Nitin Kunkolienker: Time has come for Indians to look beyond China

In this interview with Rakesh Rao, Nitin Kunkolienker, President, MAIT, explains how combining scale with design-centric approach can open up a lot of opportunities for India in electronics manufacturing.
Nitin Kunkolienker: Time has come for Indians to look beyond China To reduce imports and make India a manufacturing powerhouse in electronics and information and communications technology (ICT) products, the Government of India has come out with Production Linked Incentive (PLI) scheme. After India-China border conflict last year, many Indian electronic goods manufacturers have raised the issue of delay in supply of components and parts from China hurting their businesses. According to Nitin Kunkolienker, President, MAIT (Manufacturers' Association for Information Technology), which is the apex body representing India’s electronics and ICT sector, putting hurdles in raw material sourcing by China presents a chance for India to create an alternate supply chain network. In this interview with Rakesh Rao, Nitin Kunkolienker explains how combining scale with design-centric approach can open up a lot of opportunities for India in electronics manufacturing.

What are your priorities for MAIT at present?
When I took over as MAIT President, I had set 3 priorities - i.e. Make in India, ease of doing business, and demand aggregation. These three inter-related priorities are important for the growth of the industry, which contributes to other big changes in the economy. We have been pursuing with the government with our demands and to a large extent the government has been responsive to our considerations. Earlier, the government was giving duty protection schemes like higher tariff, duty arbitrage, etc. However, this government came out with a radically different approach with Production Linked Incentive (PLI) scheme for mobile industry (for which MAIT worked closely with the government). PLI is the first scheme that talks about scale and exports led growth.

When this policy was about to be launched, Covid 19 pandemic started. Demand for smart phone and gadgets started increasing as education, offices (working from home), etc moved online and healthcare sector needed sophisticated IT devices. This caused disruption in the supply chain. When the industry resumed plant operations after the first nationwide lockdown, India-China board issue erupted, which again affected supply chain severely.

While demand was picking up, supply side issues were still there. At present, the industry is working towards making business processes smooth. The government has also extended the PLI schemes to other segments in electronics (telecom products, networking devices, medical electronics, IT hardware, etc) and other sectors. Our endeavour this year would be to make these schemes very successful and prove to the world that India can be a good destination for producing electronic goods. India has the potential to become a manufacturing hub in the next five years.

Why is creating an electronic hardware design ecosystem important for India?
. One needs to understand that with the advent of Industry 4.0, there is hardly any scope in assembly led growth. India can become economic powerhouse, if manufacturing sector grows. Electronic industry has the potential to propel growth of manufacturing sector manifold because of its multiplier effect on other sectors and the economy.

The import of electronics is now second in the import basket, after oil. If the trend continues, electronics can surpass oil imports in the future.

We have been lobbying with the government to have a robust Electronics System Design and Manufacturing (ESDM) sector. India has to play a volume game for giving a push to ESDM sector and that will only happen by export-led growth. For exports to increase, India also needs strong logistics infrastructure which includes shipping line, ports, port connectivity with manufacturing hubs in the country, etc. We are not a strong player as of now. If we still want to make our exports competitive, then only design-led manufacturing can give India a good name in the global electronic market. There are lots of emerging technologies and products that need design ecosystem. India has the potential as we have IT-centric brains that has helped the country to become a global software hub. We must capitalise on electronic hardware design and I am happy to say that some of the top multinationals have started taking interest in creating design ecosystem in the country. For example, one of the leading global majors is talking about starting 1000 IT hardware start-ups in India.

Hardware ecosystem is in the nascent stage. PLI scheme can give scale to hardware manufacturing and if you club it with a design-centric approach then it will give us lot of opportunities for manufacturing electronic products. As supply chains for those products start moving from other regions to India or new supplier base starts building in the country, it will give a big boost to electronic hardware ecosystem. If this happens, then India can be a global leader in designing electronic component, PCBs, semiconductor chips, etc.

Existing local demand coupled with exports can change the prospects of some of the sectors. PLI scheme has come out at an appropriate time. It will create a good demand for electronic hardware ecosystem and many more players will come and support with enough funds being available. Future of electronics engineers in India is very bright.

How we can develop ecosystem for electronic component manufacturing?
From 2000 to 2012, India went for inverted duty regime which affected the growth of manufacturing sector. This encouraged imports of finished products instead of manufacturing them in the country impacting the component supplier base in India. We moved regressively away from component production, while other players like Taiwan took advantage of the situation by adopting progressive policies and took a good led in component manufacturing. To succeed in component game, one needs economies of scale and PLI scheme is offering this.

Two things are in our advantage today - first, the changed global trade order and PLI scheme. Covid 19 pandemic has made big companies realise the need to have an alternative supply source to China. As they adopt for China Plus One strategy, India - along with other countries - stands to gain as these companies would like their supplies also to move to new destination. This presents an opportunity for Indian component suppliers to tie-up with big companies to fulfil their needs.

In India, finance cost is high compared to China. Electronic component manufacturing is capital intensive, while in assembly industry, capital investment is very low. Hence, government must extend financial support to the component industry to meet its capex as well as opex requirements.

PLI - the demand aggregation policy - will help you to consolidate demand. It will work wonders, if there is a right collaboration between the Centre and the States.

The government should also push for “source from India” policy. We have been requesting the government to have component hub/s in the country which can increase the manufacturing efficiency.

Chip shortage globally is affecting the production of electronic devices and parts. How is India coping with the situation?
There are three reasons for the shortage - rising global chip demand; disruption in supply chain due to pandemic, and changed political order. When India came out with PLI, one could see that China was not giving components with ease and Indian manufacturers were facing difficulties in procuring components. China’s policy has been to encourage finished goods exports and controlling the component supply chain. In past, India’s duty arbitrage policy encouraged companies to import semi knocked down/completely knocked down (CKD/SKD) unit, which benefited China. Now, the Government of India is more alert to the situation. This China does not like and, hence, is creating hurdles in component supply for manufacturers in India. Time has come for Indians to look beyond China and tie up with suppliers in other countries.

Is rising material prices a cause of concern? Has MAIT raised this with the government?
Lot of contracts were signed based on the raw material prices prevailing at the time of getting the order. Shortage coupled with rising prices was a major concern and, some believe it is being done deliberately from the supply chain side. Couple of months back the Ministry Of Commerce, GoI, had raised this issue with China.

If China is putting hurdles in raw material sourcing, then it is a big opportunity for India to create an alternate supply chain network.

What are emerging trends?
Post pandemic there will be a new global order. Healthcare, biomedical and education will have major impact on electronics market. Automobiles along with emerging electric vehicles will be big demand drivers. Storage power and renewable sector is another area which will see rise in usage of electronics. All sectors are undergoing drastic change generating big demand and ICT will be the game changer for India.

What is the outlook for the ICT & electronics hardware industry in India?
If hardware design ecosystem catches up well, India can lead the world in electronics very soon. Legacy electronic products we need not bother, but in emerging electronic products, we must aim to become a global leader. I think that’s where India is heading to and the world is looking at India. We need to ensure our academic system is tuned to develop this industry. Research oriented education in electronics should be the focus in universities.

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