There is a good probability that the smartphone you are using to read this was manufactured or assembled in India. However, it's possible that you're using an imported laptop. IT hardware such as laptops, desktops, and tablets have taken a back seat as the government's 'Make in India' effort has helped build a lot of scale in the domestic manufacturing of televisions and smartphones.
About a third of the 14 million IT-hardware units shipped in India are built locally; they are primarily devices with standard specifications for use in enterprise settings. Hardware from Malaysia, Taiwan, China, and Vietnam is meeting the need for consumer, premium-segment, and gaming devices. The production lines for business products are more reliable, whereas those for luxury goods need regular updates to keep up with consumer demand.
The government made a surprising decision earlier this month to prohibit the unfettered import of computers, laptops, and tablets. Panic spread throughout India's USD10 billion IT hardware industry when the government announced on August 3 that businesses would need a license to import such devices. The decision was postponed to November 1 within 48 hours, much to the relief of the industry. Device manufacturers want additional time to establish manufacturing facilities and adjust supply chains in preparation for a significant increase in local assembly, so that deadline may be pushed out.
Companies producing IT hardware have asked for an additional year to establish local manufacturing. For specific products like laptops, PCs, and servers, the government is receptive to the concept of granting foreign corporations extra time to set up manufacturing operations, provided that the companies submit a clear, detailed, and graded roadmap of their make-in-India ambitions.
Vocal for Local
Whenever that happens, the that hardware sector understands it must become locally based. EPIC Foundation, a non-profit organization founded by IT industry veterans Ajai Chowdhry and Arjun Malhotra (co-founders of HCL), with the goal of revitalizing the Indian electronics industry, estimates that the government's decision will result in an immediate increase of USD5 billion in electronics manufacturing and the creation of between 25,000 and 30,000 new jobs in the country.
The "screwdriver assembly" will gradually transition to first-principles production using regionally available raw materials. Presently, businesses import CKD (completely knocked-down) kits, assemble them, and then market the finished product as "locally made."
In addition, the IT hardware industry, including component manufacturers, has not been inspired by the production-linked incentive (PLI) plan, which has helped increase manufacturing in other areas, such as air conditioners and cellphones. One reason for this is because India is a member of the Information Technology Agreement (ITA1), which eliminates import taxes on computers like laptops and desktops.
Due to zero-duty imports and a weak domestic market, local manufacturers such as HCL and Wipro were unable to compete with cheaper products from China before India joined ITA1 in 1997.
Now that import quotas have been set, businesses need import licenses before they can bring in any gadgets.
The government has proposed a bigger outlay of INR17,000 crore for a revised IT hardware PLI in May of this year, to which 44 companies have applied (among them, industry giants HP and Dell).
The unexpected action to restrict imports "is arm-twisting," the CEO of one of the top five PC manufacturers said. As production of IT hardware is ramped up, consumers may expect higher prices and fewer holiday sales in the near future.
"Government wants to show that India is a viable alternative in the global manufacturing map. India could also export IT hardware in the long term."
— Akshara Bassi, senior research analyst, Counterpoint Research
An impetus toward the development of personal computers
EPIC Foundation co-founder and CEO Satya Gupta claims that the organization's PLI plan for IT hardware was unsuccessful. He continues, "This move by the government to curb imports is like nudging companies to make use of PLI to increase domestic manufacturing," which forces major hardware companies to reconsider their plans in India.
While Apple and HP India did not respond to questions, Dell issued a comment saying, "We are aware of the new regulations." For the past 15 years, Dell has made products in India, and the company is still collaborating with the Indian government on its expansion there. However, further details on the scope of the company's operations were not provided.
About 20 million laptops are sold each quarter in India, with 15 million coming from overseas and 5 million, or 25%, being produced domestically, as reported by International Data Corporation (IDC).
Navkendar Singh, associate VP. of devices research for IDC India, South Asia, and ANZ, says “Without an extension of the deadline to November 1, implementing the guidelines would have been catastrophic for consumer pricing, stock situation, and meeting enterprise demand,”
Now, businesses will step up production both domestically and abroad to fulfill demand and build a supply buffer that will last at least six months.
Senior research analyst at Counterpoint Research Akshara Bassi predicts that 7%-10% of IT hardware will be manufactured in India within the next year. Like what has begun in smartphones and smart TVs, it will take time for businesses to establish supply chains and develop capabilities for printed circuit board assembly (PCBA).
The term "printed circuit board assembly" (PCBA) refers to the process of soldering electronic components directly onto the board. The circuit board is built and soldered with several electrical components such as the central processing unit (CPU), graphics processing unit (GPU), RAM slots, memory, chipsets, power connectors, resistors, diodes, and capacitors. A printed circuit board assembly (PCBA) is a fully assembled and tested unit that may be used immediately.
The government's ultimate goal is to facilitate a transition from screwdriver assembly to comprehensive production, with local sourcing of components, by encouraging businesses to speed up the manufacturing of components and perform the entire PCBA in India.
The Indian government is eager to demonstrate that the country is a competitive manufacturing hub internationally. Bassi chimes in, "Government wants to show that India is a viable alternative in the global manufacturing map. India could also export IT hardware in the long term,."
Temporary setbacks
There will be at least three short-term problems as computer manufacturers speed up their plans for local manufacturing:
1. No major markdowns may be expected over the next holiday shopping season.
2. Increases of INR1,500 to INR4,000 are planned for device costs.
3. After November 1st, it is unclear how much can be imported with a license. If a firm needs 100 units but can only import 80, it will have to choose between giving up the market or speeding up production to meet demand. Additionally, the optimal PC price range is from INR30,000 to INR50,000.
Apple, Microsoft Surface, HP, Lenovo, and Dell all have high-end goods that cost more than INR70,000 and are almost exclusively imported. Due of the companies' preoccupation with the mass market and their reliance on licenses to acquire expensive machinery, this sector will take longer to localize.
Conclusively
The CEO of a major electronics contract maker predicts that the television and smartphone industries will soon trigger a similar shift in the IT hardware business. About four years ago, a licensing policy identical to this one was implemented for televisions. India mostly manufactured 32-, 43-, and 50-inch TVs during that time. Indian manufacturers have responded to restrictions on imports by creating an ecosystem for smart TV components and expanding into larger-screen TV production.
About 60% of TVs' BoM are non-semiconductor parts, all of which are sourced domestically. According to the above-mentioned anonymous source, "The non-semiconductor bill of materials (BoM) in TVs is around 60%, and this is entirely sourced locally. The open cell is not locally sourced and we don’t have chip-making capabilities at present."
The PLI plan for hardware was meant to boost computer production within the country. With the PLI 2.0's INR17,000 crore in new subsidies and import restrictions, domestic hardware production will be bolstered.
EPIC predicts that in two years' time, over 70% of India's IT hardware requirements will be met by domestic suppliers. And that will aid Indian manufacturers in getting past the stereotype of being "screwdriver assembly lines" and into the mainstream of manufacturing.
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