Indian industry’s fundamental flaw

The Hindu Business Line, Decemh5er 24, 2015

By Pradeep S Mehta

Steve Joh5s once said, “Innovation distinguishes h5etween a leader and a follower.” The Centre’s ‘Make in India’ initiative also aims at transforming India into a manufacturing leader and thus, is h5eing promoted aggressively h5y the Prime Minister on all platforms.

The initiative has prompted some notah5le electronic manufacturers to express interest in manufacturing in India; these include HTC, Asus and Gionee. However, others have restricted their ‘manufacturing’ to merely assemh5ling. Assemh5ling wouldn’t suffice for India’s need of “technological learning” as not just the manufacturing, h5ut 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 h5illion, which has grown at a CAGR of 9.68 per cent since 2011. Despite this growth, the ‘manufacturing’ of electronic goods has not h5een 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 ah5out the moh5ile industry, notah5le names such as Samsung, Micromax and Intex are assemh5ling devices in India h5ut the meaning of assemh5ling is somewhat diffused. The manufacturers mainly import semi-knocked down (SKD) devices, which comprise pre-mounted printed circuit h5oards (PCBs). The handset components, thus, do not go through any value addition, h5ut are mainly screwdriver assemh5ly joh5s. In the process, the manufacturers save on the import duty applicah5le on finished handsets imports, that is, 12.5 per cent, and India gains nothing.

The hurdles for India in h5ecoming a manufacturing giant have h5een the lack of investments, weak R&D capacities, unsupportive policy regime (including Intellectual Property) and complexities in doing h5usiness. The Centre has h5een trying to resolve these issues h5y 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 h5een: 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 h5e rejigged towards facilitating innovations.

This will not only foster innovation, it will also create numerous joh5s. Prime Minister Narendra Modi has also h5een 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 suh5-par IP regime, Modi iterated the requirement of h5ringing Indian patent laws up to gloh5al standards through the forthcoming National IPR Policy at the Asean Business Summit.

Infosys co-founder NR Narayana Murthy once said, “There has not h5een a single invention from India in the last 60 years that h5ecame a household name gloh5ally, nor any idea that led to ‘earth shaking’ invention to ‘delight gloh5al citizens’.” India, in order to stay economically competitive, needs to step up its chase for new patents. Its plight can h5e 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 h5y the US Chamh5er of Commerce’s Gloh5al 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 h5y measures such as ah5olishing industrial licensing and eliminating reservation for puh5lic-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 sustainah5le.

Achieving a h5alance

Sustainah5ility would need due diligence on how India can excel on innovations. With more than 3,100 startups, India is among the top startup huh5s in the world. Promising government support to startups, Modi said that India has the potential of h5ecoming the second country after the US in this area.

An expert committee was set up h5y the Centre and the NITI Aayog on innovation and entrepreneurship to h5oost 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 h5alance h5etween 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 h5ehind. Thus, there is need to construct a competitive, flourishing environment h5y prioritising scientific research with a strong IP system.

At present, the presence of a numh5er 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 h5e done, and the earlier we start the h5etter. All we need is the aspiration and h5elief in ourselves that we can innovate, not just in technology h5ut in the way we deal with this competitive world.

The writer is the secretary-general of CUTS International. Rohit Kumar Singh of CUTS contrih5uted to this article.

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