China reportedly drifting away from manufacturing offers India an opportunity
India’s biggest issue can be its biggest opportunity, that is, its population. Today, India has the second largest population with 1.2 billion people but it is also the youngest, making it a perfect destination to become the next global superpower. Yes there are many challenges, but initiatives like Make in India and Digital India promise a brighter future for the country despite being in their early stages.
Launched in September 2014, the Make in India campaign has aimed at harnessing the country’s young workforce and building on its inherent potential. According to a recent IDC report, manufacturing now makes up only 17% of India’s overall GDP, compared to over 30% in China, which underlines the opportunities that we have for ourselves with the prime minister hoping to get that number up to 25% by 2020.
With China reportedly drifting away from manufacturing, a void has opened in this sector. However, if India wants to be the next superpower in manufacturing, many bottlenecks will have to be removed.
Apart from the well-known issue of poor infrastructure, there are several areas that need to be tackled on a war footing. While China has raced far ahead of India, today its manufacturing is slowing down, wages are rising and the labour force in the country is dwindling. On the other hand, the Indian labour force is just coming of age. It is estimated that by 2030, India will have the largest labour force in the world.
Yet, the availability of a large workforce alone is not enough. Jobs also need to be created and, most importantly, skills have to be developed. Make in India seems like the perfect platform to absorb an annual 12 million-strong workforce. However, unless this workforce is equipped with the required skills, India will miss this golden opportunity.
India can surely take the lead in the manufacturing sector, given that the government will undertake next-generation tax reforms for businesses planning to Make in India; it will also start a line item-by-item cost and policy comparison, including IPRs (intellectual property rights), with China and other competing countries.
The prime minister’s vision to ensure a smartphone in the hands of every citizen by 2019 is a dream that can progress towards reality if mobile brands get together to create an ecosystem of connected devices.
Make in India is tough but not impossible. To take this campaign ahead, we need to keep in mind the definition of manufacturing. The manufacturing of smart devices involves many factors. The biggest factor is to understand the requirement of the local customer. Then comes the software, followed by hardware, components and assembling of parts.
With electronic goods emerging as India’s fastest growing sector, the country needs to use the capabilities developed thus far to successfully export products. The National Policy on Electronics (NPE), 2012, aims to address the issue with the explicit goal of transforming India into an ESDM (Electronic System Design and Manufacturing) hub. It is recommended that the respective state governments come up with daughter policies, in sync with NPE, for establishing a conducive environment for growth of the ESDM sector.
Moreover, ITA (Information Technology Agreement) goods have to compete in a zero-duty environment in the world market. Income tax on the profit derived from exports make the industry less competitive. It is suggested that the Electronic Hardware Technology Park (EHTP) schemes should have a special chapter on ITA goods.
Local handset manufacturers have been affected by ITA 1. Manufacturers who import handsets under ITA 1 pay zero Basic Customs Duty (BCD). To incentivize manufacturing and create a level playing field for Indian manufacturers, domestically manufactured ITA 1 products should be treated as “deemed exports" in terms of the provisions of the Foreign Trade Policy (FTP) 2015–2020.
Make in India also happens to be one of the strong initiatives that can reduce India’s current account deficit. The top three imports to India include crude oil, gems and jewellery and electronics. While we cannot do much about crude oil and gold imports, India can certainly reduce the forex bill attached to electronics. This will also help develop an ecosystem of manufacturers, vendors and application developers in the country.
Outside China, India is the most potent market as far as high local demand and manufacture are concerned. With the Make in India initiative, more and more large manufacturers will be interested to shift base to India and many industry leaders will be happy to become their anchor customers.
Rajesh Agarwal is co-founder, Micromax Informatics.