India IT Hardware Manufacturers Suffer Fiscal Disabilities, Reveals MAIT Study

NEW DELHI, INDIA: Will India be able to catch up with China’s growth rate? Why can’t India follow China’s model of manufacturing led growth? If China can generate jobs in the manufacturing sector why can’t India? Will India overtake China? These questions are frequently heard in academic and policy discussions on the failure of India’s manufacturing sector to generate employment and contribute to the reduction of poverty in the country as China did.

Manufacturers' Association for Information Technology (MAIT), India's ICT hardware industry association today unveiled the report, “Policy Interventions for Achieving 'Net Zero' Imports - IT-Electronics Sector”.

The study seeks to highlight that compared to other low cost jurisdictions; India poses some disabilities for IT-ESDM manufacturers. The cost of manufacturing is estimated to be higher in India vis-à-vis other global hubs. These are on account of physical factors such as higher costs of power, real estate, logistics, additional expenses on account of freight, as well as fiscal factors. India has a multitude of taxes and duties imposed by both the Central and State Governments. Because of their flawed structure, these taxes often discriminate against domestically manufactured products.

Within the manufacturing sector, the growth of the IT electronics sector is critical for realizing the visionary initiatives of ‘Make in India’ and ‘Digital India’ launched by the Government. IT Products constitute a significant part of the Electronics market in India. Direct and Indirect IT products together contribute close to 20 per cent of the total market.

India currently manufactures approximately one third of the domestic market requirement while an estimated 62 per cent of the demand for IT products is being met through imports from countries like China and Taiwan. Further, investments by most Indian manufacturers of PCs have unused manufacturing capacity of over 75 per cent due to availability of cheap imports. If supply side measures promoting local manufacturing are not implemented today, it could adversely impact productivity and GDP growth in the long run and exacerbate the balance of payments situation.

The MAIT Study on ‘Policy Interventions for Net Zero Imports: IT Electronics Sector’ brings out that IT electronics sector suffers serious economic and fiscal disabilities and does not have as facilitative an eco-system as that in the competing jurisdictions such as China. The cost of manufacturing in India is estimated to be higher in India vis-à-vis other global options as we don’t have facilitating eco-system. The total disability burden that Indian IT electronics sector has to bear is 16.45 per cent.

According to Nitin Kunkolienkar, Vice President, MAIT, “China has good incentive program for its manufactures which clearly is visible by their competitive nature. Globally they are competing with the best and have made a mark for themselves. Manufacturing in India can be only be strengthened by supporting the domestic manufactures. Indian government has already provided differential tax regime to smartphones and tablet manufacturers which has been the reason for their huge domestic growth.”

Rahul Agarwal, Managing Director & CEO, Lenovo India strongly believes that India’s growth story should not be compared to China as both have different form of government, economic intervention and incentives.

China has encouraged the development of manufacturing clusters where suppliers, specialized services and financing are all located in a close proximity, thereby creating an environment of both intense competition and cooperation that allows manufacturers to shorten development cycles and upgrade their efficiency or improve product quality over time.

Currently, what is happening in India is more of SKD assembly and low-end work with little value addition but that is how most manufacturing ecosystems start.

The Indian PC market currently accounts for only 2-3 per cent of the world market share while India aims to capture 30 per cent of the global market share. Targeting 30 per cent of global market will involve manufacture of ~80 million units; implies an incremental capacity of ~70 million units. This will result in ~53,000 jobs in PC assembly and ~2,11,000 in component manufacturing Assuming a multiplier effect of 3X1, the sector would add ~7,88,000 jobs to the economy.

While Mobile Phones and Tablets are consumption devices; Personal Computers such as Notebooks and Desktops are creation and productivity enhancing devices, which are widely used in the services and manufacturing sectors and are essential for Govt. initiatives like Skill India, Start-up India and providing Digital Literacy to 60 million households.

Speaking at the event, Mr Kunkolienker stated, "We have suggested to the Government of India some key policy and market interventions to achieve the vision of 'Net Zero Imports' and ignite a culture of domestic ICT and Electronics product manufacturing in the country. Within the manufacturing sector, the growth of the IT-ESDM industry is critical for realizing the goals of 'Make in India' and 'Digital India' launched by the Government, and help establish India as a worldwide PC market by 2020."

"With the right measures there is potential to ramp up IT hardware production to US$ 2.6 billion within a year and put India firmly on the path to becoming a global ESDM supply chain hub," Mr Kunkolienker added.

Therefore, the current study was designed to analyze in-depth the state of the IT hardware manufacturing sector in India, with special emphasis on desktop PCs, laptop PCs and servers, identifying inherent drawbacks when compared with China, Taiwan and other East Asian countries. Further, the study findings propose tax policy interventions in the immediate and short term that can lower the disabilities, reignite the growth in this sector and help it to contribute to India's vision of 'Make in India' and 'Net Zero Imports'.

The event also featured brief sessions by industry stalwarts Mr. Krishnakumar P, Vice President, MAIT and Vice President-Consumer and SMB, Dell India; Mr. Sandeep Aurora, Director-Marketing and Market Development, Intel India/South Asia; Mr. Rahul Agarwal, Managing Director, Lenovo India, and Mr. Priyadarshi Mohapatra, Country General Manager-CCG, Microsoft India.