Bangalore/Mumbai: Companies that have proposed investing thousands of crores in India’s electronics sector may do a rethink if the government revises its “Buy India” policy, caution industry experts and lobby bodies.
Under the policy, introduced in February, a portion of all electronics products bought by the government have to be manufactured locally.
The central government alone, estimate experts, accounts for almost 25% of all buying in the Indian electronics market.
State governments, government-run companies and private firms account for the rest.
According to information on the Department of Electronics and Information Technology’s website, there is a pipeline of Rs.5,000 crore of investment proposals under the government’s modified special incentive programme (excluding investments in semiconductor fabrication units that run into billions of dollars).
Most of these depend on the projected demand for electronic goods under the government’s preferential market access (PMA) and special incentive programmes.
India’s electronic system design and manufacturing industry is estimated to grow from $64.6 billion in 2011 to $94.2 billion in 2015, according to the India Electronics and Semiconductor Association (IESA).
Another lobby group, the Consumer Electronics and Appliances Manufacturers Association, sees demand for electronics hardware in India growing at 22% annually till 2020, which would make it a $400 billion opportunity.
These projections may go awry if the government revises the PMA policy that will encourage imports.
On 8 July, the Prime Minister’s Office said in a statement that the overall PMA policy for domestically manufactured electronic goods “will be recalibrated and submitted to the cabinet”.
“The recent announcement from the government that certain clauses of the PMA policy are being ‘put on hold’ signals an unwarranted policy rethink which could hurt India’s Current Account Deficit (CAD) in the short-term, since it will encourage imports and not provide any motivation for domestic manufacturing of electronics,” IESA said in a statement on Monday.
In the long-term, the lobby body said, the move will affect India’s ability to build competition in domestic manufacturing of electronics, and jeopardize an opportunity to create a $400 billion electronics system design and manufacturing industry in India.
Dow Jones Newswires, in a report on Monday, cited government officials as saying they wanted to address the concerns of foreign companies and governments. International companies had told the government that the policy might prompt them to set up operations elsewhere, the report said, citing Gaurav Verma, head of the New York office of the US-India Business Council.
P.V.G. Menon, IESA president, said that was not the case with the PMA policy. “The policy was also very fair in that it did not discriminate on the ownership of the company (foreign or Indian), and hence in no way violated WTO (World Trade Organization) norms, as was the apprehension expressed by some sections of the industry,” he said over the phone.
Ajai Chowdhry, co-founder HCL, who is involved in the electronic policy area with the principal scientific adviser’s office as co-chairman of the electronic research and development committee, had a similar view.
“In 2005, there was a zero import duty regime, which made imports very cheap. So PMA was the government’s way of stirring up demand and increasing employment. Every country has a right to protect its manufacturing sector just as governments do it in the US, Australia and China,” said Chowdhry.
T.R. Madan Mohan, founder of management consulting firm Browne and Mohan, which advises technology firms on corporate strategy, said changing the policy will hurt India’s competitiveness globally, especially compared with rival countries such as China.
“The Indian government has abdicated its policy role and pandering to the wishes of investors,” said Mohan.
The chief executive officer of an Indian company that makes hardware said he was disappointed the government had taken the easy way out by using the excuse of an absent ecosystem for hardware manufacturing to “not even make a start”. The person didn’t want to be named.
HCL Infosystems Ltd and Tejas Networks are among a handful of home-grown hardware firms that have the capability to manufacture computer hardware and telecom equipment in India.
There are dissenting voices, though, against the policy.
“PMA makes sense for government purchases, but it’s not sensible to extend it to private telecom operators since the telecom sector is capital-intensive and many telcos are under stress. It won’t help that industry,” said Benoy C.S., director, information and communications technology practice, at Frost and Sullivan.
“It is early days to comment on the issue. We had voiced our concern that the PMA was difficult to implement since there is no electronic ecosystem in the country,” said Anwar Shirpurwala, executive director, Manufacturers’ Association for Information Technology.
“Now that the government proposes to revise the policy, we would like our suggestions to be heard.”