India has been losing out to China on volumes. India has reasonable strengths; but these are lost in the sheer volumes of production of Chinese enterprises that bring along with them handsome economies.
Build strengths in hardware
F C Kohli, the Father of the IT software sector, has been emphasing the importance and need for building strengths in electronic hardware. He has been suggesting 50 engineering colleges focusing on micro- electronics.
The global supply of electronic goods is concentrated in China and Taiwan. This has been happening post-1996 with a deliberate policy by these countries to opt for volume production with state support. The consequence: such manufacture rapidly shifted from developed countries like the US, Europe and Japan to China and Taiwan. The massive volumes and the ability of large companies like Foxconn to assemble parts with low labour costs helped these countries dominate the field.
Look at the Indian experience: When Dell Computers set up shop in Sriperumbudur in 2007, there were expectations of a number of suppliers of components evolving around to feed Dell. But this has not happened. Components are imported from China/Taiwan and are assembled. The only things indigenous are the cartons, the packing material, installation CDs and manuals.
Navneet Kejriwal, Plant Director of Dell Computers, pointed to a welcome proposal in the Central budget to reduce duties on tablets from 10 per cent to 2 per cent. This, he felt, will make his products competitive. He suggested such a reduction for laptops and desktop computers that would help expand volumes of such products made in India. Once such demand expands the volume for components would also skyrocket, making it viable for large investments on these by multinationals and Indian corporations. This can be done with ease.
TN provides Rs 1100 crore for free laptops to students; but these are imported!
Tamil Nadu government, for instance, has provided Rs 1100 crore for distribution of free laptops to students in schools and colleges. This amount entirely goes for imports from China. If, as suggested by Kejriwal, the duty could be reduced from 10 per cent to 2 per cent, this order can be taken by companies operating in India.
Free laptops are given to students by several other states like UP. The volume should thus run into several thousands and such orders can
benefit manufacturers in India. In turn component and other parts can also be produced in India at competitive prices. Modi’s Make in India will get a boost.
The crude reality of petroleum refining
Most Indian manufacturers work on incremental volumes. An exception is Reliance. Even when
India was so heavily dependent on imported crude, the Ambanis opted to set up large refining capacity. Today, Reliance has two global-sized refineries at Jamnagar to a total capacity of 60 million tonnes per annum. When the Indian government would not extend subsidies on par with public sector marketing companies, Reliance focused on exports of refinery products. The entire output of these refineries is today exported at handsome profits. The refining margin at $ 9-$10 per barrel is considered quite handsome and has been contributing to Reliance maintaining profit growth. Even when total revenues declined steeply by around 13 per cent (from Rs 446,339 crore in 2013-14 to Rs 388,494 in 2014-15), net profit had increased by 4.8 per cent to Rs 23,566 crore from Rs 22,493 crore.
The Reliance experience proves the advantage of opting for global-sized volumes to make industry competitive and profitable. Like China did, the Modi government would do well to select a few sectors for special treatment and go for volume production. Narendra Modi did this as Chief Minister of Gujarat. AP’s Chief Minister Chandrababu Naidu has been busy wooing investments from Japan, Singapore and now China. As labour costs shoot up, China is interested in shifting mass production to other countries on the lines of Japan and South
Korea. Naidu seems to have persuaded several large producers of solar panels, offering attractive incentives to set up production facilities in the state. Large volume manufacture can help develop ancillarisation around such large units. The large number of Korean component manufacturers setting shop around the Hyundai motor works in Sriperumbudur is a re-assuring example.
It is time the Centre and the states work in tandem to look for such opportunities in electronics hardware.