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Everything will be imported in India, says MAIT

Posted: 03 Jan 2014     Print Version  Bookmark and Share

Keywords:HCL Infosystems  Wipro  PC manufacturing  MAIT  IESA 

2013 was one of the most exciting years for the Indian electronics industry. Among all major developments, manufacturing remained talk of the town with its share of ups and downs. The year witnessed the landmark approval of setting up of two chip manufacturing facilities in the country, at the same time there were some announcements that shook the industry.

In an unexpected move, India's leading PC manufacturer HCL Infosystems and Wipro announced their plans to quit PC manufacturing business. However, industry experts believe this was an "expected" move, all thanks to the Government's inverted duty structure.

HCL, Wipro shut PC making unit

 •  HCL Infosystems to cease manufacturing PCs
 •  Wipro to quit PC manufacturing business.

"Don't be surprised to see some more companies shutting down their PC manufacturing base in India, and everything will be imported," commented Anwar Shirpurwala, executive director, The Manufacturer's Association for Information Technology (MAIT). Commenting on recent announcements made by HCL Infosystems and Wipro, he further stated, "The primary reason is profitability. In India, manufacturing is much costlier than importing. The problem is largely due to tax related issues. There is an inverted duty structure due to which components import becomes costlier than importing an end product."

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Shirpurwala: Inverted duty structure is the biggest problem in India, which needs correction.

When asked about the recent policies that promotes domestic manufacturing, Shirpurwala said, "Recent policies are for those who are going to set up manufacturing facilities in India, but there are no policies that can help existing players."

Sanjeev Keskar, chairman, India Electronics and Semiconductor Association (IESA), termed the move as "unfortunate." He said, "Due to lack of component eco-system computer/laptop/server assembly became a low value add manufacturing and there is no strong differentiator or value proposition vs. the global companies who are aggressive in India market. Eventually lack of local component eco-system affects margins in this business."

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Keskar: Lack of local component eco-system affects margins in this business.

On the other hand, IESA President PVG Menon believes that both the inverted duty structure as well as the plethora of local taxes and levies complicates matters for Indian manufacturers. "India signed the ITA-1 part of the WTO Accord in 1997. By 2000, the import duty on all IT products had reduced to zero. This makes it very difficult for Indian manufacturers to compete against multinational companies with global supply chains and economies of scale." He said the industry body has long been asking the government to give deemed-export status to Indian manufacturers of ITA-1 classified products, "so that they have a level-playing field to compete against cheap foreign imports."

Indian biggies vs. Global players?

"Global companies spend lot of money on marketing and branding," said Keskar. However, Menon said, "Indian companies struggle with both inverted duty structure as well as high transaction costs in India. This puts them at an inherent disadvantage against cheap imports, which are backed up by heavy promotional spends. Finally, the constant shifting stands of the Government w.r.t. to enabling policy provisions like the Preferential Market Access (PMA) have meant that there is absolutely no incentive for Indian manufacturers to invest into either technology or manufacturing upgradation in India."

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Menon: Indian companies struggle with both inverted duty structure as well as high transaction costs in India.

On the contrary, Shirpurwala stated, "Global companies with units in India are surviving and are able to manage their business for a longer period of time. But nobody would like to do a business if it is a negative business – margins are less, demand is slowing down, government projects are stalling, those are the kind of difficulties which are there. So, don't be surprised to see some more companies which are going to stop their PC manufacturing base in India, and everything will be imported."

Impact on Made-in-India policy?

"It is a challenge but we still need to focus on Electronic manufacturing where we can have local value addition and IP as well as component ecosystem. Products like industrial electronics, automotive electronics are our best markets to go after."

"For India to regain its' manufacturing competitiveness in electronics, it is imperative that the government has to lend a helping hand to Indian companies who are competing against cheap imports, while struggling with a hostile domestic environment. While a policy framework has come into place, the focus must now be on consistency of policy and speed of implementation," Menon added.

"Inverted duty structure is the biggest problem in India, which needs correction. This applies to every manufacturer in India that needs components to get imported and put it into products. We don't have component manufacturing ecosystem in the country, so government has to really work hard and fast to ensure that this ecosystem exist. Semiconductor manufacturing, however, is one component, but it will surely give a philip to manufacturing in India," believes Shirpurwala.

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