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Over the past decade, even as India emerged as a dominant force in the global software-services and back-office outsourcing world, high-tech-hardware manufacturing has remained a classic case of the chicken-and-the-egg syndrome.
The debate over whether the country should wait for its market to grow to a size big enough to justify a manufacturing base, or instead kick-start manufacturing to secure a foothold in the global hardware arena, raged with little consensus.
But it now appears India has made a decision after all: it cannot remain content with software anymore, and in the wake of some recent high-profile announcements of global high-tech biggies committing billions of US dollars to hardware-related investments in the country, despite false alarms in the past, it now seems that the time for Indian IT (information technology) manufacturing has finally arrived.
"With the spread of information technology and IT-enabled services, the time is ripe to make India a preferred destination for the manufacture of semiconductors and other high-technology IT products," said the country's finance minister in his yearly budget announced on February 28, and "to achieve this goal the Ministry of Information Technology will announce a policy shortly".
Along with that announcement, the minister doled out a slew of sops for the hardware industry that included a reimposition of a 12% local levy (removed last year) on fully built computers - which in essence makes imported computers more expensive - while allowing local hardware makers to get tax credit for their inputs to lower the final price.
The budget also removed import duties and local duties on input components. According to the hardware industry lobby, the Manufacturing Association of Information Technology (MAIT), the latter step will make "locally made hardware more competitive and also encourage manufacturing of other high-end products".
"For the first time ever, the [Indian] budget has given a focused attention [to] IT-hardware manufacturing," said Vinnie Mehta, executive director of MAIT.
"Even until a few years back, replete with infrastructural deficiencies like inadequate water [and power supplies], and poor roads, Indian could have hardly hoped [to become] a destination for high-tech manufacturing. But now as India witnesses an
explosive consumption of electronic goods and equipment, this market has become too big to ignore."
Going by the recent spate of announcements from some of the biggest names in IT, India's hardware sector is certainly no longer being ignored.
For instance, last October, Cisco Systems in "an enormous strategic investment in India" outlined the company's US$1.15 billion investments plans the next
three years. That was topped by an announcement about a month later by SEMINDIA, a consortium of non-resident Indian investors, for a $3 billion
advanced fabrication facility to be set up in partnership with chip maker Advanced Micro Devices.
Just a few days later, Intel chairman Craig Barrett announced his company's first major India investment plan, exceeding $1 billion over the next five years.
And, not to be left behind, Microsoft chairman Bill Gates announced the software giant's first $1.7 billion dollar mega-investment plans in a four-day India visit that ended on December 9. Although most of that investment has meant spending on research and development and expanding Microsoft's reach in the country, "the company's [mission in India is to take] the computer to every home and to every desk while continuing with innovation to bring better and more exciting products [to] local consumers", Gates said.
The main driver behind these announcements was the country's burgeoning domestic market. "India is developing as one of the largest [world] markets for electronic equipment," said Rajendra Khare, chairman of the India Semiconductor Association (ISA), a semiconductor industry group.
In a study released early last month, the ISA reported that the consumption of electronic equipment in the country would rise to $363 billion by 2015 from $28.2
billion in 2005, representing a compound annual growth rate of about 30%.
The report also said India's rapidly expanding gross domestic product (GDP) over the next several decades would boost electronics demand in the public and private sectors.
"The Indian electronics-equipment production [sector] grew at a ... rate of 25% in 2005 and is expected to reach a growth rate of 50% in 2010 and 34% in 2015,"
the report said. "Indian electronics-equipment manufacturing is expected to grow at 5.5 times the ... rate of global electronics-equipment production [from] 2010 [to] 2015."
According to the hardware industry, although the world thinks India's software outsourcing and business process outsourcing are money-spinners in terms of foreign-exchange earnings, these sectors in fact cause a net drain on foreign-exchange reserves because of the need to import hardware. An estimate released recently by the industry lobby said the software sector will require computer hardware worth $77 billion by 2010, which is less than the industry's estimated projected exports of $60 billion for the same period. A major part of the requirement is expected to be met through imports if hardware manufacturing doesn't pick up in India.
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Asia Times Online
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