Electronics Industry Set for Investment as Part of “Make in India” Campaign

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Op-Ed Commentary: Kangkyu Lee

Indian leaders are hard at work establishing cordial business relations and foreign investment-agreements to further Prime Minister Narendra Modi’s new “Make in India” campaign. As part of the campaign, and in order to expedite India’s transition to a high-tech, developed economy, Communications and Information Technology Minister Ravi Shankar Prasad is championing plans to create a “Digital India.”

Last week, Prasad addressed German electronics juggernauts Zentralverband Elektrotechnik- und Elektronikindustrie (ZVEI) in a personal visit to inaugurate Modi’s “Make in India” policy. These initiatives are part of a new wave of government policies aimed at encouraging foreign electronics and high-tech companies to invest and establish new branches in India.

India’s population is the second largest in the world, and resources are necessary to sustain its growth. Domestic use of energy and electronic products has dramatically increased, and electricity consumption has accordingly soared to be the sixth highest in the world. However, there are numerous concerns about economic and environmental sustainability without widespread webs of high-tech infrastructure and government safety nets. There are both auspicious and malevolent facets to such demanding growth, but the positives overwhelmingly outweigh the negatives.

Electricity consumption

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“Make in India” provides a medley of manufacturing and technology-based incentives to well-regarded electronics companies to increase the speed and skill of India’s electronic infrastructure – the biggest of catalysts being a 100 percent foreign direct investment rate. Prasad’s Indian delegation has met with a plethora of companies in Frankfurt including Siemens AG, Merck KgaA, ABB AG, Nokia, DKE/VDE, TUV, Heinen & Löwenstein and Bosch. Many of these meetings were productive and Prasad is optimistic for future prospects.

Prasad did not let the momentum stop there, however. When urged by company representatives at the India Business Forum, he promised new research and development (R&D) sectors, as well as the creation of new electronic manufacturing clusters in India with the help of foreign investors. Prasad wooed entrepreneurs and businessmen to set up camp in India in lieu of the dreamlike conditions for foreign investment.

While “Make in India” appears set for economic success, it is important to analyze the circumstances that led to such a drastic change in policy. “Make in India” has is in part been formulated in response to India’s ever-increasing electronics imports. The numbers are certainly telling: India’s imported electronic items are annually worth $100 billion, and are projected to escalate to $400 billion by 2020. This is problematic because import duties on electronics would far surpass the duty on fuel by that year. Consequently, Modi and his economic ministers made the pragmatic decision to coax and motivate foreign investment. This way India’s economy is bulwarked by establishing domestic manufacturing facilities, and this will see a salient decrease on electronics import duties.

Although Modi’s long-term ambitions in making India a “digital power” may be realized sooner rather than later, there are still other issues to address. With India homing in as the third largest overall energy consumer in the world, commercial and environmental concerns could still persist.

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If Modi is truly concerned about making India a “digital power”, he should also focus on sustaining India’s infrastructure from an environmental perspective. With an ample amount of cooperation and smart-play, India can become a global archetype for fighting climate change. Modi and Prasad will release the full details of their “Make in India” campaign on September 25th, 2014, and will also make a full-fledged visit to Silicon Valley. During this visit, it is essential to strike a chord on the U.S.-India energy relationship.

FDI electronics

As two of the largest global pollutants, India and the U.S. already recognize their responsibilities in fighting climate change. However, gridlocks in both domestic governments have not amounted to much more than a weak pledge to reduce carbon intensity by 2020. With Modi’s campaign, there is opportunity for cooperation over R&D. As mentioned earlier, the “Make in India” initiative will inevitably increase domestic electronics production and energy supply, but without the proper infrastructure in place, transitioning will be cumbersome. For example, instead of using the traditional power grid where supply has to match volatile demand, India should cooperate with the U.S. to construct future grids that can mitigate and demand according to supply of alternative energy.

The prerequisites necessary to establish a stalwart collaboration between the U.S. and India will be met if “Make in India” succeeds. The inclusion of fundamental and supplementary players interested in innovation, research and commercialization are all brought to the table to invest in India. Entrepreneurs, universities, private research institutions and non-governmental organizations (NGOs) may also be included to help diversify the energy spectrum. In other words, business as usual simply won’t work – India can optimize aspects of its energy industry by encouraging cooperation with the U.S. to compound Modi’s “Make in India” undertaking.

India aims to become as competitive in the electronics industry as South Korea and Japan, and has untapped potential in becoming a role model nation that can utilize alternative energy. Should “Make in India” become a successful venture, cooperation with the U.S. will only become easier. Foreign investors would benefit tremendously, as their capital would gradually be converted to lay the foundations for high-tech and sustainable energy. Globally, their companies would be sought out for ideologies, blueprints and agreements.

India’s electronics economy will stabilize despite increasing energy consumption, with import duties on electronic goods being naturally cut. High-tech products like smartphones, SIM cards, LED and components of defense equipment will only constitute a small menu of India’s full potential. As the rupee becomes healthier, India will play a cardinal role in fighting climate change with economic powerhouses continually funneling money into its energy and electronics industries. It is therefore in investors’ highest interest to pay close attention to “Make in India.”

Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email india@dezshira.com or visit www.dezshira.com.

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