Cisco, NTT Docomo, Hitachi and NEC show interest

Telecom Minister Kapil Sibal is hopeful of having excited long-term investment interest from the U.S. and Japan in India as a manufacturing hub for electronics systems and design amidst the gloom of the GDP plummeting to a 10-year low of 5%, and overall investor sentiment — particularly in manufacturing — also hitting an all-time low.

Finance Minister P. Chidambaram recently travelled overseas to reassure investors about India’s potential and remove lingering questions about the slowdown in policy making. Mr. Sibal has also visited the U.K., the U.S. and Japan within the last month to promote India as a destination for investments in electronic systems and design manufacturing. India is expected to generate a demand of $400 billion by 2020 in electronics manufacturing which will entail an investment of $100 billion, accompanied by employment of roughly 28 million — mostly skilled work force.

During these visits, Mr. Sibal met John Chambers, Chairman of the U.S. electronics manufacturing giant, Cisco. He also held meetings with Kaoru Kato, president and CEO of NTT Docomo, which holds 26% in Tata Tele as well as with Takashi Kawamura, Chairman, Hitachi, among others.

Mr. Sibal told The Hindu that Japan, a leader in electronics and design manufacturing, had shown keen interest in investing in India, particularly on the back of incentive schemes for the electronic manufacturing sector, especially in the proposed electronic manufacturing clusters — 10% of which are proposed to come up within 2013.

The Communications and IT Ministry has set up a special desk for Japan and is planning to appoint a Nodal Officer to take the investment dialogue forward.

“The investment interest is focussed on manufacturing routers, LEDs, the Akash tablet as well as developing standards for 4G and 5G,” Mr. Sibal said.

It is learnt that a similar dialogue has also occurred at an advanced stage with Cisco — one of the largest global companies that sells a large chunk of hardware to Indian telcos and the IT, government, banking and healthcare sectors.

The government recently launched a Preferential Market Access Policy in which Indian manufacturers, including companies that locate manufacturing units in India, would be given preferences in procurement where government ministries and departments are involved, and equally with regard to specific equipment — though to a limited extent — where private sector telecom companies are concerned.

The other major reason for the government to push hard on these policies — to attract large-scale FDI in domestic manufacturing — is security concern relating to cross-border manufacturing of electronic and telecom equipment. According to experts, it enhances India’s vulnerability by opening it to large-scale outflow of FDI — perhaps second only to the Oil Import Bill.

Mr. Sibal’s efforts is likely to bear fruit towards the end of this fiscal, however, he is planning to intensify the effort even further within the coming months. “This is a long-term initiative. Efforts in building confidence in electronics manufacturing today could take time but needs a sustained effort across multiple countries without being distracted by short-term objectives.”

According to investment data presented by the Commerce Ministry, there has been a sharp decline in some areas of foreign investment — many of which play a critical role along with large-scale domestic investment to keep up GDP rates, especially when other sectors are performing below par.

Citibank has recently reduced GDP growth FY-14 down from 6.2 to 5.4% even while including the RBI’s potential easing of rates further by 15 bps during the first half of 2013; a pick up on consumption as 2014 will be the pre-election year and lower rates will help with a marginal uptake in investments. It, however, reset the improvement on continued government efforts — both policy change and execution. Citibank has also placed the 5.3% fiscal deficit target at risk.

During 2013, nearly all parameters of real GDP — agriculture, industry, services, consumption — both private and government and gross fixed capital formation declined. Further, agriculture, industry, especially manufacturing, services, trade, transport and communications, as well as financing and insurance were down (see chart).

Whether Mr. Sibal will be able to make a big impact in 2013, will depend to a large extent on how the world perceives UPA-II’s ability to govern in general and more specifically, the tough financial measures, including on unplanned expenditure, that are expected to be announced during the Union budget 2013-14 at the end of next week.