Vinod Sharma, Chairman, Electronics and Computer Software Export Promotion Council, probably, has one of the toughest jobs in the country – that of boosting India’s electronics hardware, as well as software exports. So, in an exclusive interaction with him, The Dollar Business tried to figure his strategy to meet his targets

Interview by Naveen Kumar | May 2015 Issue | The Dollar Business

 

TDB: What steps are being taken by the government to promote the growth of manufacturing and exports of electronics hardware?

Vinod Sharma (VS): The government has rightly realised that export of hardware should come later. The first discussion should be manufacturing. We don’t do enough manufacturing and, hence, end up importing a lot. We have reached this position because despite being a poor country, our cost of manufacturing is very high. Our electricity is more expensive than that in most other manufacturing countries in the world. Our logistics expenses are two to four times more. Roads are not good. Then there are rail and port delays. Cost of finance is also two to three times more. The only factor in our favour is manpower cost. But even this should be considered from the perspective of productivity, which in our case, is not very high. So, unfortunately, we are not designed for manufacturing.

In the electronics sector, the added problem is that we decided to go zero duty as early as 2005. So, in the last 10 years, we have been competing with the rest of the world with these handicaps. Different reports have put the disability factor anywhere between 8% and 16%. The only reason we have been able to survive this long is because of the amazing entrepreneurial quality of the people in this country. Now, in this context, we have asked the government for a few things. The government has recognised them. In two cases, it has tried to compensate. But on the issue of customs, it is bound by WTO rules, while on the income tax side, it is not willing to give any rebate.

TDB: Why has India, so far, not been able to create an enabling ecosystem to develop electronics hardware manufacturing?

VS: For the last 30 years, I have been dealing with the excise department. During every single audit in these 30 years, some smart auditor has always been able to tell me what I cannot claim as CENVAT credit. How is it possible that in 30 years, my manufacturing unit, which manufactures the same product, has not been able to understand on what CENVAT credit should be taken and on what it should not be taken? And how it is that one person comes to my factory for the first time, but is still able to point out what I should not take CENVAT on?

The crux of the matter is that in India laws have always been good. But their interpretation and actual practice in the field has been terrible. It is open to interpretation and discrimination and, hence, open to corruption.

TDB: China and other East Asian economies have successfully experimented with export focused clusters. Why haven’t they taken off in India?

VS: Traditionally, clusters are developed by governments. A government develops the whole infrastructure, gives you a plug and play facility, and asks businesses to bring in the machinery and start manufacturing. In India, however, this doesn’t happen. For example, in Bhiwadi, Rajasthan, some businessmen came together and formed an SPV. They went through the whole learning process and are trying to get land from the Rajasthan government. However, the Rajasthan government looks at them as land buyers and has taken the position of a land seller. It is more concerned about its profitability, deadlines for payment and penalties. So, it has become a land deal and is no longer a cluster deal. Similarly, the Madhya Pradesh government has announced two clusters and Mr. Ravi Shankar Prasad, Minister of Communications and Information Technology, GoI, has already inaugurated them. But even there, although the government is sitting on the land, nothing has happened in the last six months.

TDB: Given the rising popularity of LED, what is the government doing to promote its manufacturing in India?

VS: India has only one strength in LEDs – demand. This demand is also because of the government, which procures almost 80-90% of the LEDs sold in India. This government demand has forced the industry to build capacity, become more efficient and drop prices. But we must remember that this capacity is only for assembling piece parts and components. So, in some ways, we have an artificial demand and an artificial supply. As a businessman in this field, I can tell you that this artificial capacity is of sub-standard quality. Since most of the components are being imported from China, we are yet to understand even the circuits and whether or not they will perform in Indian conditions.

In the case of CFLs, the learning took six years. But if you reduce the learning curve from six years to six months, as has happened in the case of LEDs, there are going to be problems. I am happy that the government has created a demand, but I am not happy the way it has done this. In the first few government tenders, all the LEDs came from China. Now, the government wants the industry to manufacture in India. But what do we mean by manufacturing? Which government department is going to ensure that the LEDs were made in India and not imported from China and stamped in India? The intentions of the government to ‘Make in India’ is very good. Unfortunately things are not moving as intended.

 

 

TDB: Have you apprised the government of all these concerns?

VS: There are several forums and the government is listening to us, but the problem is the way budgets are made. Before the budget, Secretary, MCIT, had listed three slides of recommendations to Ministry of Finance, in the presence of the Honourable Prime Minister, regarding the electronics hardware sector. How many of these recommendations actually found a place in the budget? I think only one or two items that had been recommended have found mention in the budget. If you are not going to listen to your own secretaries, why would you listen to us? Similarly, none of what was recommended to help boost exports in our sector have found favour in Ministry of Finance. This is because it is looking at everything only from the perspective of revenue. It’s almost as if my company is being run by my finance manager! If the finance person takes all decisions, why is there a CEO? Who will decide what products to make, which markets to go to, which exhibitions to attend and what kind of people to recruit? If everything has to be decided by the finance manager, god save my company and my country.

TDB: Since GST will come into force from FY2016, what impact do you think it will have on your industry?

VS: GST will definitely help. It is a very good thing as it unifies the country. The question, though, is what rate you want us to pay. If what I believe is true, the rumour being 22%, it’s going to be terrible, at least for the first year. If it is in the region of 17-18%, we will be much better off. If you can really get the whole industry into the value chain 18% is a good figure, since in China it is 17%.

A lot of small players, especially in the services sector, are not used to paying 22% tax, and as a consumer, I too am not used to paying the same. So, I don’t think people will stick to the books. In my opinion, 22% is not going to work. It will disrupt the whole value chain.

 

Industry: Business Services