Strong hardware backup can realise PM’s software vision

India accounts for less than 1% of global ICTE production while China’s contribution is as high as 10%

The revision of the software exports target from $60 billion to $80 billion by Prime Minister Manmohan Singh last week shows a clear vision — to make India a global hub for innovation and knowledge-based sectors like information technology (IT). But while software exports and development in India have mainly grown to feed multinational companies across the globe, there may now be a need to look at developing a strong hardware and electronic industry in India.

Since the information-communications-technology-electronics (ICTE) sector is strategic as it cuts across all verticals, it is essential that the ICTE hardware sector be provided a long awaited impetus. This will serve a dual purpose. One, it will provide a domestic option to the growing number of companies in India that are investing in ICTE to improve production and processes within their factories and offices. And two, it will provide a large domestic market for the software industry, which can then build greater capacity to tap export markets better.

In our view, the government needs to quickly make India a global ICTE manufacturing hub and position the country among the top five ICTE manufacturing nations in the next five years (by the terminal year of the 11th Five-Year Plan). While ICTE is the fastest growing industry worldwide, India accounts for less than 1 per cent of the global ICTE production. China accounts for 10 per cent. In the next five years, therefore, India needs to reach a total output of $70 billion, making it the fourth largest manufacturer in the world of ICTE products after China, Japan, US and South Korea.

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The challenges towards this goal are many (see table). The high incidence of indirect taxation (excise duty, VAT, CST, Octroi and so on) and its cascading effect, which in some cases goes up to 30 per cent (compared to 5-17 per cent in other competing countries) has adversely affected the growth of the domestic market. For sustained 8-10 per cent growth of the economy on a long-term basis, generation of employment opportunities for an emerging large workforce, and meaningful leveraging of the potential of scientific, engineering and technical manpower, it is recognised that the country’s manufacturing sector must increase the opportunities available to young sections of population. This will also spur them to take on more value added jobs.

The macro-strategy needed to build this sector in India would be:-

• Initiate steps to spur domestic demand

• Focus on organic growth through development of supply chain manufacturing

• Incentives for investments in R&D, technology upgradation

• Benchmarking of Indian companies against best practices

Given the growing market for ICTE in India and the world and the need for India to develop more employment opportunities to meet the demands of a young population that will look for jobs in the next five to 10 years, industry chamber CII is of the view that the government needs to come up with the right policy mix of incentives, fund availability and access to technology from global sources for companies to enter the ICTE manufacturing sector.

(The author is director general, CII)