Indian hardware emerges from
chrysalis By Indrajit Basu
KOLKATA - India's dream of competing with China
as a global computer and electronics
hardware-manufacturing hub may still be a far way off,
but if the recent spurt of interest in its hardware
sector is anything to go by, the country may be finally
on its way to securing a foothold where it has virtually
none: the global hardware arena.
Over the past
six months or so, a slew of global names including
giants such as Intel, LG, Samsung, Hewlett Packard,
Dell, APC, Acer and a long list of others have either
announced their interest or have already set up hardware
components or related manufacturing facilities in India.
While many more, such as the United Kingdom's ACI,
Taiwan's Esys and BenQ, and even Chinese hardware
vendors such as mobile-phone maker Bird, Hisense - a
consumer durable and electronics company - and ZTE Corp,
a telecom-equipment company promoted by the government
of China, are all on the verge of introducing - or have
already launched - a plethora of digital products with
an assurance that at least some of those products will
eventually be made in India.
Indian hardware
vendors too are on a roll. Local giants HCL Infosystems,
TVS Electronics and Wipro have witnessed a business
growth of more than 50 percent in the past year and are
now ramping up their facilities rapidly. A slew of
smaller names such as Celetron India, Tejas Networks,
Solectron Centum are also investing aggressively to
emerge as contract manufacturing hubs for "others with
whom discussions are already on".
Indeed,
brought about by a large and rapidly burgeoning domestic
market, India is suddenly waking up to a very real
hardware-manufacturing boom that the country has been
hoping for ever since the early 1980s, when then-prime
minister Rajiv Gandhi introduced India to a "wonder"
called "computers".
There is no doubt that local
demand for hardware products is booming too. According
to numbers provided by the Manufacturers Association of
Information Technology (MAIT), some 3 million personal
computers (PCs) will have been sold by fiscal year
ending 2004. That is about 21 percent higher than the
2002-03 figure. And Delhi-based information-technology
research firm Skoch Consulting expects that this market
will grow by 50 percent in 2004-05: "That's an expected
growth rate higher than China's," says Skoch, while Ravi
Pradhan, head of the Indian operations of chip maker Via
Technology adds, "About 170 million PCs sell globally
every year out of which 20 million sell in China. That
is the kind of market we are looking at in India."
It isn't just PCs. Last year, India added 17.5
million mobile-telephone subscribers to an existing base
of 11.1 million. Assuming a 10 percent replacement rate
for handsets, that means 18.6 million new handsets were
sold that year. This year, the corresponding number is
likely to be 25 million; a volume level that begins to
look definitely attractive to phone makers such as
Motorola, whose sales director for Southwest Asia,
Nerendra Nayak, says, "India is [now] the
fastest-growing market for mobile-phone handsets
worldwide."
Other hardware products, such as
uninterrupted power supply (UPS) systems, printers,
telecom and networking equipment, digital cameras,
handheld devices, white goods and consumer electronics,
have also shown equally impressive growth rates over the
past year, say industry sources.
In a way,
though, the recent boom in hardware manufacturing is a
comeback of sorts for the country. India in fact had a
pretty good hardware story to tell. When the Pentium
chip was rather new, in the early 1990s, an Indian
company called Altos that belonged to hardware maker PCL
Group made 40 percent of Dell's motherboards. HCL,
another Indian hardware company, also designed
motherboards, which it exported in thousands to the
United States. Moreover, HCL was the first to design
UNIX-based multi-processing machines, which it made for
Hewlett Packard's market in the US.
But down the
line, India's government got greedy and started milking
the "lucrative" hardware sector with exorbitant taxes.
For instance, import duties for electronic components
reached as high as 250 percent and local duties touched
35 percent. With China's duties about half of India's,
Indian hardware manufacturers could hardly profit from
exports, thus while China's hardware manufacturing
boomed, the export market for Indian hardware vendors
died a natural death.
The primary driver for the
current boom-in-the-making is the massive reduction of
duties that India announced in early January. The
government eliminated a 16 percent local manufacturing
levy on microprocessors, hard drives, floppy and CD-ROM
(compact disc-read only memory) drives, and reduced it
to half for fully built computers. Besides, the
government dropped peak import duties from 15 percent to
10 percent for fully built computers and removed it
totally for the "raw materials" of electronic components
- as well as for wireline, wireless and VSAT (very small
aperture terminal) equipment.
"That was indeed a
significant measure which would help in making the India
hardware sector globally competitive," says Vinnie Mehta
of MAIT. Mehta adds that since the duty anomaly has now
been rectified, PC manufacturing will thrive, which will
also mobilize consumption of other hardware - UPSs,
printers, telecom and networking equipment, and digital
cameras. Even niche products such as automated teller
machines (ATMs) and medical equipment - let alone the
hardware opportunities in white goods, consumer
electronics, and automobiles - "could grow by at least
two to three times in next 18 months".
Yet
another reason for the hardware boom is increased
government demand. Advisory and research outfit Gartner
predicts that the Indian government will account for
about 15 percent of the total information technology
(IT) spending in the country by 2005. The combined
spending on IT across Asia-Pacific governments in 2002
was US$15.2 billion. "Mapping India's progress on
e-government to counterparts within the region, the
country is on par with China, Japan, Malaysia, Pakistan
and the Philippines," says Bob Hayward, senior vice
president of Gartner. Gartner also estimates that the
Indian IT market will be the fastest-growing in the
world, with a 20 percent growth rate in the current
year, followed by China at 15 percent.
Nevertheless, even as Mehta of MAIT says "the
Indian hardware industry is finally coming of age", a
few from the industry hasten to add that several
constraints still restrict the industry from taking off
just yet. These include infrastructure inadequacies -
power, the absence of an Indian brand in the global
hardware arena, red tape in government departments, and
rigid labor laws. (Hardware manufacturing, for the
record, is power-intensive. But hardware executives are
taking heart from a recent government decision to allow
companies to buy power directly from utilities.)
Still, global consultant Ernst and Young
predicts an explosive growth for the hardware sector in
the next few years. According to a study conducted by
Ernst and Young for MAIT, the Indian
electronics-hardware industry has the potential of
reaching $73 billion by 2010. The most notable figure
from the study is the projection of exports, which it
says should go up to $25 billion by 2010. Other
estimates, such as those made by global market
researcher IDC - known for its conservative numbers -
have put the market value for PCs, servers, hand-held
devices, traditional workstations, storage, peripherals,
and data-communication equipment at more than $15
billion for three years from now at today's exchange
rate. Incidentally, India's software exports in 2003-04
are expected to reach $12.2 billion.
This then
brings the issue back to the million-dollar question:
Does the Indian hardware industry have what it takes?
After all, if the present size of the hardware industry
is around $8 billion, which for the past few years
(barring of course 2002-03) has grown at an average of
about 8 percent annually, it is hard to assume that
growth rate would suddenly leap to the 37 percent needed
for the industry to reach $72 billion by 2010.
Mehta, however, is optimistic and says that
domestic demand will fuel considerable growth. The
Indian government too has woken to the
employment-creating potential of the hardware sector, he
says, adding that he expects drastic changes in
government policy that will create the right environment
for a takeoff.
"I think in next few years India
will certainly make its mark in the hardware sector as
well [along with software] and if not a manufacturing
factory to the world, like China, it would definitely be
a garage," says Mehta.
(Copyright 2004 Asia
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