India’s Electronics Manufacturing Sector: Getting the Diagnosis Right

The Indian government has announced several policy measures aimed at promoting domestic electronics manufacturing as part of its “Make in India” initiative (2014). A casualty of incoherent policy regimes for nearly three decades, the electronics industry appears to be receiving some focused attention. The efforts began after the National Policy on Electronics (NPE), drafted by the Department of Electronics and Information Technology (Deity) in 2012, highlighted the abysmally low level of value addition in domestically produced electronic products, which ranged just between 5% and 10% in most cases at the time (NPE 2012). Instead, electronics manufacturers appear to prefer importing components and parts, making import dependence a major weakness of this sector (Kallummal 2012; Ernst 2014; Saraswati 2013; Deity 2012; Saripalle 2015; Francis 2016).

At present, the electronics industry is one of the largest contributors to India’s merchandise imports, second only to petroleum and petroleum products. After nearly two decades of trade liberalization and favorable foreign direct investment (FDI) policies—which were expected to improve the competitiveness and productivity of domestic manufacturing—the gap between the country’s electronics demand and its domestic production capabilities has only been widening (Francis 2016). While the largest contributor to the industry’s growth has been the communication segment, the highest share of value addition is from the consumer electronics sector (Saripalle 2015). As a result, in 2014, more than 50% of the  total electronics imports to the country comprised telecommunication products, which illustrates how massive this missed opportunity is for domestic electronics manufacturing  (Francis 2016). This article tries to understand how and why this import dependence came about, and why it still persists, despite India’s liberal policy regime. NITI Aayog’s “Make in India” strategy for electronic products has also been assessed against this backdrop.

The Policy Trajectory

In the decades that followed independence, the desire for a self-reliant India through indigenous technology development saw the setting up of public sector electronics fi rms and the pursuit of a restrictive policy framework for the electronics industry. However, in the mid-1980s, the electronics manufacturing

Market was opened up to a limited extent by liberalizing component imports and relaxing capacity constraints for the information technology (IT) hardware sector while opening up of the telecommunication sector to private participation; these developments led to signifi cant growth in these segments in the second half. However, the nature of the incentives provided to the IT software exports industry, driven by a myopic policy approach, led to a disconnect between the subsequent boom in India’s software export growth and the domestic IT hardware and telecommunication growth trajectories. In the absence of vertical industrial policies, local IT hardware and components producers did not benefi t from the growth in the Indian software exports industry. They could not realise the economies of scale necessary to make businesses in this sector viable, nor could they face the competitive pressure to build up technological capabilities in parallel with the advancements in the information and communication technology (ICT) sector……

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(This article was originally published in the Economic and Political Weekly dated 25 August 2018.)