First came the desktop, then followed the laptop, the tablet came after, and then smartphones that now rule our world — the timeline of computing devices is very clear.
But in manufacturing (or assembling) these devices, in India, smartphone manufacturers clearly started early and built more scale than the other three. In fact, more than 70% of desktops, laptops and tablets sold in India are imported.
A growing local market for hardware devices, concerns over the security of imported hardware, and an accelerated push towards electronics manufacturing made the government put curbs on imports earlier this year which will come into effect from November 1, 2023.
Companies will have to take licences to import devices. Or ramp up manufacturing in India, a USD10 billion IT hardware market, with sales of around 20 million units annually. The market is attractive and growing, but clearly this step by the government came as a surprise for all including Lenovo, HP, Dell, Acer, Apple and Asus among others.
Lobbying for status-quo
Major global IT and electronics manufacturing companies such as Apple, Intel, Google, Dell Technologies, HP, and others have called on the US government to “use every available forum” to push India to reconsider implementing the import restriction policy on IT hardware and launch a formal stakeholder consultation to solicit recommendations from the industry.
Even as they lobby, few of them including HP and Dell are among 40 applicants for the INR17,000 crore IT hardware PLI 2.0 scheme, which seeks to incentivise local manufacturing of computing devices and components.
While companies are willing to expand manufacturing they cite India’s lack of components ecosystem with no local semiconductor units; poor supply chains and expensive logistics, as hurdles to the make-in-India plan. “Ground up manufacturing with local sourcing of parts might take another two years as suppliers set up base in India. Till then it will largely be assembly-line operations,’’ says a spokesperson of one of the top five manufacturers on condition of anonymity.
In mid-August, eight US-based trade bodies, including Consumer Technology Association, Information Technology Industry Council, Semiconductor Industry Association and United States Council for International Business, asked the US Trade Representative and the US Secretary of Commerce to “use every available forum of engagement with the government of India to ensure that its measures in the ICT sector are consistent with India’s international trade obligations and commitments”.
On August 31, in a petition to the IT secretary, the Indian Cellular and Electronics Association said: “It is critical that we ensure an uninterrupted supply for at least a year and till such time, we can build up domestic capacity.” It will take that much time to build local capabilities in components and supply chains.
India missed the hardware bus as the local market was small. Domestic companies including Wipro and HCL — which were making hardware products — could not compete with cheaper imports.
India is part of the Information Technology Agreement (ITA-1) which puts zero tariffs on the import of notebooks and hardware. India joined ITA-1 in 1997 when the domestic market was insignificant. But now things are different, with a much larger market, which is dependent on imported IT hardware.
Satya Gupta, co-founder and CEO, EPIC Foundation (that aims to revive local electronics manufacturing) says, “It’s a natural reaction to lobby. It’s a negotiation phase where both parties are trying to reach a consensus. But it will be mostly assembly and not design-led manufacturing, at least in the short term.”
In their meetings with the government, global IT hardware companies have sought an extension of 9 to 12 months of the deadline for licences required for the import of IT hardware.
“This policy (of import restrictions) — announced with no prior notice or public consultation — could significantly disrupt trade, hamper efforts to more closely integrate India into global supply chains, and harm businesses and consumers in both countries,” the trade associations said in their letter.
Big, but not a multi-device market
While companies are more open to expanding their presence in India via manufacturing they are wary of licences. While the government is ensuring quick approvals for licences to import devices, industry sees delays and disruption in their business. “It was a sudden, knee-jerk move. Also, it's not clear whether shipments in every port will need a licence. That will only lead to more delays,” says the spokesperson quoted earlier.
Also, while the Indian market is growing it is not a multi-device country. Like in developed economies, a single person owns a laptop, tablet and smartphone. In India, less than 20 million laptops, tablets and desktops are sold a year, compared to 150 million smartphones.
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So, most of those who have a smartphone, are not buying laptops or tablets, limiting the headroom for the market to grow. This, in turn, limits the ability of component makers to aggregate demand and derive economies of scale.
With the limitations that India has, locally made IT hardware will be between INR2,000 to INR4,000 dearer than imported devices.
Also, while brands will scale up from the standard specification products they are assembling in India for enterprise use to mass-market consumer devices, premium products like Apple Macbooks, Microsoft Surface and devices upwards of INR70,000 will take longer to make.
That’s because limited volumes may not make it economical to make these in India. The premium device segment is less than 15% of the total market at present.
As production expands and shifts from the assembly of imported kits to actual manufacturing, all segments of devices will be made locally. PLI 2.0 for hardware will create the much-needed components ecosystem. The government has received a strong response to the IT hardware PLI 2.0 scheme with 40 companies both global and local having submitted their proposals.
Companies like memory chip maker Micron Technologies are investing USD2.7 billion (with centre and state governments also contributing) to set up units in India and will start shipping products from its local unit in Gujarat by the end of 2024. This will be a major boost for the local manufacturing ecosystem.
Though there could be short-term disruptions. At present, multinationals see India’s steps to curb free imports as trade-restrictive measures in a market that lacks local production capabilities.
On the other hand, India sees local manufacturing creating jobs, the components ecosystem, saving forex and eventually making India a base for the local market and exports.
Eventually, in a few years, when component manufacturing takes off and supply chain issues are ironed out, it will be a win-win for all sides.
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