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Although India has achieved significant success in the software and IT services sector, the record on electronics manufacturing in the country is extremely poor. This could lead to a disastrous situation, with implications on national security. Projections suggest that by 2020 India’s electronics import bill could rise to $400 billion surpassing the nation’s oil import bill. CfB explores the case for  introducing attractive policies for foreign direct investment in the electronics sector.

India will need 28 million skilled professionals in electronics by 2020. Photo courtesy: indiatimes.com

Some months ago the country was gripped by the heated debate on Foreign Direct Investment in multi-brand Retail trade. Strong arguments were being made by those in favour and against this major policy initiative of the government.

Under the FDI in Retail policy, the government would allow foreign firms to invest up to 51% in their operations, while the state and union territories were given the freedom to take their own decisions. Those opposed to this policy expressed the fear of predatory pricing and a negative fallout on the lakhs of small, kirana retailers in the country.

Both sides of the debate have merit in their arguments and what is important is a cautious approach at every stage as the policy gets implemented. Significantly, a three-member bench of the Supreme Court of Justices R.M. Lodha, Madan B. Lokur and Kurian Joseph noted that the policy did not suffer from "any unconstitutionality, illegality, arbitrariness or irrationality.”

The court felt that consumers would be benefitted by “enlarging the choice of purchase at more affordable prices and by eradicating the traditional trade intermediaries/middlemen to facilitate better access to the market [ultimate retailer] for the producer of goods.”

It was at the peak of this debate that there were many in the country - especially scientists- who hoped that FDI in Electronics would become a reality in the country and gather momentum of its own.

Eminent radio astronomer Prof. Govind Swarup is among the scientists pressing for policies to promote foreign direct investment in the electronics sector.

Speaking to CfB, the internationally-renowned radio-astronomer, Prof. Govind Swarup pointed out that this issue needs to be dealt with a sense of urgency as by 2020, India’s electronics import bill was slated to surpass the oil import bill. Prof. Swarup noted that Sam Pitroda- the well-known NRI entrepreneur who ushered in the telecom revolution in India- is among those to have warned that in the next 10-15 years, imports of electronic hardware could touch as high as $400 billion- from the current $40 billion- surpassing the nation's oil import bill.

According to him, what India needs are policies that would lead to the mushrooming of chip plants, electronics manufacturing bases and research parks to meet the growing demand for electronic gadgets, smart phones and laptops.

In the last financial year, India imported $27.2 billion worth of electronic goods compared to $102 billion of oil, a large portion of which is also re-exported as petroleum products.

Media reports point out that while many major chip makers such as Intel Corp, Advanced Micro Devices Inc and Freescale Semiconductor Holdings Ltd have design operations in India, there is comparatively very little electronics manufacturing happening in the country. In 2012, Indians bought electronic products with $6.5 billion of semiconductors, but none of the electronics components were manufactured in the country.

As Pitroda told Mint in an interview, “We need a foundry, we need ecosystems... we need indigenization, we need our own products.” He has estimated that Indians buy about 300 million mobile phones every year and the numbers are only rising.

The government seems to have been convinced of this viewpoint because in February 2013, Telecom minister Kapil Sibal visited U.S., U.K. and Japan to promote investments in electronics manufacturing in India.

If India is to meet the demand of a staggering $400 billion worth of electronic products by 2020, it will need electronics manufacturing with an investment of $100 billion and skilled employment of about 28 million.

During his visits, Mr. Sibal met Mr. John Chambers, Chairman of the U.S. electronics manufacturing giant, Cisco, Kaoru Kato, president and CEO of NTT Docomo and Takashi Kawamura, Chairman, Hitachi, among others. According to the minister, Japan showed keen interest in investing in India, "particularly on the back of incentive schemes for the electronic manufacturing sector, especially in the proposed electronic manufacturing clusters — 10% of which are proposed to come up within 2013."

It was also heartening to read a report in The Hindu that the Communications and IT Ministry has set up a special desk for Japan and is planning to appoint a Nodal Officer to take the investment dialogue forward.

“The investment interest is focussed on manufacturing routers, LEDs, the Akash tablet as well as developing standards for 4G and 5G,” Mr. Sibal told the newspaper.

The government has also held discussions with Cisco — one of the largest global companies that supplies hardware to Indian telcos and the IT, government, banking and healthcare sectors. On the policy front, the Preferential Market Access Policy was introduced in which Indian manufacturers, including companies that locate manufacturing units in India, would be given preferences in procurement where government ministries and departments are involved.

It is expected that the government will intensify its effort in this direction in the coming months and not lose sight of the objective which is to create a conducive environment for electronics manufacturing in the country.

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