By Arsh Rampal
The booming digital economy
In May this year, the electronics and IT minister Ravi Shankar Prasad said that the government aims to grow Indias digital economy to $1 trillion by 2022. However, many private entities have stated that the governments aims are an underestimate and claim that Indias digital sector may instead grow to about $4 trillion by 2022. India’s current digital sector, including electronics, e-commerce and cybersecurity, is estimated at about $450 billion. The Indian electronics market is estimated to be worth about $100 billion, the IT Sector $150 billion, telecom $150 billion and e-commerce about $30-40 billion.
Digital India and Make in India schemes have played a pivotal role in the growth acceleration of Indias digital sector. Moreover, the Aadhaar and Demonetisation policies, regardless of their social merits, have helped create a friendly market for digital transactions. A start-up culture has also contributed immensely to improving the quality of innovations, the number of opportunities and an environment conducive to the continued growth of the digital sector.
The Electronics Manufacturing policy
In order to meet its digital economy target of $1 trillion, the central government has decided to revise the 2012 National Policy on Electronics. The government has roped in McKinsey as a partner to help the IT ministry plan a roadmap for pro-growth policy changes. The aim of the plan is to not only meet the government 2022 target but also make India a leading exporter of electronics and to reduce the country’s net imports to zero. The ministry aims to bring the new policy into action by March 2018 as an addition to the government’s Make in India campaign.
In September of this year, the Ministry of Electronics and Information Technology established nine working groups for planning revisions to the National Policy on Electronics. Some of the areas which these groups will study include LED products, medical electronics, solar photovoltaic products and automotive electronics. Each working group consists of stakeholders, experts and ministry officials.
The Ministry aims to incorporate four major aspects into the revised policy. The revised policy will include specific policy directives for the areas identified by the ministry and also include policy directives such as improving tariff structures, infrastructure development, the management of e-waste, brand building etc. In order to tackle the problem of employment, the central government also plans to focus more on skill development to facilitate job growth in the sector.
The integration of supporting sectors
The growth of the electronics manufacturing industry cannot take place on a standalone basis. It is crucial to building up other areas of the digital sector in order to facilitate the growth of the electronics manufacturing industry. However, these industries are riddled with their own problems. A highly developed internet industry is one requirement for the electronics industry to meet its potential, yet India lags far behind in comparison to most developing nations in terms of its internet infrastructure and regulations. It seems highly unlikely that India’s online infrastructure can provide the support needed by the electronics industry to reach its full potential by 2022 without further investment.
The IT industry similarly plays a crucial role in the electronics sector as a large number of consumer electronics require IT support. The IT industry in India, which had been a leading contributor to the Indian economy, is now struggling to grow. Automation in the IT industry is increasingly a problem and the industry has been hit by job losses. The electronics manufacturing industry cannot function without a world-class IT industry working along with it.
The IT minister stated that the government will be focusing on skill development to tackle the problem of joblessness in the sector. However, skill development initiatives in India have not been highly effective in the past. The Skill India initiative failed miserably to meet its objectives. The training provided through the initiative lacked the type of quality that could help the trainees find employment. If skill development is the way the government plans to tackle the job problem, it must overhaul the entire skill development scheme.
Longstanding challenges still block growth
The first and foremost challenge that affects most sectors of India’s economy is a lack of infrastructure. This has troubled the Indian economy for a very long time. For any manufacturing and production based industry it is essential to have the proper infrastructure in place to facilitate higher production. Transportation and land are two of the biggest problems for the establishment of new industries in the country and the government needs to come up with effective solutions to tackle this.
The other major challenge that stands in the way of implementing the new electronics policy is limited growth in the domestic sector. India has always struggled with promoting growth in its domestic sector after liberalising the economy in 1991. In implementing the electronics policy it is essential that the government works to ensure that domestic players entering the market are not swamped by big international companies. A balance between foreign investment and domestic production needs to be struck in order for the digital sector to reach its maximum potential. This requires effective taxation policies and incentives to help the domestic industries to flourish and contribute to the digital sector.
Regulatory restrictions also remains a challenge to doing business in India. There is too much restriction imposed by the government in most sectors of the economy. In order to fulfil the aim of promoting research and development and improving innovation, it is crucial that regulatory restrictions are done away with.
The revised national policy on electronics, which is expected to come into action from next year, can help provide a boost to India’s developing economy. However, the implementation of policy and meeting related targets is something that the Indian government has always struggled with. The effectiveness of the solutions to the challenges of growth proposed in this new policy will only be seen in practice.
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