We must ride this trend. It is also important to enter new areas, like components for 5G telecom, analogue or discrete components, silicon carbide and LEDs, rather than keep making products in fields where other countries already have the advantage of economies of scale.

The country’s PLI scheme has made a good start with a quantitative push. It should incentivize value-addition as part of its indigenization thrust in electronics. Emphasis also needs to be placed on research, so that we innovate, which could make a big difference. Eventually, how well India chalks out plans to achieve the strengths outlined above will determine its success.

Aruna Sharma is a development economist and former secretary, Government of India