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
9 industries . .
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
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