Indian industry’s fundamental flaw

PRADEEP S MEHTA | Updated on March 08, 2018

The mechanical lion When will it roar in its own tongue?

The absence of innovation, across the spectrum. Only the assembly lines are powering away and that just won’t do

Steve Jobs once said, “Innovation distinguishes between a leader and a follower.” The Centre’s ‘Make in India’ initiative also aims at transforming India into a manufacturing leader and thus, is being promoted aggressively by the Prime Minister on all platforms.

The initiative has prompted some notable electronic manufacturers to express interest in manufacturing in India; these include HTC, Asus and Gionee. However, others have restricted their ‘manufacturing’ to merely assembling. Assembling wouldn’t suffice for India’s need of “technological learning” as not just the manufacturing, but the designing, technology transfer, scope of innovation and tax revenues will stay out of the purview of India. So, is India gaining or losing in the game?

Lost opportunities

India imports around 65 per cent of the total demand for electronics which accounts for its second largest import after crude oil. The import translates to ₹50,000 crore of lost opportunity cost owing to limited manufacturing in India.

The Indian Electronic System and Design Manufacturing (ESDM) is estimated around $94.2 billion, which has grown at a CAGR of 9.68 per cent since 2011. Despite this growth, the ‘manufacturing’ of electronic goods has not been a feature of Indian industry. To promote manufacturing, India, despite signing the WTO’s Information Technology Agreement-1 (ITA-1), has opposed the ITA-2, which deepens the zero custom duty regime of electronic goods.

Talking about the mobile industry, notable names such as Samsung, Micromax and Intex are assembling devices in India but the meaning of assembling is somewhat diffused. The manufacturers mainly import semi-knocked down (SKD) devices, which comprise pre-mounted printed circuit boards (PCBs). The handset components, thus, do not go through any value addition, but are mainly screwdriver assembly jobs. In the process, the manufacturers save on the import duty applicable on finished handsets imports, that is, 12.5 per cent, and India gains nothing.

The hurdles for India in becoming a manufacturing giant have been the lack of investments, weak R&D capacities, unsupportive policy regime (including Intellectual Property) and complexities in doing business. The Centre has been trying to resolve these issues by introducing initiatives such as Ease of Doing Business, Mudra Bank and, most importantly, a new National Intellectual Property Rights (IPR) Policy. Further, the Atal Innovation Mission (AIM) and a ₹1,000-crore tech startup fund aim at propelling innovations and R&D in the country.

Innovation deficit

However, even if the manufacturers were supposedly manufacturing electronic goods in India, the question would have been: Does India have the capacity for innovations? Despite the presence of a huge pool of IT engineers, India’s weak innovation scenario needs reshaping. Our ecosystem itself should be rejigged towards facilitating innovations.

This will not only foster innovation, it will also create numerous jobs. Prime Minister Narendra Modi has also been rightly emphasising the ‘Design in India’ mission to support the ‘Make in India’ project.

India’s stance on the IPR regime will critically govern the space for innovations and R&D. Looking at the current sub-par IP regime, Modi iterated the requirement of bringing Indian patent laws up to global standards through the forthcoming National IPR Policy at the Asean Business Summit.

Infosys co-founder NR Narayana Murthy once said, “There has not been a single invention from India in the last 60 years that became a household name globally, nor any idea that led to ‘earth shaking’ invention to ‘delight global citizens’.” India, in order to stay economically competitive, needs to step up its chase for new patents. Its plight can be inferred from China filing 25,539 patent applications as compared to India’s 1,394 in 2014-15.

Unsurprisingly, India ranks 29 of the 30 countries ranked on the 2015 IP Index by the US Chamber of Commerce’s Global Intellectual Property Center (GIPC). India, in the current scenario, doesn’t even have an option to get into IP trading or cross-licensing, as it has almost nothing in its kitty.

Apart from IPR, industrial and foreign trade policies, and FDI norms have a deepinfluence on manufacturing. The department of electronics and information rechnology (DeITY), under the Industrial Approval Policy, has tried to cut the red-tape for electronics manufacturing by measures such as abolishing industrial licensing and eliminating reservation for public-sector enterprises. Permitting 100 per cent foreign investment in the electronics sector also seeks to expand the manufacturing sector in India. As the situation stands today, there is need for further reforms to make the situation more progressive and sustainable.

Achieving a balance

Sustainability would need due diligence on how India can excel on innovations. With more than 3,100 startups, India is among the top startup hubs in the world. Promising government support to startups, Modi said that India has the potential of becoming the second country after the US in this area.

An expert committee was set up by the Centre and the NITI Aayog on innovation and entrepreneurship to boost entrepreneurship and innovation in India and holistically address the associated challenges. Innovations, IPR and competition are all knitted in cohesion. Thus, it’s important to derive a balance between the three to foster cumulative growth.

India currently lacks a strong IP framework which offers low incentives to innovate. The lack of innovation is pervasive to Indian firms’ (non)competitiveness in the world which results in India trailing behind. Thus, there is need to construct a competitive, flourishing environment by prioritising scientific research with a strong IP system.

At present, the presence of a number of legislations, rules and regulations that govern IP in India lead to conflicts, overlaps and inconsistencies in the IP framework. So, there’s a lot of work to be done, and the earlier we start the better. All we need is the aspiration and belief in ourselves that we can innovate, not just in technology but in the way we deal with this competitive world.

The writer is the secretary-general of CUTS International. Rohit Kumar Singh of CUTS contributed to this article

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Published on December 24, 2015
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