India may have half the global share of the offshored IT and IT-enabled services market, but it still remains a bit-player in the electronics hardware business. Despite the telecom boom in the last two decades and the sharp increase in the use of electronics across industries, the country remains heavily dependent on imports for much of the hardware.
In strategic terms, the dependence in a range of industries — from atomic energy, space and defence to civilian industries such as telecom and civil aviation — poses serious risks.
Consider this: Indian demand for electronics hardware — termed the Electronics System Design and Manufacturing (ESDM) — is likely to increase from the current level of $ 45 billion to $ 125 billion by 2014 and $ 400 billion by 2020. At the current levels of import intensity, domestic supply from the ESDM sector is likely to meet only one-fourth the projected demand in 2020. If things proceed as they have, India will need to import $ 300 billion worth of hardware. To pose the problem more provocatively, Indian imports of electronics would be about two-and-a-half times the current oil imports.
“Indian capability is strong in areas such as designing, verification and embedded software, but what we need to do is promote greater innovation and develop products that go on the world stage,” said P.V.G. Menon, president, Indian Semiconductor Association (ISA). While the large companies, especially the multinationals, can fend for themselves, small and medium players in the electronics hardware industry need to be offered ‘hand-holding support' by the Government,” Mr. Menon said.
The problems of the small players in the hardware business are similar to the ones faced by any small enterprise or a start-up in India. “Small companies need better terms on which they can access funds, especially working capital,” said Mr. Menon. Since capital goods used in the industry are “prohibitively expensive”, he suggested that the Government support the establishment of “incubators” in the electronics clusters in the country such as those in the National Capital Region (NCR), Sriperumbudur (near Chennai), Baddi in Himachal Pradesh, Bangalore and Pune.
But financial help in the form of subsidies, implicit or explicit, alone will not be enough, said Mr. Menon. Sourcing from Indian companies could be a pillar on which strategic self-reliance may be built. He points to one estimate that Government procurement of electronics equipment, including those spent by the publicly owned Bharat Sanchar Nigam Ltd., amounted to Rs. 48,000 crore.
Insisting on sourcing a portion of Government procurement, say, 30 per cent, would be a way of supporting Indian capability in hardware, Mr. Menon said. The major players of the world, the European Union, the U.S., China and Brazil, all have provisions that mandate that a certain proportion of national requirement be sourced from local sources, he said.
He refuted the objection raised in some quarters that this would be an “anti-competitive” move. “In fact, this will give an impetus to Indian companies, especially the smaller ones,” he said.