A dream: viable & attractive

Tags: Opinion
Ajay Kumar of department of electronics and information technology (DeITy) is spearheading the government’s efforts to make India a global electronics manufacturing hub. He outlined the government’s policy initiatives and offered interesting insights into the government’s line of thought in a conversation with Sriram Shankar. Excerpts:

The national electronics policy, the electronic manufacturing cluster park, modified special incentive sche­me and the electronic system design and manufacturing have all been approved. Can you give us a sense of the larger picture?

The larger picture is to make India a global destination for electronics manufacturing. To create an industry that is competitive on the global scale, you need four things — good infrastructure, an ecosystem that encourages and supports innovation and R&D, human resources and a market. Of these four factors, the first three — infrastructure, innovation and R&D and human resources are under our control. Through these policies we have tried to create a comprehensive policy framework. However, since electronics is the only market that is on the zero duty regime globally, it is really not India’s market since it is available to everyone equally.

What are the next steps that the government is considering after getting the pol­icies approved?

Some of the incentives that are part of the policy are unprecedented. We are talking of a 360-degree approach, which will make investment viable and attractive. But, a policy is good only if people know about it. Creating awareness is a very important part of it. We hope to attract more investors and companies to this sector — both from within India and outside. So, from the electronics policy perspective, the next step is to start marketing these policies, create awareness that these incentives are available.

Preferential market access (PMA) norms are an integral part of policies designed to encourage domestic manufacturing of electronics. Why are PMA norms important?

PMA norms are one of 50 different policies envisaged in the policy document. The market for electronics operates under the zero duty regime that anyone can serve. To encourage domestic manufacturing, we are trying to create a market out of the one component that is not part of this so-called global integration — government procurement. Companies that manufacture products domestically will be given preference in government procurement. To be able to take advantage of these norms, the company does not have to be Indian, it can be a foreign company. Then there are security implications of equipment that is addressed. PMA norms save a piece of the market for such companies if they manufacture locally.

If foreign firms are able to manufacture locally and take advantage of PMA norms, how does that address our security concerns?

You need to remember two things. First, that manufacturing units located domestically enable you to impose and monitor security considerations. The second is that security comes from systems and not joint ventures. Domestic manufacturing enables you to put a system in place that would enable you to have a greater degree of security that can be enforced. Enforceability becomes easier.

What are the challenges faced by companies in manufacturing in India?

Infrastructure continues to be our biggest challenge. Availability of land, roads, power, ports etc is less developed compared with competing 10-15 nations where electronics manufacturing takes place. So that is one obvious area of improvement. Our costs of finance are higher, transaction costs are higher. What various policies do is enable you to offset these challenges so that companies get a level playing field to compete.

India is a signatory to ITA-1, which allows import of electronics under zero duty. Was signing that agreement harmful to the Indian electronics industry?

We think ITA has not served its purpose. It enabled a zero duty regime, which enabled inflow of goods and made it difficult for domestic industry to compete. It has been bad for domestic manufacturing for the country. Now ITA-2 is being proposed that will include some items that ITA-1 does not cover. While it is still in proposal stage, we believe it is not in our favour in its present form. Some goods that are being proposed to be covered under ITA-2 are made locally. It would not be in our interest for these items to be covered under ITA.

What interest are you seeing on the ground for electronic manufacturing clusters?

There has been a lot of interest for certain clusters. In fact, we need to keep pace with the level of interest being expressed. People have started to come up for assistance anticipating the guidelines, which have to be finalised after the policy was notified. Andhra Pradesh has come up with two places for setting up clusters — Hyderabad and Visakhapatnam. Punjab wants to set up a cluster in Ropar and the government of Kerala wants to set a cluster up in Kochi. Private industry has also come up with proposals for clusters in Rajasthan (near Bhiwadi) and in Ananthpur. These are formal communications and there are several who are expressing interest informally. The challenge is to convert this interest into activity.

The onus of implementing these policies lies on state governments. What states have shown interest so far?

The government of India has created the overall framework. Implementation has to happen at the state level, which means we have to work closely with state governments. Some states have been proactive in coming out with their policies. AP, Karnataka, MP and UP have come up with policies. Several states are drafting policies. States are taking interest and seeing what they can do. At the ground level, states will have a huge role to play.

When do these policies start taking effect?

We should see investments start trickling in mid-2013 or even earlier because applications should start by March next year. In the year 2013 we will need to market these policies aggressively, domestically and globally. We think India has a strong value proposition in this sector because of the market, HR, incentives in place. It is time others were made aware of it.

sriramshankar@mydigitalfc.com

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