Fixing Broken Links

To boost telecom manufacturing in the country, the government has announced many policies in 2011-National Telecom Policy 2012 (NTP 2012), Preferential Market Access (PMA) Policy, National Manufacturing Policy and National Policy on Electronics 2012. The objective of all these policies is to create a conducive environment for telecom manufacturing in the country so that India can become global leader in manufacturing by catering to India requirement as well as looking at export markets of Africa, Middle East and Europe.

The first policy to be rolled out in this direction was the National Manufacturing Policy (NMP) by Ministry of Commerce, Government of India followed by others. All this will give a big fillip to manufacturing in the country.

Presently, manufacturing contributes just over 16% of GDP and is much below its target potential as this sector can contribute around 25% to overall GDP by 2022, if the manufacturing sector can grow at over 12% per annum.

The manufacturing sector plans to create 100 mn additional jobs by 2022 as per NMP, and the government is planning to give special attention to sectors such as aerospace, shipping, IT hardware, telecom equipment, defence equipment, and solar energy. To catalyze manufacturing growth in the country, the policy talks about establishment of National Investment and Manufacturing Zones (NIMZs) which will be developed as integrated industrial townships, bench-marked with the best manufacturing hubs in the world. Focus should be also on providing support in terms of free land, tax holidays, excise duty/sales tax exemption if equipment is sourced locally. Even tax benefits on applied research will make manufacturing locally more competitive with other countries.

The policy also plans to create appropriate skill-sets to be deployed by ICT industries by creating a 3-tier structure for skill development through relevant vocational and skill training through establishment of ITIs in PPP mode; specialized skill development through establishment of polytechnics; and establishment of instructors' training center in each NIMZ. The policy also plans to create an R&D fund where government and industry contribute for the fund.

Next in line was the announcement of Preferential Market Access (PMA) Policy by Department of Information Technology in February, 2012 which envisages preferential market access for domestic manufacturers in all areas which are security sensitive for the country and also for projects funded by the government. The Preferential Market Access (PMA) Policy talks about meeting 80% domestic requirement by the year 2020.

The National Policy on Electronics 2012 aims at achieving a projected turnover of around $400 bn by 2020 involving investment of $100 bn and promises to generate 2.8 crore jobs by 2020. The policy also proposes to set up over 200 electronic manufacturing clusters in the country.

The National Telecom Policy 2012 plans to promote innovation, indigenous R&D, and manufacturing to serve domestic and global markets by increasing skills and competencies. The policy also aims to promote ecosystem for design, R&D, IPR creation, testing, standardization and manufacturing to meet Indian telecom sector's demand to the extent of 60% and 80% with a minimum value addition of 45% and 65% by the year 2017 and 2020 respectively. The policy also talks about providing preference to domestically manufactured telecom products in procurement of those telecom products which have security implications for the country and the government procurement for its own use, consistent with the World Trade Organization's commitments.

The Action Plan

For EMS companies, this is also the right time for telecom manufacturing in the country as they have lot of exposure in the Chinese market and would like to derisk their business by increasing their presence in India be it Foxconn, Flextronics, Jabil, and others. Presently, the only option they have is India as other markets, be it Latin America, Europe, Africa, or US, are not conducive for manufacturing as they are on a negative way. India market is also ideal for exports so if we make the right policies, OEMs and EMS companies will increase their manufacturing presence in India.

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The government should also come out with a blueprint with a clear cut action plan along with timelines so that everybody is aware. This would not be easy but for making India a manufacturing hub, different departments of the government have to sit together regularly so that they can remove all anomalies phase wise and in a time bound manner. The government department should also brainstorm on how they are going to meet the Indian telecom sector's demand to the extent of 60% and 80% with a minimum value addition of 45% and 65% by the year 2017 and 2020 respectively.

With respect to value addition, the Indian manufacturers are doing some, in their own small way, but the focus should be on MNC manufacturers. Elaborating on this Sanjay Nayak, CEO and co-founder, Tejas Networks said “We capture the entire value-add in telecom products, starting from high-value activities like R&D, product design and implementation (both hardware and software) and then spanning across manufacturing, assembly, testing and quality assurance. ”

The government should also focus on getting the building blocks right. The first building block to speed up manufacturing in the country is to get the fab companies set up their manufacturing facility in the country. This is the only missing link in India's manufacturing story. Once they set up their base in the country, we will see component manufacturers making their presence in the country.

The second building block is to get the thought process right by getting the right regulations for manufacturing and the third building block is to see that the incentives announced are in place and are being transferred to companies. Regarding incentives, Sanjay Nayak said, “The government should promote R&D and provide funding and grants to help companies create Indian products and IPR. By providing a 1:1 matching R&D grant, domestic companies will be incentivized to invest more in R&D and thus focus on new product development.”

Speaking on government policies, Prakash Katama, director, Chennai operations, Nokia India said, “Initiatives by the government, such as the recently announced Rs 10,000 crore Electronic Development Fund (EDF) to promote electronic hardware manufacturing in the country will further help manufacturers in India realize the $100 bn electronics manufacturing opportunity by 2014.”

One has to also focus a lot on infrastructure by developing the ports, highways and airports so that transfer of goods from one location to another becomes easy. India has to work a lot on power infrastructure by providing quality power at reasonable price points. The power infrastructure is going against (See Table: Where do we stand on telecom manufacturing) India manufacturing which needs to be corrected at the earliest. Also the coordination between different departments has to be industry friendly so that there is minimum delay in getting approvals.

Speaking on India-China manpower cost comparison, A Gururaj, managing director, Vittal Innovation City said, “In terms of cost, China is more expensive than India.”

Comparing infrastructure, Prakash Katama, director, Chennai operations, Nokia India said, “China currently spends 10% of the GDP on infrastructure development, while India spends only 5%. These could include basic infrastructure development like assured and continuous power supply, water and roads which are critical to development of any industry. There is also need for companies to spend significant time and money to train the workforce into semi-skilled or skilled employees.”

We also have good manufacturing zone models in the country and we just need to replicate it fast. For eg, Industrial Model Town (IMT), Manesar model can be replicated as this is based on PPP (public private partnership) mode. This will help in building electronic clusters on IMT model in the country. One such cluster which is coming up in the country is the Vittal Innovation City in Ananthpur in Andhra Pradesh which has signed up with Shinchu Science Park, Taiwan for end to end design, product R&D, end to end manufacturing, skill development and testing.

Key Challenge

Speaking on the challenges, Sanjay Nayak said, “It is well documented that Indian companies face upto 22% handicap due to finance/infrastructure/taxes and other reasons, as compared to countries like China.”

Commenting on the tax structure, Prakash Katama, director, Chennai operations, Nokia India said, “Today there is no incentive to either set-up or expand manufacturing capabilities in the country. Under the current taxation structures legal handset manufacturers are disadvantaged against substandard Chinese imports in the range of 22.5-26.5% on account of multiple taxes.”

Speaking on partnership, Satendra Singh, head of manufacturing operations, Nokia Siemens Networks, India said, “Close partnerships between the government, companies and the academia can eliminate several infrastructural bottlenecks to boost ndia's competitiveness as a telecom manufacturing hub in the region.”

“A nodal agency to coordinate manufacturing, electronics and telecom policy and licensing we believe would increase investor appeal. The subsidies provided should be expeditiously disbursed. Implementation of GST and simplification of indirect tax regulations should be expedited to make it competitive for domestic production,” commented Anoop Mehrotra, country manager, Jabil Circuit India.

So, if one can eliminate these challenges in a time bound manner, India will be the next global hub for ICT manufacturing in the world, thanks to its close proximity to Africa and the Middle East markets.