Sam Pitroda, telecommunications icon and knowledge guru, has highlighted India’s dependence on electronics hardware imports even as it excels in software exports. This is a well worn theme and the inability to excel in hardware has till now been attributed to the country’s overall poor manufacturing competitiveness. But Indian manufacturing has in recent years taken significant strides and the country is now considered a preferred location for manufacturing capability. Hence, the question arises: if this is a good geography to manufacture cars then why not electronics hardware? The issue is important as electronics is the largest and fastest-growing segment in overall global manufacturing. So, Mr Pitroda’s concern is legitimate but the two reasons cited for it are incorrect. India imports more than half of all the hardware it consumes, and should present trends continue, the trade imbalance on this score will be worrying. Plus, depending on imports from a few countries in such an important area poses a security risk.
First, a country’s trade need not be balanced in every sector. Being dependent on imported hardware is about as risky as having to indefinitely rely on imported edible oil and steel. Trade is supposed to be good because it enables you to export what you are good at and import what others are good at, and that is what aids efficiency and productivity. On the security aspect, being excessively dependent on imports from China may not be advisable but most countries are dependent on it for low-value consumer electronics. In case of need, South Korea and Malaysia, not to speak of Japan, can always be turned to. In fact, Japan will be happy to relocate a lot of its manufacturing capacity to India, thus bringing down costs.
It is not as if India should not take up hardware manufacturing in a big way. Here also the scenario in different segments of hardware is nuanced. India does very well in semiconductor design and can do quite well in electronics system design — two areas of the highest value addition. It does not do well in components manufacturing but there is low value addition in it. Electronics assembly also has low value addition but the jobs potential in it is high and so should be a thrust area. China’s success should be seen in the correct perspective too. The two areas in which it is ahead, assembly and components, are both low value addition areas and a lot of what it assembles and exports has high import content. All discussion on hardware manufacturing eventually turns to acquiring a capability in semiconductors. This requires very high investments, makes tremendous demands on resources like power and clean water, invariably depends on substantial government subsidy and is a commoditised business, which is cyclical in nature. The semiconductor people have lobbied hard and the government has put in place a policy of assistance but the initial investment which the promoters have to make has been slow in coming. Weighing all factors, the government should improve infrastructure and simplify tax laws — two perceived Indian disadvantages — and then let hardware manufacturing adopt its own growth path. If electronics assembly surges forward and semiconductor manufacturing lags behind, then so be it.
