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Business News/ Companies / Firms not keen on hardware rider
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Firms not keen on hardware rider

Firms not keen on hardware rider

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The cabinet may have approved a policy reserving one-third of all government purchases of electronic items from companies that manufacture and add value to products locally, but many hardware firms are not enthused.

The policy—which requires 30% of all government procurement of electronic items to be made from companies that can add at least 25% value locally to products in the first year—is an attempt to boost electronics manufacturing in the country.

Alok Bharadwaj, president of electronics hardware lobby, the Manufacturers’ Association for Information Technology, said the policy is well-intentioned but reaching 25% of domestic value addition in a year will require a lot of effort. “It needs an ecosystem of manufacturing in the country. Since companies will be not be able to meet the specifications, the government will be forced to procure from the general category."

Bharadwaj is also senior vice-president of Japanese camera and printer maker Canon’s India operations.

The preferential market access policy was recommended as part of a report of a task force set up by the Prime Minister to give shape to the country’s information technology (IT) strategy.

It comes at a time when the government is trying to make the country an attractive destination for electronics manufacturing, and is not only doling out incentives to set up semiconductor fabrication units but also trying to create the requisite infrastructure by creating clusters that provide tax rebates apart from setting standards to rein in cheap imports.

Domestic electronics production is currently $20 billion, which, at the current rate of growth, will increase to $100 billion by 2020. By then, demand would have risen to $400 billion, leaving a $300 billion deficit, according to government estimates.

The trigger for the impetus has been industry estimates that India’s electronics import bill will exceed that of oil by 2020.

“We can’t afford," to ignore the demand, Kapil Sibal, Union minister for communications and information technology, said while unveiling the draft policy on electronics manufacturing in October.

S. Rajendran, chief marketing officer of Acer India, said the policy was fine in terms of trying to make the country self-sustained in electronics, but added “it is not backed by ground reality" as the bulk of components that go into such products are not made locally. “We lost the opportunity to set up fabrication units in the country a few years ago to countries such as Vietnam."

He added that even Indian manufacturing companies will not be able to meet the criteria set by the government. “They may be doing local branding but most of them are importing components from outside the country."

Another official of a multinational technology company called the policy “dead on arrival". “This is not happening in the next two years. Maybe some bit of it will be possible in the next five years. The government should have given the industry more time," the official said, requesting not to be named because of the sensitivity of the matter.

The government, however, remains positive on the policy’s potential to boost the electronics manufacturing ecosystem in the country. “Earlier, the industry was opposed to it but now they understand its importance," an official of the department of information technology said, requesting anonymity.

Some Indian firms are confident they will be able to meet the government’s criterion of domestic value-add.

“Central government purchases involving telecom equipment, electronics from projects like Aadhaar, etc., would result in a 40,000-50,000 crore opportunity, and 30% of that will go to those who manufacture and value-add in the country," Ajai Chowdhry, chairman of HCL Infosystems Ltd, said in a recent interview. “Of course, manufacturers will also have to meet quality requirements. That creates a market and encourages more companies to invest in electronics in India."

Chowdhry was part of the task force that recommended the policy.

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Published: 20 Feb 2012, 10:59 PM IST
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