With a successful 35-year career in the electronics industry behind him, Pankaj Gulati has been elected as the new ELCINA president for 2017-18. He is the chief operating officer of Continental Device India Private Limited (CDIL) and on his watch, the company has evolved into a globally recognised brand. In an interesting interview with Shruti Mishra, business journalist of Electronics Bazaar, Gulati shares his views on the state of semiconductor manufacturing in India, what he plans to do as president of ELCINA, and more.
EB: How are you planning to embark on your new journey?
I am fortunate to be elected as the president of ELCINA, in the year we have a very positive government that really wants to make changes in the policies in order to encourage electronics manufacturing in India. With the new electronics policy on the anvil, we are hopeful that everything will move in the right direction. So it is now for us to engage with the government and work out certain non-tariff barriers, which will give the industry a little support.
My strategy is to make some proposals to the government, on behalf of the industry – to enable the Government to take decisions that not only strengthen the manufacturing base but also open up the growth opportunities in India.
EB: Being a voice that represents the electronics industry of India, what changes would you make to enhance domestic manufacturing?
As an association, we are already committed to ‘Make in India’. But my idea is that companies should not only ‘Make in India’ but move beyond to ‘Made in India’. By this I mean that instead of importing components and parts, and assembling in India, we should make purely domestic products, in which every part is completely manufactured in India. I believe that the moment you focus on ‘Made in India’, the investments and manufacturing will automatically speed up.
EB: What will be the advantages of ‘Made in India’ and how are you planning to implement this?
The electronics components, which are basis of any electronics product are covered under Information Technology Agreement (ITA)-1 which implies zero import tariff.
We are suggesting that the government should not give the full 18 per cent GST refund to traders who are simply buying and selling the products, because they are not adding any value to the market. We are recommending that when the trader sells, he should not get the 9 per cent CGST refund and that 9 per cent should be absorbed at his end. That means the manufacturers will start getting the full 18 per cent refund on the import of raw materials.
Another advantage is that the moment you give 9 per cent benefit to the manufacturers, they will start coming up with solutions for manufacturing electronics parts that weren’t being made in India. This step will encourage global brands to move to India and you will find a revolution taking place in domestic manufacturing immediately.
Another proposal is that government should implement a production subsidy of minimum 10 per cent on value addition (VA). Although the disability of domestic manufacturing is much higher but a 10 per cent subsidy on VA will help in kick-start the domestic manufacturing
EB: Don’t you think this will disrupt the supply chain scenario?
Not at all, because we are not violating the World Trade Organisation (WTO) norms. The customs duty will remain zero per cent. What we are doing is simply adjusting our internal taxes.
The value chain will not get disrupted if this is done in a phased manner. A Phased Manufacturing Programme will help implement this smoothly.
EB: You said that it will speed up investment. Can you explain that?
If there is an internal tariff barrier, companies will start investing and setting up plants here, in order to get the 9 per cent GST advantage and the additional 10 per cent production subsidy. This will encourage manufacturers to invest. We need to remember that India’s middle-income market is more than the USA’s total market and this makes India as one of the biggest markets in the world. But unfortunately, Indian manufacturers are not getting any advantage out of it. The reason is that this segment of the market is very price sensitive. Presently, if the end product manufacturer depends entirely on domestic component production, the cost of his products will no longer remain cheap.
But under the ‘Made in India’ strategy, component manufacturers can make investments in capital equipment, under MSIPS (Modified Special Incentive Package Scheme) and for land and building there are electronic clusters which help in infrastructure and logistics, where we can set up plant, get the benefit of 9 per cent GST and the 10 per cent production subsidy – this as a package will very much motivate investments in India.
EB: You spoke about GST refunds—what sort of ups and downs have you observed in the electronics industry after the GST roll-out?
Honestly, GST has slowed down the production rate because I think the government has pushed it very quickly. There is no doubt that, in the long run, it will help in terms of streamlining the taxes, removing some of the traders who are unorganised – all of which will in a way help the industry in fighting the competition from the grey market. In addition, it will also help the industry in streamlining the processes and the movement of goods from one end of the country to the other. But this will happen maybe two-three quarters down the line. Today the industry is in turmoil.
EB: According to you, what section of the industry has GST affected the most?
Those of us who are exporting a lot are having a severe problem due to GST because we are supposed to pay GST and get a refund, but right now the refunds are not coming in. So there is a huge cash crunch that exporters are facing. Now, if exports are hit and your business is surviving on it, you can imagine how bad it will be for the industry. Today, India is the most expensive developing country when it comes to the cost of finance, which is about 12-13 per cent. So GST is going to impact exporters very badly, unless and until something changes quickly.
EB: Since you have been associated with this industry for a substantial period of time, why do you think Indian semiconductor manufacturing is witnessing sluggish growth?
We have to understand that the market for semiconductors is growing in India, but on the manufacturing front, there is hardly any local production happening in the country. Within a period of about 25 years, I have seen close to 10 semiconductor companies close down their business in India. This largely happened after the WTO’s ITA was signed, in which the custom barrier was suddenly brought down to zero per cent from 20-25 per cent and that created a turmoil in the Indian electronics components manufacturing segment. Neighbouring countries started pushing in equipment and components at a very low price. Indian customers, being price sensitive, did not understand that what they were getting were probably low quality, low-priced products. They started engaging more with outside players, and that’s why local industry received a major setback.
Obviously, it’s not in our hands to do away with the WTO ITA agreement, but we can work on the internal disabilities of the Indian electronics industry, which are the cost of finance, cost of land, cost of power and the logistics issues.
EB: So how did CDIL manage to survive that turbulent phase?
For us to survive that phase was difficult, but we did it because we managed to keep the prices competitive while maintaining the quality of our components. What is important in the export market is the quality of the product, and its availability at a competitive price. And from the beginning, we have always provided our customers with consistent quality and supported them with the right service. Since CDIL was already competing with most of these multinational companies in the export market, it was slightly easier for us to adjust to this phase.
EB: We hardly see any electronics startups coming into our country. Why are we lagging behind in this domain?
As I said, we are facing disabilities in finance, markets and tariffs, which is why no startups are coming in. So unless the policy of the government clearly states that some of these hurdles will be removed, no company will initiate a start up here.
EB: Till now the business climate of our country was not flexible enough. Are you thinking of taking any steps to change this?
There is no doubt that the government is aggressively engaging with foreign investors to do business in India but yes, we are still way behind. ELCINA has thought of two ways to improve ease of doing business in India. One is to request the government to implement single window clearances. Another thought that I have been suggesting to foreign companies planning to make in India is that they try to find partners within the country. I ask them to meet the electronics associations and local companies in India to identify their partners.
It will be a win-win condition for both foreign manufacturers or investors and domestic manufacturers. The domestic companies will help foreign manufacturers with local logistics, equipment installation, human resources, facilities plant and paper work etc. while the foreign manufacturers bring in the much needed technology and production capabilities.
EB: We know a lot is happening in the LED and automotive sector. But what are the other electronics-related sectors that are capable of transforming into a big market in the near future?
Apart from LEDs and automotive, I think medical electronics and defence electronics are the two markets that will witness a boom in the coming days. Today there is less competition in these sectors because of the need for specialised products. Demand in these two areas is growing at substantial rates annually.
In the energy conservation field, PV and electric vehicles are going to be big business. Personally, I think that electric vehicles should be renamed as electronic vehicles because electronics plays a very major role in this sector, ranging from charging stations to battery management and running of vehicle.
