Made in India? Make it happen

Indian policy-makers should sharpen the focus on Indian hardware. There is a pressing need to create a market and an environment conducive to the hardware industry.

Gopal Srinivasan

FOR far too long have we ignored the Indian hardware capability. Any further delay could actually cost us dear.

Ask a familiar question. -- What, in India, is world-class in Information Technology, and the answer is equally familiar -- software and exports. While it is actually true and as such not a false statement, the computer hardware manufacturing industry has acquired new dimensions in the age of Information Technology. While the earlier paradigm had to do with mass manufacture of personal computers (PCs), which had effectively ensured that India was willy-nilly left out of the entire race, the next wave happens to be in the area of IT appliances. With the Indian manufacturing coming of age in some segments, and mass customisation becoming more of a reality, there is thus a real and tangible case that can be built for creating a truly world-class, contemporary, ``Made in India'' product.

Some bitter truths

To understand this aspect, one has to understand why IT manufacturing did not happen on as large a scale as it might have.

Currently, the IT (manufacturing) sector in India languishes while China thrives with its exports volume of high-tech products crossing $15.7 billion in the first half of 2000, up by nearly 50 per cent compared to 1999; 72 per cent of this is accounted for by computer and telecom hardware.

Comparisons with China might seem a little odious but will actually help us put the issue in perspective. While there has been a tremendous amount of Government bashing that has underscored the fact that it is Big Brother who has really been the speed-breaker, the fact is far from it.

The real barometer for manufacturing in the country is the extent of PC penetration.

With an abysmal PC penetration -- only 2.7 per 1,000 persons -- the problem in India is not government support or lack thereof, but essentially the sheer market to use the product -- the now-ubiquitous PC.

It is the availability of software and solutions in the local language to a large mass of people who might then have found some economic reason to buy a PC.

In the absence of this basic truth, no amount of government push can help.

Deprived of `oxygen of publicity'

On the other hand, if one looks at the software and services market, the impetus for growth has come from outside the country. It is really the export of software and services which has laid the foundations of a robust software industry over the last ten years.

As a consequence, in the absence of a vibrant domestic software industry, coupled with low levels of PC penetration and lack of applications for the Indian market, the Indian hardware industry has not received the much-needed ``Oxygen of Publicity'' that has permeated the Indian software (export) industry.

Without indigenisation of the hardware industry, the rapid growth of the software industry cannot be sustained.

There is a need to offer services across for which infrastructure, networks, hardware and reliable power are essential.

Even against the context of software export, the country's hardware requirement would be around $50 billion to meet its target of software export of $80 billion. This, once again, illustrates the point that Indian policy-makers would be well-advised to sharpen the focus on Indian hardware and the need to create a market and an environment conducive to the hardware industry in the next few years.Competence in the IT (manufacturing) industry is country-specific, unlike its software counterpart, and we must first understand the limitations we face in this sector in order to thrive.

In India, there are numerous impediments to the successful growth of its hardware industry -- the cost of capital is very high in contrast to the software industry (this sector being characterised by high investments yielding low returns), lack of infrastructure, unsound logistics, high taxation and differential taxation.

There are no global volumes to speak of, nor is there a mind-share among the people who make the policies.

The past and existing policy framework have discouraged investments, with the duty on inputs often more than on finished goods and cumbersome import/export procedures that have impaired the acceleration of business.

Lack of population of IT products in the country led to a reduction in the economy of scale and the consequent production of IT hardware, with an unfeasible economy-of-scale, augmented the cost of production. These factors, increasingly, transformed the IT hardware industry into direct or indirect dealers of foreign brands.

Based on the recommendations of the National Task Force on Information Technology and Software Development, the Government of India approved the policy for advancing the zero import duty targets on all IT finished goods from January 1, 2005, to January 1, 2002, and several key parts, in accordance with the proposed WTO-ITA-I schedule. This is yet to be successfully implemented.

If the hardware industry has to be put on a high growth path, there has to be a paradigm shift of the policy regime in the following areas -- customs duty on all imported parts to be brought to zero; procedures for imports, exports, licensing and inspection to be simplified; establishment of single-window clearance; and establishment of a single-point tax system.

Time to sharpen strategy

To improve competitiveness in the global market, Indian firms have to focus on developing a niche product-based strategy, new product development, rationalisation of product development and various strategic alliances, and most importantly, provide a global focus to their manufacturing activities.

Design to manufacture and outsourcing are two viable prospects for hardware manufacturers and globally many are nurturing large companies. Major corporations have shed their manufacturing operations, concentrating, instead, on the development, sales and marketing of their products -- Sun Microsystems has been thriving on this recipe for years and Dell Computer too has a battalion of key suppliers.

According to market research firm, Technology Forecasters, contract manufacturing is growing by more than 20 per cent a year. The new e-economy and the IT industry bring into play a fourth factor of production in manufacture called ``entrepreneurship.''

Venture capitalists today not only provide the necessary funds for individuals to set up units but also networking, management and marketing support to ensure their success.

The success and subsistence of a company today in the IT hardware business is contingent not only upon what you create, but also if what you create has value.

The author is Director, TVS Electronics Ltd/PFS