Sops can't rev up electronics industry

Sops can’t rev up electronics industry

Sops can’t rev up electronics industry


Minister for Communications, Electronics & Information Technology Ravi Shankar Prasad has expressed satisfaction that the numbers of mobile phone manufacturers in India have increased from two to 60 in the last five years

Minister for Communications, Electronics & Information Technology Ravi Shankar Prasad has expressed satisfaction that the numbers of mobile phone manufacturers in India have increased from two to 60 in the last five years. In parallel, Secretary Ajay Prakash Shawney has said that 90 percent of the mobile phones being sold in the country are being manufactured here. Further we have had a stream of news reports saying that electronics majors have submitted proposals to invest large amounts in India.

Similar announcement was made in 2015 that these companies will invest 17 billion dollars. These are encouraging statements. However, the electronics majors were already present in India in 2016 when the Make in India programme was launched. Foxconn and Lenovo had given contracts to local companies to manufacture their products in Sri City, Andhra Pradesh and Sriperumbudur, Tamil Nadu; and Samsung had its own manufacturing facility in Noida, Uttar Pradesh.

Question is this: Why have they not expanded in the last five years. In particular, a production facility of Motorola, a subsidiary of Lenovo, has been lying closed in Chennai. Lenovo has not even restarted its existing plant, let alone making new investment. The announcement made in 2015 that these companies will invest 17 billion dollars has clearly fallen flat.

A top chamber of commerce, Assocham has said in a report that the mobile phones being "manufactured" in India are actually only last line assembly just as the homemaker brings flour, pulse and vegetables and cooks a last line meal in the kitchen. This assembly work is not "manufacture." The objective of Make in India and Atma Nirbhar Bharat schemes is to create self-dependence. These manufacturers continue to be dependent on the import of parts.

This grim reality is seen in the electronics imports of 55 billion dollars against exports of mere nine billion dollars in 2018-19. We are nowhere near becoming Atma Nirbhar. The truth is that there has been no progress since 2015.

I studied eight posts regarding the reasons of slow progress of electronics manufacturing in India on the internet. Six of eight posts complained about the unavailability of skilled workers. One post explained that our colleges were asking the students to "learn" the function of the 40 legs in an Intel chip — which they needed to memorise. Then the commentator says: "Even if the student were to become a repair technician, he wouldn't be required to store the function of each of the parts of the dozens of varieties of chips in his mind.

Instead, asking the student how he would use the integrated circuit to create a device would have been a hundredfold more stimulating, constructive, and productive." Alas! The professors in our government colleges themselves do not know how to use the chips; and have no interest in learning it either because their salaries are secured as long as they churn out certificate-holding useless graduates.

Two of the eight posts complained about the cumbersome regulatory framework. I was told by a manufacturer from Bengaluru that the government had recently introduced a requirement that every export consignment would require to be accompanied by a certificate from a chartered accountant. The manufacturer has to now do additional paperwork to get the certificate. This takes an additional two days in delivery.

The government is creating such new roadblocks at every step — the beneficiary of which, one may surmise, is the grease money obtained by the officials. Other reasons mentioned in the posts were legal hurdles in implementation of contracts, cost of capital, high rates of tax and cost of land and electricity. I am not convinced of these reasons but there is no occasion to discuss them here.

The government has made a laudable effort and made a scheme to provide 50 to 75 percent capital subsidy for investments in new electronics manufacturing facilities. This is not going to work. It is like giving oxygen to a person dying from malnutrition. As said above, the main roadblocks are our education system and government regulations. Investments will not come unless we solve these problems just as they have not come after the launch of Make in India in 2016. It must be remembered that our bureaucracy gets more opportunities to get grease money in disbursing these subsidies.

Perhaps the government is being driven by the bad advice given by the World Bank. The bank and other multilateral agencies like the United Nations are driven by the interests of the industrial countries. The governments of the countries, in turn, are driven by the multinational corporations. These corporations have no interest in developing manufacturing in India.

Their objective, on the contrary, is to kill Make in India so that they can supply electronics goods from their plants in Vietnam and Taiwan where there is greater availability of skilled labour and less extortion by the bureaucracy. Thus, in its recent World Development Report, the World Bank has advised the government of India to reduce import duties.

Interestingly, the World Bank has itself said in the same report that the share of international trade in global manufactured goods had increased from 43 percent in 2000 to 53 percent in 2008 when the global financial crisis took place. It declined to 45 percent in 2015 after the crisis. Now, it can only further contract after the corona pandemic. Therefore, the government should not run after foreign investors as advised by the World Bank. The government must instead think through why would foreign capital come into India when our own high net worth Individuals are leaving for better pastures?

The government should solve the basic problems of the economy instead of giving capital subsidies. The professors of government colleges do not themselves have practical knowledge. Their salaries are secure. They do not want to teach. Further, the private universities are unable to charge adequate fees to employ competent teachers since the cost of education in the government colleges is less.

There is a need to free government colleges of the decrepit professors. Secondly, the government must reduce the extortion by the bureaucracy. Thirdly, the government will have to reduce the social divisions in the society and have a constructive dialogue with the Opposition; and improve the environment — water and air in particular. Investments - foreign or domestic — will take place when we provide pleasant living conditions. The present hype about the proposals of foreign investments will certainly prove a pipe dream.

(The writer is formerly Professor of Economics at IIM, Bengaluru)

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