Business Economic & Services Team (BEST)
Many More to Follow Xiaomi Trail in Telecom
Many More to Follow Xiaomi Trail in Telecom
For the growing tribe of Indian mobile telephone users, lovers and connoisseurs, the news about Xiaomi's, China's largest mobile phone manufacturer proposing to set up a manufacturing base in India, will be a welcome news. So also for the government, which is embarking on a massive Make in India campaign to give a leg up to the manufacturing sector in India. This blogger also a few days back in one of the columns mentioned about the need for for making India a prime destination for manufacturing electronics and components items. The column argued that the inverted indirect tax structure of the country, where the customs duty chargeable on imported items are heavily skewed for certain items in electronics on account of the higher duty on raw materials and components and lesser duty on finished products, which led to heavy import of finished electronics goods into the country. That also led to a growth without adeqate employment in the country.
According to reports emanating from certain quarters, the world-wide trade in electronics goods will swell to close to US$ 2.2 trillion by 2014-15 and the components alone will account for US$ 547 billion for the same period. This is a huge market and perhaps, it is a trade volume hitting close to the trade turnover of oil, which many predict that will surpass in the coming years. India, it is estimated that by 2020, will have to import close to US$ 300 billion worth of electronics goods into the country to met the burgeoning domestic demand, which is estimated at US$ 400 billion. The domestic production that time around will be only US$ 100 billion. That means our import bill will be huge even surpassing the oil import bill.
Earlier to Xiaomi, which has become a hotly chased mobile phone on account of its embedded multiple operations and sleek look has already became a new found fad. Its exclusive marketing tie up with e-commerce companies has made the distribution cheaper and the prices, therefore, are competitive. Many believe that the setting up of local manufacturing base will help the company to reduce the prices further to upstage other predominant smart phone manufacturers in the country.
In the euphoria, that has been lapped up by many one should not lose sight on few issues that merrit close attention by the government. One is about the realization that our earlier campaign to attract the world telcom majors into the country fell flat. SriPermbudar in Chennai was floated as an exclusive zone for manufacturing electronic goods. many telecom giants had set up their bases including Nokia. Most of them have wound up their operations or in the process of it. One has to study very carefully the reasons for such large scale closure.
Two, India should not become a dumping ground for e-waste. Telecom manufacturing will lead to a lot of e-wastes and some of the developed nations resistance to go for large scale production is emanating from that reason. We have to have proper system in place for treating the e-waste, without leading to any healht hazards.
Third, the giants which are manufacturing telecom devices should be encouraged to source their raw materials and intermediate goods from India. Prior to 1997, we had a burgeoning electronic and telecom components industry. They bit the dust when India had become a signatory of the International Telecom Agreement, wherein the customs duty of most of the products were brought to zero. Even now there is pressure from major countries to preempt India from imposing customs duty on the products that were innovated after the cut-off date of 1997. The recent stand taken by some of the major telecom operators in India against the import duty on telecom gear is a case in point.
Fourth, for mass level production of electronic goods, India should set up hardware parks, where there should be facilities for manpower training, uninterrupted supply of power, facilities for dumping e-waste without creating health hazards, workers' hostels etc. More such facilities should be set up in SEZs, where the CAG recently came out with a data that they caused huge losses to the government on account of tax diversions. It is a prudent to allow the electronics industry to set up their base in these areas.
Fifth, there should be testing laboratories of high repute and standing set up close to these hardware parks or places where electronics goods are being manufactured since there is a threat perception that the manufacturers may tend to use spyware and malware, as reported widely across the world. Xiaomi is the first Chinese telecom device manufacturing company, which has announced its intention to start manufacturing from Indian base. Some type of checks and balances are important, since anything from Chinese is looked with some suspicion in India.
