10252014Headline:

Industry uncertain about impact of preferential market access for ‘made in India’ IT products

By January 2013, government will introduce a similar notification for laptops and tablets

The Department of Electronics and Information Technology (DeitY) has issued a notification that makes it mandatory for all government departments to procure 50 per cent of their requirements of desktop PCs and dot matrix printers from domestic manufacturers that are able to do 30 per cent value addition in the first year, that ends March 31, 2014. This is the second phase, which brings more products under the Preferential Market Access (PMA) policy. In the first phase, indigenously manufactured telecom products were covered by the policy.

No doubt, this initiative will promote domestic electronics manufacturing and create a market for indigenous electronics products, but the industry wonders why the policy has chosen to cover desktop PCs and dot matrix printers in the first place? How much demand will government departments and agencies alone create for desktop PCs and dot matrix printers? Will the volumes be attractive enough for a company to start manufacturing these products in India with 30 per cent value addition in the first year (increasing by 5 per cent every subsequent year)?

According to a senior government official, desktop PCs and dot matrix printers have been chosen first because there is fairly large demand for these products in government departments and agencies, and also considerable volumes of these two products are presently being manufactured in India. “We are doing this exercise step by step after consulting all stakeholders, including local manufacturers, MNCs and associations working in this domain. We have to choose products as per the procurement volumes of the government, understanding the current status of the industry by holding consultations with stakeholders, and then working out the details,” says the senior government official.

By January 2013, the government will introduce a similar notification for laptops and tablets. “We have completed our stakeholder consultations for these products, and by January 2013 will come out with the policy,” informs the senior government official.

According to Anwar Shirpurwala, executive director, MAIT, the value addition that is possible in desktop PCs and dot matrix printers in the country is not possible with laptops or notebooks at the moment.

Commenting on the policy, Anwar Shirpurwala, says, “There is a good side and a bad side to this policy. The positive aspect is that it will definitely promote manufacturing. It will encourage companies to think of setting up manufacturing units in India. The not so good part is that, currently we have a lot of limitations that hamper manufacturing. Three major factors are the tax structuring, lack of an ecosystem, and lack of proper infrastructure. Due to these factors, I am not sure how fast we can catch up, and whether this policy will really help manufacturers come out with a ‘made in India’ product. To manufacture a PC, a printer or a laptop at the required cost, and with the required value addition, it is essential that components are available within the country. So I have my doubts about whether this policy can solve this problem.”

Currently, while desktop PCs are just assembled in India with imported components, amounting to just 10 per cent (or less) value addition, a fairly good amount of manufacturing is being done in dot matrix printers, with a higher amount of value addition. “While it is too early to comment on how the policy would impact the industry, I feel the time line and the percentage of value addition is not practical,” says Anwar Shirpurwala.

The senior government official, however, is confident that 30 per cent value addition in the first year is possible. “We have analysed it along with industry experts before finalising the policy. Our objective is to promote assembling first and then go to the level of manufacturing with India-made components. We are also open to the fact that any one can import components and assemble them with some value addition, which is specified in the policy,” he says.

When asked if the industry is happy with the policy, the senior government official comments, “Since we always take the industry into confidence, why would it show dissatisfaction with the policy? We have consulted Indian companies as well as the MNCs. Whoever is interested in manufacturing in India, or already has a manufacturing unit, will be happy with the policy.”

Manish Sharma, managing director, Panasonic India Pvt Ltd, feels that the policy is a positive decision for the growth of the Indian electronics industry. “Currently, it will not impact much of our business because we are importing our products from our overseas factories. However, we cannot deny the fact that the government is definitely a major market for any OEM. Going forward, we will analyse the opportunity so that we also make ourselves competitive for the new guidelines,” he says.

Epson, which also sells dot matrix printers in India, manufactures them overseas. Hence, its division head, sales and marketing, N Sambamoorthy, who refused to comment on the policy, feels that the policy will have no impact on the company’s operations in India, currently.

JV Ramamurthy, president, HCL, feels that this policy is a bold initiative by the government. “We are already far behind our target of making the electronics industry worth $400 billion. If the government had not taken these steps now, it would be very late. Although, it is early to ascertain the impact of the policy on the industry, we definitely need to work towards getting benefits out of these polices,” he comments. Ramamurthy believes that it may be difficult for a manufacturer to meet the target of 30 per cent value addition in the first year, as suggested by the policy. “In case we cannot meet this target, I’m sure we can ask the government to modify the policy. After all, this policy has been formulated in consultation with the industry,” he adds.

Simmtronics Semiconductors Ltd, which manufactures motherboards, has found the policy very beneficial for the company. “Only Simmtronics will be able to meet the 30 per cent value addition criteria of the policy, as we manufacture the motherboard. Now the OEMs are approaching us to manufacture for them,” says a senior member of the management.

But are government policies only for the established firms? Or is it to help many other companies, particularly the SMEs to start manufacturing in India?

“In fact, these policies aim at pushing big as well as small companies to invest in manufacturing. So anybody who would like to take benefit of this policy has to invest first,” concludes the senior member of the Simmtronics’ management.

By Srabani Sen

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