Promotion of Domestic Manufacturing is Key for Future Growth

Dr Alok Bharadwaj July 23, 2012
Promotion of Domestic Manufacturing is Key for Future Growth
The Indian IT industry will have to re channelize their energy to overcome as many obstacles it is still poised for future challenges as well.

The IT industry in India has been advancing rapidly over the years. It has seen a huge boom in terms of revenue as well as employment generation becoming one of the dominant players in global arena. But the current economic slowdown is taking a toll on India as well affecting the decision-making concerned with technology spends. However, investment has gone down and the Indian IT industry will have to re channelize their energy to overcome as many obstacles it is still poised for future challenges as well.

The current fiscal problems and fluctuating international markets have given many sleepless nights to the Indian IT / hardware industry. By end June, Indian Rupee breached the Rs. 56 per dollar mark – an all-time low against dollar. This is 12% devaluation in 90 days and 25% in one year. This kind of change has a huge impact on business and this bleeding of the industry on account of such exchange rate risks, dries up the investments. Indian hardware industry has 85% import content. The only positive impact is on the IT software and services because of robust IT & ITeS business but the loss is more to the economy than the gains. 

IT hardware industry has already proven to be the backbone of nation’s growth as it is critical enabler in enhancing inclusion, reach, productivity & speed in all kinds of economic activities. It is particularly most relevant to all Government projects and programs like those of Education, e-Governance, Healthcare, Financial Inclusion, etc, as more and more use of technology is being adopted. Every nation considers IT as integral to their success which has made this industry worldwide as one of the fastest growing in the world. World Bank’s reports state that 10% increase in computer and broadband penetration increases GDP by 1.38%. This is particularly relevant to emerging economies like India. 

It is also noteworthy to mention that as per the estimates of Ministry of IT & Communications, the demand for IT hardware & Electronics is expected to touch $400 billion by 2020 in India. With the current rate of domestic production, a very significant $320 billion worth of IT Hardware & electronics will be imported to cater to this need in 2020. Electronics imports may thus, exceed oil imports and add drastically to the deteriorating fiscal deficit. Hence promotion of domestic manufacturing is key for future growth. This is possible only with high scale of investments and as a nation we have to make such propositions attractive.

The current size of Indian IT Hardware industry is estimated to be Rs 70,000 crore. The industry suffered enormously in the year 2011-12 due to supply line disruptions caused by Japanese Tsunami and Thailand floods which increased the prices of key components. Constantly increasing prices are not possible due to several reasons. Almost 50% of IT Hardware in India is consumed by the Government in the operations as well as in various projects and programs. These contracts are time bound and locked on prices currently. Even for commercial & consumer segments, overall economic slowdown has prompted slow expansion and consumption which is impacting topline anyways. The MRP based duty structure is also an impediment in rapid price increases. The abatements for laptops and peripherals like printers and scanners is just 20% & insufficient to cover higher costs.

If Indian IT industry successfully overcomes these barriers then, undeniably, it would become one of the most robust industries world-wide.