[Photo by Alexandre Debiève on Unsplash]
That the electronics industry is of strategic importance for India’s security and development is not new. That understanding has existed since the 1950s. Yet, despite periodic policy push, the electronics industry in India remains lacklustre.
The size of the domestic electronics industry (both end-products and components) was about $47 billion in FY 2017, according to the Electronic Industry Association of India (ELCINA). But, the imports of electronics in FY 2017 was about $86 billion, ELCINA reports. That is almost twice the size of the domestic electronics industry.
Contrast that with the Indian auto industry, where the country has a world-scale domestic auto and auto component industry and a reasonable capability.
Imports in auto components is about 50% of the domestic industry; in auto it is probably less than 10% of domestic industry. (The size of the domestic auto component industry in FY 2017 was about $44 billion, according to the Auto Component Manufacturers Association of India (ACMA). And the size of the Indian auto industry (new vehicles) was about $68 billion in FY 2017, according to the Society of Indian Automobile Manufacturers (SIAM).)
The success of the auto industry can be ascribed in part to government policies that have encouraged domestic manufacturing.
So why has the domestic electronics industry languished, in spite of policies that ostensibly wanted a strong domestic industry?
An overview of the government’s policies on electronics over the years provides some insights.
Recognising a strategic need
India’s growing ambitions in harnessing nuclear energy from the late 1950s and the war with China in 1962 reiterated the strategic importance of electronics to India’s security and development. In the 1960s, a committee on electronics was set up under the leadership of Homi J Bhabha. The committee’s report reiterated the importance of electronics and need for a strong domestic electronics component base for both strategic and economic reasons. Given India’s policy of self-reliance in that era, the focus was on developing an indigenous electronics components and products industry.
This policy was carried forward when the Department of Electronics (DoE) was set up by the government in 1970. Given the prevailing geo-political context and the fact that the leadership of these specialist organisations came from India’s government-controlled nuclear science and defence organisations, the policies through the 1970s were firmly rooted in import substitution, forex conservation and license-raj.
The demand projections made by the government were taken as the basis for volume licences. The DoE also allocated certain components for the small and medium sector based on what they believed was the technology sophistication required for their manufacture.
Like in other industry segments, duties were kept high to discourage imports of electronics components.
The research on electronics was focused on the elite research universities, labs and public sector companies established to serve the strategic sectors rather than translate into consumer electronics products.
This was in antithesis to the global electronics industry of that era where the focus was on technology innovation, which translated to shorter technology and product life cycles, and manufacturing at scale. At a time when novice companies like Samsung Electronics were making strides in ramping up manufacturing and transforming to a global consumer electronics company, Indian electronics companies were fighting for survival.
The 1980s saw successive policies that reduced import duties on electronics components and end-products. The government realised that indigenous production was not keeping up with the demand for electronics and this was an acknowledgement that electronics is a fundamental technology in multiple user domains—from entertainment to healthcare and information technology.
This easing of restrictions in electronics and other sectors culminated in the liberalisation of the Indian economy in 1991 when license-raj was finally removed.
Yet, Indian companies took a shot at electronics
The policy environment did not prevent Indian companies from taking a shot at electronics. In fact, India’s two well-known IT services companies today, HCL and Wipro, started as electronic calculator and computer manufacturer, and computer manufacturer, respectively.
It was getting increasingly difficult for domestic players in the computer industry to compete against the price of imported products even if they had a good product. Their pivot in the late 1980s and early 1990s to focus on IT services export is an indictment of the unattractiveness of the domestic electronics industry.
The resilience of Indians in operating in this tough industry domain is exemplified in the stories of those who, against all odds, tried hard to lift Indian electronics to the next level. Their stories throw light on the capabilities required for success in the electronics industry in India.
Let us look at two such stories. The first story is TVS Electronics that showed electronics product management and manufacturing in India and for India was possible. The second story is the Simputer experiment. If this had succeeded, it would have provided a springboard for India in the design and manufacturing of hand-held devices, which eventually evolved into smartphones.
Gopal Srinivasan founded TVS Electronics as a startup in the mid-1980s. It was funded by his illustrious family who belonged to the TVS Group, known for their auto components, logistics, and financial services business. The business case was based on a simple premise. The market for computer peripherals and components would grow in India along with adoption of PC clones which were becoming more affordable. The TVS Group understood this type of an “ancillary” business thanks to their presence in the auto components industry.
TVS Electronics signed a collaboration with Citizen of Japan for technology to manufacture dot matrix printers. The reason why dot matrix printer is an electronics product is because there’s an electronic logic board at its heart that controls the operations of the printer. It consists of a central processing unit, memory units, driver units, and connectors. Gopal leveraged his professional relationships in HMT—which already had a technical collaboration with Citizen for watches—to get an introduction with Citizen.
TVS Electronics in this era also benefited from a flow of talent from the Indian public sector companies like BEL and HAL. This shows the importance of boundary spanning and leveraging professional networks. Like in many other industries, electronics technology was concentrated with a few global players and it was important for Indian companies to get the right technology partners.
In the 1990s, TVS Electronics introduced a designed in, designed for and made in India Maha series dot matrix printers. Their product design and product management took into account uniquely Indian use contexts. For example, Indians had a tendency to hold on to the rotating knob that moved the paper when the printer was in operation. This would often lead to the knob getting detached. So, the knob had to withstand that. The Maha series had a system that ensured smooth operation in the dusty environments of India, and would work under a wide range of voltage from 90 volts to 300 volts that was common in India in that era. Needless to add, the TVS printers were preferred over MNC models. Many of us in college during the 1990s will remember getting our projects typed in the college lab or the local desktop publishing shops. Most often they were typed on a TVS keyboard and printed with a TVS dot matrix printer connected to a PC clone.
TVS Electronics entered contract manufacturing in the late 1990s. They made set top boxes for Indian Direct to Home (DTH) companies. Some of us will fondly remember the PCOs (Public Call Offices) of this era where one could make a telephone call. TVS Electronics contract manufactured one of the snazziest PCO instruments, the Zip Fone, that had an LCD screen display that showed call details and an advertisement. It was also an instrument where the customer could pay with a smart card.
The Indian electronics market in the 1990s was a hard macro-environment where global scale of manufacturing effects ruled. In an interview with itihaasa Gopal mentioned, “The volatility of pricing, that you see in any (electronics) product is not because of a rational decision at every individual sale that takes place. It is a macro (phenomenon) where somebody produces two million of something (electronics product) and there is half a million left. The incentive to dispose of the half million impacts price movements on products across the world. And you are at the receiving end of it when it is coming as zero percent duty! In other words, the prices of imported products would vary based upon the demand-supply position elsewhere… And that’s the time we started taking a more conscious call on what we wanted to do.”
TVS Electronics started a new division to focus on aftermarket services and provide warranty services to the electronics products that were being imported into India. They are still one of the leaders in the Indian dot matrix market but have completely exited the contract manufacturing business. Not surprisingly, there are no domestic players in the leader-board for inkjet printers—the largest printer sub-segment.
Now let us look at the Simputer experiment on which I had written a more detailed essay a few years back in Founding Fuel.
Apple launched the iPhone in 2007 with a 3-axis accelerometer—the first time an accelerometer was incorporated in a phone. One of the basic applications of accelerometers in smartphones is that the screen is always displayed upright, whichever way you turn the phone. The accelerometer is now standard in smartphones. Not many know that the Simputer, an Indian handheld for the bottom of the pyramid semi-literate Indian, had an accelerometer in 2004. Not only that, it also had a handwritten annotation feature that was later popularised by the Samsung Galaxy Note launched in 2011. The Simputer’s hardware and software was designed by a faculty team from IISc that included Vijay Chandru, V Vinay, Swami Manohar and Ramesh Hariharan. The Simputer’s nemesis was production.
While the Simputer team had a commercial partner, things did not work out well between them and they split ways. Subsequently, a hardware manufacturing partner from the public sector was identified. The first run for the Simputer by a public sector manufacturing partner was fixed at 10,000 units, and the inventory was bought from global suppliers. The manufacturing partner did not budget for design iterations before finishing the first run. Being a public sector enterprise, the partner was bound by a cautious approach which placed financial prudence as paramount. Cost plus pricing was the norm, and planned losses in the first lot as a strategy to drive adoption was not an option at all. Even though solutions were identified for known hardware issues, any iterations to modify the hardware design was possible only after the first run.
Marketing and product management was another challenge. While the executives of the manufacturing partner shared the Simputer team’s vision of targeting the bottom of the pyramid, this did not percolate to the mid-level managers. They nudged the Simputer team to make changes in the design specs to target the urban customer as well. This meant adding features like a JavaScript-enabled internet browser, email client, and MS Word and MS Excel compatible viewers.
The internet browser had limited support for JavaScript, and users found it difficult to login to sites that used JavaScript. All these features had to be included on a platform that was meant for the bottom of the pyramid and was priced at about Rs 10,000 with a monochrome display. With all these features built into the Simputer, the performance was possibly not up to the mark for an urban customer.
The government was perhaps the perfect large order customer for the original Simputer. Though the Indian government liberally used Simputer in its advertising, there was little real commercial support in terms of an order. A funding of about $11 million would have possibly seen the Simputer project through. This could have come in the form of a large order—for instance, 50,000 devices for use in e-governance programmes. The order would have been sufficient to prime the supply chain, and help the Simputer survive the initial years. Venture capital was not prevalent or was very nascent in India in the early 2000s. Simputer remained an interesting experiment and a pilot of what could be achieved in India.
Dreams of atmanirbhar require policy support plus capability
Nurturing a strong domestic electronics industry requires a tango of both government policies and strong capabilities. Today, India still imports more than $50 billion of electronics products—which is equal to about 10% of our foreign exchange reserves. Indian electronics exports constitute about 1% market share in the global market. If we aim to become atmanirbhar and globally competitive in electronics, it is imperative that we nurture a domestic electronics industry.
The government is focused on jump-starting domestic manufacturing given that electronics constitutes India’s second largest forex outflow bucket and the recent geo-political tensions that is making us relook at imports. NITI Aayog came up with a policy paper where it discussed a national strategy for electronics. MeiTY’s Production Linked Incentive Scheme (PLI) for large scale electronics, Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS), and the Modified Electronics Clusters (EMC 2.0) scheme have seen some impressive wins. State governments like Karnataka have also come up with policies that offer incentives for electronics system and design manufacturing (ESDM) companies and startups. There are indications that we will see more policy interventions in the electronics sector.
The capability challenges
While it is good in the short-term to jump start the domestic electronics industry with MNCs setting up 100% subsidiaries, a national-level capability is built only when Indian companies build a world-class competence in electronics. While government policies are becoming conducive for electronics today, there are fundamental capability issues that can hold-back India from developing a world-class domestic electronics industry. It is important to address the capability challenge to become atmanirbhar and globally competitive in electronics.
1. Engineering education needs to focus on hands-on product capability: Indian engineering education focuses more on a theoretical understanding rather than a hands-on product engineering capability. This is further exemplified by the general Indian psyche that values “white-collar” theoretical work more than hands-on engineering “blue-collar” work. We need more electronics engineers comfortable working on building prototypes rather than just be proficient in using electronic design automation software products. For starters, our engineering education needs to focus of inculcating an “engineering mindset” and elevate the perception of hands-on work in all engineering disciplines. We also need to make engineering more multi-disciplinary. Electronics engineers will need to be exposed to product design and aspects of manufacturing.
2. End-to-end product management capability: India needs to develop end-to-end product management capability for electronics products. We have built world-class product management capability in other industries like consumer packaged goods. There are many examples of Indian talent who have had long stints in India and have taken on significant global roles in consumer packaged goods companies like Unilever. There may be merit in introducing full-time and part-time MBA programmes which have an electronics industry focus to build and groom a cadre of leaders now that many MNCs and Indian companies are ramping up their Indian electronics business. A good example of this approach is IIM Bangalore’s Post Graduate Programme in Software Enterprise Management started in the 1990s. This weekend programme was to nurture a cadre of techno-managers for the fast-growing Indian IT industry in that era. After serving its purpose for over 15 years, this programme repositioned itself into a general-purpose Post Graduate Programme in Enterprise Management in 2014.
3. Lab-to-market ecosystem: India needs a strong ecosystem to translate R&D in electronics into commercially viable products. This includes Indian contract electronics capability at different scales from prototyping and iterating to scale manufacturing. This will need support to access funding, identify contract manufacturing facilities, and help market in India and other markets.
Initiatives like the Gopalakrishnan-Deshpande Centre (GDC) for Innovation and Entrepreneurship helps translate research ideas of Indian faculty into successful business ventures. One of GDC’s stated initiatives is to set up a central prototyping facility. Given that the key sponsors, Gururaj Deshpande and Kris Gopalakrishnan, are successful entrepreneurs in telecom and IT, the GDC is probably ideally suited for operating the national electronics prototyping facility. This will help fast-track translation of research into entrepreneurship in electronics. We hope that the current production-linked incentive (PLI) scheme also includes provisions to provide incentives for electronics contract manufacturers who take on manufacturing of domestic electronics companies.
4. Veterans need to span boundaries: It is critical for entrepreneurs and industry professionals to wear different hats—like working with the government to influence policy and set standards; working with partner universities, R&D organizations and industry; and as incubators in universities.
One name that comes to mind immediately is Prof. Ashok Jhunjhunwala of IIT Madras. Along with Prof. Bhaskar Ramamurthi and Prof. Timothy Gonsalves, he founded the TeNet (Telecom and Networking) Group in IIT Madras in the mid-1990s. The research from TeNet Group spawned startups like Midas Communications that designed a low-cost corDECT Wireless in Local Loop (WLL) communication technology, and Banyan Networks that designed a Digital Subscriber Loop technology.
Prof. Jhunjhunwala was the chief evangelist for the technology and the startups. The corDECT technology was an alternative to the more expensive wireless cellular technologies that existed in that era. Though not a commercial success, coreDECT was research translated into a commercial venture that had limited success. More important, Prof. Jhunjunwala helped to convince Ray Stata, the founder of Analog Devices, a leading speciality chip company, to agree to design and supply the chipsets needed for corDect WLL networks. Prof. Jhunjunwala also helped the startups collect license fees from potential customers.
That was not all, one of the startups from the TeNet group was n-Logue, a telco, that connected a few hundred villages with corDECT in Tamil Nadu and a few other states. Albeit on a much smaller scale, this has some parallel to India’s largest telco, Reliance Jio, announcing its decision to make 5G gear and become self-reliant in core technology. Given the size of the Indian telecom market, it is interesting to note that India is also pushing for appropriate 5G standards for the Indian context. This may also provide an indirect impetus for domestic electronics manufacturing.
5. Leverage the experienced Indian diaspora: It is advantageous to leverage tech transfer collaborations, joint ventures, government support, and the experienced Indian diaspora community to kick-start an electronics venture.
History shows how this has worked.
The most successful diaspora community member to start an electronics company in his home country was Morris Chang. After three decades of experience in US semiconductor companies, Morris was wooed back to Taiwan. He was not only the head of Taiwan’s premier government lab, Industrial Technology Research Institute (ITRI), but also used his global connects to start Taiwan Semiconductor Manufacturing (TSMC) in 1987 with the transfer of technology from an old semiconductor fabrication unit from Philips.
TSMC is today the largest independent semiconductor foundry in the world and played an important role in Taiwan’s rise as an electronics powerhouse. Taiwan’s tryst with its diaspora technocrats predates TSMC. The now famous Hsinchu industrial park was set up in 1980 on the recommendation of the Science and Technology Task Force (STAG) which was a group of largely foreign experts (affectionately called the ‘foreign monks’) who identified potential technology strategies for Taiwan.
The strong social relationships between Taiwanese in the USA and policy makers in Taiwan clearly resulted in a knowledge transfer on how to start an electronics industry in Taiwan. This also included helping Taiwan bet on complementary metal-oxide-semiconductor (CMOS), a newer but soon-to-become the dominant technology that is still used to make most integrated circuits today. In fact, the first semiconductor foundry in Taiwan, United Microelectronics Corporation (UMC), was set up with part government funding in 1980.
Taiwan, smaller in area than Kerala and with a population less than that of Haryana, exported about $116 billion worth of semiconductors and electronics in 2015. In contrast, India’s electronics exports in FY 2015 was about $6 billion, while its IT-BPM (IT and business process management) exports was about $100 billion.
6. Incentives: India needs to provide incentives for lead customers to use indigenous electronics products. This is especially relevant for government departments and other bulk Indian customers. The government has modified its public procurement rules to give preference to “Made in India” suppliers. While the lead customers must provide rigorous quality requirements that fit the use cases where the electronics products will be used, the requirements should not be copied from the product catalogues of imported products. It is important to strengthen the electronics domain knowledge in organisations like the Bureau of Indian Standards (BIS) to ensure that they are aligned to setting world-class standards in India and at the same time foster domestic electronics companies.
We also need to understand that it will take time to build these capabilities. These are part science and part social science. If we start now, it may take a decade or more. What is important is India needs to dig-in to play the long game along with many short format games. We need to absorb technologies and business models, build capabilities and nurture the ecosystem. Let us remember what Alfred Marshall wrote in Principles of Economics: “The mysteries of the trade become no mysteries; but as it were in the air.”
Views are personal.
Still Curious? Read:
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N Dayasindhu on the lessons the Simputer holds for Make in India
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Amit Ranjan on paving the road for world-beating software products from India
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Rishikesha T Krishnan on tracking the progress of innovation in India
