SPOTLIGHT ON INDIAN ELECTRONICS Spotlight on Indian Electronics | Page 70

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NET ZERO IMPORTS
manufacturing costs and taxation- related issues. This also is
blended cost of power( which takes the cost of alternative
leading to reduced utilization of existing manufacturing
sources, back up, etc., into account) in India is 2 – 2.5 times
capacity.
higher( depending on the duration of use of alternative power
It has also been observed that there is little product / subassembly-level
sources) than in other low-cost manufacturing countries.
design-related activity taking place in the
Although the cost of grid power has been on the rise in recent
country, especially in consumer electronics. The reason for this
years in certain parts of the country, the major concern for
is the absence of an incentive to design such products in India,
manufacturers relates to the quality of grid power. This
since there is very little scope of such designs being
includes reliability of its supply, frequency, duration of
manufactured indigenously due to the lack of a component
unannounced and announced power-cuts, etc. This issue has
ecosystem, high manufacturing costs and taxation-related
been observed across various states, although with varying
issues prevalent in the country.
intensity. Manufacturers have made arrangements for
The material for products or sub-assemblies that are currently
alternative sources of power( such as DG sets) and UPS
manufactured in India is also largely imported. This further
equipment( for uninterrupted supply) due to the unreliability of
indicates the lack of a component ecosystem in India.
grid power. These arrangements involve large fixed and
Countries such as China manufacture most of the required
variable costs, which increase the overall cost of power.
components indigenously on a large scale, while a strong and
Although the cost of real estate varies, depending on the
complete component-manufacturing ecosystem is lacking in
location of the facility, it has been observed that the cost of
India.
real estate in India is higher in general than comparable
Secondly, the high cost of manufacturing components
locations in other low-cost manufacturing countries.
domestically due to various reasons, including lack of scale, an
As mentioned earlier, interest rates in India are higher as
inverted duty structure on manufacture of components,
compared to other low-cost manufacturing countries.
environmental factors such as high electricity and real estate
Therefore, even if capital expenses are assumed to be similar in
costs, etc., leads to the price of domestic components being
India and other countries, the difference in cost of financing
higher in India than in some low-cost manufacturing
results in disability.
destinations like China.
The disability on account of high cost of manufacturing is
As the manufacturers of sub-assemblies / products in India are
1.2 %.
forced to import components from various locations in China
Perception of India as electronic manufacturing destination
and South-East Asia due to the lack of a complete component
Since perception of India as an electronic manufacturing
ecosystem in the country, it gives rise to many supply chain-
destination is not as high as other low cost manufacturing
related uncertainties. The suppliers are located in various
destinations, greater efforts have to be made by domestic
geographic locations. Added to this is the problem of long
manufacturers towards branding and promotion. This results in
shipment time and customs clearances. As a result, the
higher costs and thus a disability to the extent of 1 %
manufacturers need to maintain large raw material inventories.
Long-duration inventory norms, combined with high interest rates on working capital, result in raised inventory-carrying costs, which are negligible in other low-cost manufacturing
Total disability
The total disability burden that the Indian IT electronics sector has to bear is 15.87 %.
countries due to most of the components being locally available and interest rates being lower in them.
Shipping components from various geographic locations also results in increased freight costs.
Nature of disability
Taxation related disability
Business environment disability
Total Disability
Burden
6.47 %
9.40 %
15.87 %
The disability on account of inadequate availability of components and related issues is 4.6 %.
In estimating the disabilities, certain assumptions were made, which are listed at Annexure B.
High cost of manufacturing due to high power costs, real estate costs,
etc.
To enable the sector to grow, it is important to provide an effective
The cost of manufacturing / conversion costs is higher in India
electronics manufacturing ecosystem and remove the hindrances to
as compared to those in other low cost manufacturing
investment in this sector.
countries.
Issues related to supply of power are rated the highest by
manufacturers among all infrastructure- related issues. The

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Lessons from China
China is an electronic manufacturing colossus today because of an integrated and inter-linked ecosystem of policies dealing with high technology, research, academic institutions, incubators, entrepreneurship and national electronic projects. It has coupled those policies with specific regulations providing protection and enhancement of domestic capabilities and
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China’ s performance in the electronics industry has been nothing short of phenomenal. The development of electronic capabilities in the country has, to a large extent, been possible due to the articulation and successful achievement of goals in
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its Five Year Plans. While the first two plan periods were also largely focused on the electronics industry from the point of view of the country’ s national defence, the later Five Year Plans have seen a constant changing of the structure of the industry
Spotlight on Indian Electronics 2016 | 70