Electronics Industry in India – A survey of some literature

Globalisation has evoked mixed responses from various quarters – academics, trade unions,
NGOs, policy makers, market participants and various other social groups. Globalisation is
generally understood as the increasing commercial and financial integration of various national
economies and the development of international markets. It has also raised many important
questions on various fronts: human development, national policy autonomy, development and
growth of national markets, state sovereignty, employment relations, management practices,
social security, welfare measures, poverty eradication and so on.

The article Globalisation, Employment and Social Security argues that globalisation is creating
new threats to human security both in richer and poorer countries and the challenge is not to stop
the process, but to formulate rules and institutions for national, regional and global governance
so that globalisation benefits all the sections of the society and the global integration does not
lead to domestic economic and social disintegration. While the paper’s main focus is on the
delineation of the argument that the impact of globalisation on human development and on the
scope for public action directed at improving the quality of life operates through macro-
economic channels, the article has some important observations to make:
the opportunities and rewards of globalisation spread unequally and inequitably - concentrating
power and wealth in a select group of people, nations and (transnational) corporations, whilst
marginalising the others. This marginalisation implies growing unemployment,
underemployment, exclusion and poverty.
instability and insecurity increases in major areas of economic life. Endemic financial crises
bring huge social costs, as evidenced by the Asian crisis, and the pressures of global competition
have led countries to adopt more flexible labour market policies and cut down on welfare state
expenditure.
national autonomy is being undermined because of two reasons. First, the fiscal resource base of
nations gets eroded, while - at the same time - more public expenditure on infrastructure, social
security, education and health care is required to offset the negative effects of globalisation and
to capture the opportunities of global markets.
Second, following capital account liberalisation, monetary policy is no longer effective, because
the interest rate is determined on world markets
a new, pro-rich global proprietary regime controlling the world's knowledge is taking shape:
tighter property rights and stricter enforcement of patent rules raise the price of the transfer of
technology and knowledge, thereby pushing poor people and poor countries to the margin of the
knowledge-driven global economy.1

K.J.Joseph’s book Industry Under Economic Liberalization: The Case of Indian Electronics 2,
focuses on the different dimensions of the on-going structural change and its implications on the
different facets for the output growth of the electronic industry and tries to understand the
general scenario for the whole of the industrial sector from the case study.
The Case of Electronic Industry

Joseph observes that though the economy was formally and drastically opened up in the early
1990s the electronics industry has been gradually experiencing the changes since long back. The
process of liberalization in the industry began much earlier compared to other sectors, in early
1980s. Control regimes diluted and greater involvement of market forces was initiated. The study
divides the electronic sector into three parts: consumer goods, electronic capital goods and
electronic intermediaries.

He argues that the most characteristic feature of the electronic industry lies in the fact that
technological enhancement result in tremendous positive impact on productivity and efficiency
in economy. Not only the unprecedented breakthrough in the semi conductors (chip) technology
(especially the emergence of Metal Oxide Conductors (MOS)) but the “convergence of
electronics, computing and telecommunications” (referred to as Second Industrial Revolution)
have brought significant changes in organizational structure of industrial activities.3

India also tried to follow the trend. In the initial stages the Indian electronics strategy like the
then general industrial strategy, “aimed at an import-substituting, self-reliant and public sector
led growth” as a part of the protectionist and regulatory regime.

1
http://www.idpad.org/docs/2000-5Servastrom.doc.
2
Joseph, K.J.; Industry Under Economic Liberalization – The Case of Indian
Electronics; Sage Publications; New Delhi; 1997.
3
Ibid., p.21.
At policy level, India followed the Mahalanobis strategy after Independence, which stressed on
rapid development in minimum possible time framework. It emphasized on the production of
capital goods, and therefore the public sector was given primacy, in order to reduce dependence
on foreign market. These ideas were embodied in the Industry (Development and Regulation)
Act, MRTP Act, FERA etc.

The change began to take place and towards late 1970s a marked deviation from early regime of
planning and control towards liberalization was seen. In this deviation electronics industry took
the lead and went far ahead of other industries.

Efforts to “build an integrated structure” in electronic industry began to make it self-reliant as

fast as possible. However, despite such an effort the policies predominantly remained regulatory
and protectionist for a decade or so. Government gradually eased the regulations acting on the
recommendations of Sondhi Committee (1979) and Menon Committee (1979). In 1980, industry
gradually opened up.

In this regard, Joseph observes two phases of policy initiatives :

I. 1970s - Development of industry under protectionist regime, with minimal

involvement of foreign capital, foreign technology, as well as large companies
and business houses.

II. 1980s – More liberal and open electronics policy.4

The two phases reflected shift towards a more liberal policy from the control regime. It
emphasized on easier access to foreign technology and capital, and free entry to private sector
capital, including companies covered under MRTP Act and FERA “with a view to making the
industry technologically modern, cost effective and price-competitive” among other things. The
study concludes that during the ‘controlled regime’ up to 1980s, the growth in electronics
industry was only modest. With the change in overall electronics policy from 1980s, with its
emphasis on greater play for market forces, the overall growth rate increased. Joseph observes,
“Policy liberalization, by reducing the barriers to entry, encouraged competition and this led to
price reduction and thereby to output growth of the industry.” He, observes that the “higher
output, however, was primarily accounted for by the consumer electronics subsector.”5 The

4
ibid, pp.24-5.
5
K.J. Joseph, op. Cit., p.206.
study is full of insights about the change and growth of electronics industry, the study offers
precious little by way of an analysis on the labour conditions in the industry and the book fails to
address the problems of labour under globalisation

Coping With Liberalization: Production

The Electronics industry has been certainly witnessing a positive growth rate compared to other
sectors of the economic as well as its own past record. The production as well as exports has
risen quite positively. Indications of this growth have been provided by the following tables of
Ministry of Communication and IT (as quoted in the Indian Electronics directory 2002-03
published by ELCINA).6

IT & Electronics: Sectoral Production Datasheet (Rs. Million)

Item 1996-97 1997-98 1998-99 1999-2000 2000-2001 2001-2002

Consumer 65000 76000 92000 112000 115500 127000
Electronics
Industrial 31000 31500 33000 37500 40000 45500
Electronics
Computers 27400 28000 23000 25000 34000 35000
Commn. & 30000 32500 44000 40000 45000 45000
Borad. Eqpt.
Strategic 13000 9000 13000 14500 17500 18000
Electronics
Electronic 37000 44000 47500 52000 55000 57000
Components
Sub-total 203400 221000 2522500 281000 307000 327500
Software for 37000 65000 109400 171500 283500 365000
Exports
Domestic 26000 34700 49500 72000 94000 116340
Software
Total 266400 320700 411400 524500 684500 808840
Source: Ministry of Communication &IT

Production Volumes For Major Consumer Electronics Products (Million Nos)

Item 1999-00 2000-01 2000-02

B&W TV 5.8 4.5 3.8
CTV 5.7 5.7 6.0

6
Indian Electronics Directory 2002-03, Electronics Components Industries Association, New Delhi, 2003.
 Radio Receiver 7.0 6.0 6.0
Tape Recorder & 14.0 14.0 14.0
Combinations
VCRs/VCPs 0.36 0.32 0.27
Electronic Watch 19.4 16.0 18.3
Electronic Clocks 26.0 24.6 23.6

Source: MC&IT

IT & Electronics: Exports by Major Sectors

Item 1995-96 1996-97 1997-98 1998-99 1999-2000 2000-2001 2001-2002

Consumer 4850 6600 6000 4250 4500 6200 7000
Electronics
Computer 9650 13330 11000 3000 6000 12000 18000
Hardware
Telecom 3050 3240 3000 2500 1800 5800 1500
Electronic 5250 6370 8000 9000 12000 18280 22000
Component
s
Total 24000 31850 31000 20600 28000 47880 58000
Hardware
Software & 26500 41130 68000 125000 173000 275000 365000
Services
Total 50500 72980 99000 145500 201000 322880 423000
(Hardware
&
Software)
Source: Electronics & Computer Software Export Promotion Council (ESC)

The necessity of a robust hardware industry has often been argued as a necessity for sustaining
the software industry but it has failed to evoke any major response from the policy makers
towards its realisation. The recent study carried out by Ernst and Young points to a magnificent
target for India’s electronic industry, wherein it is expected to reach a $37 billion mark in the
local market and $25 billion in exports out of the total of $62 billion by 2010.

The study points to the main areas being new products, contract manufacturing – OEM & ODM
– and design services. The components will make up for around $5 billion. It cites contract
manufacturing as a major area where the share of India in the world total of $500 billion by 2010
will be around 2.2%. And the potential areas of contract manufacturing will be PCB assembly,
cable harness assembly, product assembly and testing power supplies and semiconductor
assembly. Supplementing the projections the Executive Director of MAIT, Vinnie Mehta said
that “We are probably one of world’s largest exporters of media and components for hard disk
drives.” The key manufacturing sites are Mumbai, Bangalore, Karnataka and Gurgaon. 7
However, such projections and the study have been seen sceptically by many. It has been argued
that “this is not the first time that India is embarking on such an ambitious hardware adventure”
because in 1996 management consultants Arthur D. Little were commissioned to do a similar
study by Government of India. It “emphasized ‘contract manufacturing’ as a key success factor
for India hardware exporters.” But the whole excitement did not lead to anything significant. Not
had been drawbacks on part of the government but even the industry failed to “build up a critical
mass in terms of new clients”. 8

Despite these projections now there is an opinion among the industries, especially those among
the hardware manufacturing that unless the government takes immediate action it will be
extremely difficult for the economy to grow at the desired rate, which has been seen in the case
of China, Malayasia or Singapore. It is argued that “despite a production target of Rs.17,850
crore set for the computers and peripherals segment for the last year of the Ninth Plan (2001-
2002), indigenous manufacture of this category of products aggregated to a mere Rs.3,400 crore
($0.6 billion) in 2000-01, compared to China’s $20 billion.”

The industry experts argue that the export of IT related components is of vital importance to the
growth of the economy as indicated by 47% contribution made by it in GDP of Singapore or
65% made to that of Malaysia. Korea, Thailand or China are no exceptions to this rule. There is a
need to promote collaborations because hardware is “essentially MNC driven business” but
despite 17 such proposals for collaboration given by ELCINA and Exim Bank the file has not
moved. The government has neither pressed for the implementation of the National Task Force

7
www.globalsources.com/MAGAZINE/CP/0209/PINDIA.HTM &
www.instrumentationandcontrol journal.htm

8
Thiagrajan, Krishnan; Hardware: An experiment in Globalization;
www.blonnet.com/iw/2002/05/05/stories/2002050500380700.htm
report nor moved to establish a Hardware Technology Park. To them the scenario presents a
dismal picture.9
Despite such assessments the virtual abolition of industrial licensing has made the Electronics
and Information Technology industry to play a major role in the Indian economy, in terms of
production as well as export. The electronics production during 1999-2000 was Rs.519 billion, as
compared to Rs.411 billion during 1998-99, registering a growth of over 26% whereas the export
order amounted to Rs.184 billion in 1999-2000 against Rs.128 billion of 1998-99.10 In this the
lion’s share was of consumer electronics which showed a sharp increase in production from
Rs.92 billion in 1998-99 to Rs.112 billion in 1999-2000. Production of components also showed
a rise but decline of Rs.3 billion characterized that of computers sector.
The article Small-Scale Units in the Era of Globalisation: Problems and Prospects 11 focuses on
the ongoing changes in the business environment and their impact on the small-scale units. It
discusses the ways of improving the competitive strength and commercial viability of small-scale
units in the changing context. The article concentrates on Indian garment industry, electronic
industry and automobile industry. The following table gives the relative contribution of various
sectors in the electronics industry in terms of production and employment.
Relative contribution of the Small-Scale Sector in the Electroincs Industry (1997)
Production Employmen
(Millions) % share t % share
Sector/variabl No. of %
(in numbers)
e units

42,020 20 86,000 25.0

97
Public Sector 2.5

9
De, Rajneesh; What ails hardware manufacturing?;
www.expresscomputeronline.com/20011105/newsan.htm
10
www.itfriend.mit.gov.in/advantageindia/industrialprofile.htm (Govt. of India,
Ministry of Information Technology)
11
T.A. Bhavani, “Small-Scale Units in the Era of Globalisation: Problems and Prospects”, in EPW, July 20, 2002.
 Organised Pvt. 625 17.5 98,120 45.0 95,000 27.5

Sector
Small-Scale 2800 80.0 75,730 35.0 164,000 47.5

Sector
Total 3522 100 215,870 100 345,000 100
Electronics
Source: Guide To Electronics Industry in India 1999, Department of Electronics, Government of
India, pp.1.16.

There are over 3500 units engaged in Electronics production in 1997, over 71 PSUs, 625 private
sector organized units and more than 2800 small scale units. There are units in the unorganized
sector and they go unnoticed. The article argues that the electronics industry in India has far
been dominated by small and medium scale industries that are mainly involved in the manual
assembly of low-end electronics with the help of a few tools and instruments. However,
globalisation has brought in changes in product composition and structure of the industry. Also,
because of the entry of MNCs, small-scale units have become unviable and Indian Electronics
industry would henceforth depend on developing, acquiring or adopting the latest technology and
this would require the small-scale units to undergo a large change in the direction of rapid
automation.12

Consumer electronics contributes 40% of the total electronic industry. There are a variety of
components that are manufactured in India like TV picture tubes, monitor tubes, diodes and
transistors, power devices, ICs, hybrid microcircuits, resistors, capacitors (plastic film,
electrolytic, tantalum, ceramic), connectors, switches, relays, magnetic heads, DC micro motors
and tape deck mechanism, PCBs, crystals, loudspeakers and hard and soft ferrites. Many of these
components are exported as well.

The computer industry is also slated to contribute in a major fashion in the electronic industry
and the penetration of PCs will increase from 3.43 per thousand to 20 per thousand by year
2008.13 Apart from personal computers, super computers and servers peripherals like monitors,

12
Ibid.
13
www.itfriend.mit.gov.in/advantageindia/industrialprofile.htm (Govt. of India, Ministry of Information
Technology.
keyboards, disk drives, printers, plotters, digitizers, SMPS, modems, networking products, add-
on cards etc. Figures point to less production than the estimated demand (0.4 million against
demand of 1.4 million in 1999-2000).

Despite such projections and the expectations, the threat of Chinese products, if not in all sectors
then at least in the computer peripherals, can be detrimental for the industry. And even the MAIT
believes that ‘the Indian government needs to pick up a lesson or two from the Chinese success
story and put its act together, or else India will soon be nowhere on the global IT map.’ The
problem with Indian IT hardware industry lies in its failure to get manufacturing facilities “up
and running”.14 The projections and the actuals have shown quite clearly that the electronic
industry has lagged behind its goals.

Electronics Production in India, 2000-2001

Projection Actuals
Hardware components $2.61B $1.20B
Computer systems $2.79B $739M
Telecom equipment $3.63B $957M
Strategic electronics $424M $380M
Industrial electronics $1.39B $858M
Consumer electronics $2.83B $2.54B
Total $13.67B $8.63B
Source: Ministry of Information Technology, Government of India.

Export

Important policy initiatives were taken since July 1991 to boost the export growth and make
India a major player in “an increasingly inter-dependent world economy.”15 The contrastive
figures of 1992-93 and 1998-99 point to a significant rise in the amount of export. However there
has been shrinkage of close to 20% in the hardware industry as compared to the software
industry. From the revenues of around $1.25 billion in 1997-98 it came down to $1.0 billion in
1998-1999. The reasons for this decline have been primarily: (a) sharp decrease in exports; (2)
14
Krishnadas, K.C.; India hardware prospects Dim;
www.theworkcircuit.com/story/OEG20010725S0069

15
ibid
price wars; and (3) the new entrants in the market. However, the production of peripherals, in
1998-99 was Rs.13.60 billion compared to Rs.8.33 billion of 1999-00.16

Contract-manufacturing/outsourcing

The Ernst and Young study for MAIT has pointed very clearly the need for India to go into
contract manufacturing and raise its global share to 2.2% (amounting to $11B) by 2010. Though
the projections made by the study in this sector is not a smooth ride the process of investment in
contract manufacturing has begun.

The PCB industry once comprised of “mostly small and medium-sized shops operated by
independent technocrat entrepreneurs”. But the changes that characterized the nation since 1991
transformed it into a technologically capable industry. Consequently, international PCB players
starting thinking of making it their offshore manufacturing base – the acquisition of Stovec
Industries, circuit division, by Circuit System Inc. (U.S.), followed by the acquisition of Indal
Electronics Division by AT&S Austria. Despite the profit margin being low in India compared
to China or Taiwan the PCB manufacturing is expected to go up because India, being a signatory
to the ITA 2 talks, is expected to waive duty on all hardware component related raw materials by
2002/2003. Companies like AT&S (India), GNFC, Circuit Systems India have ventured into
multi-layered PCBs from double sided PTH PCBs. Many sick units are trying to revamp their
activities through fresh infusion of funds among other things.17

However, an imminent danger to the whole process of PCB boost comes from the Asian Tigers
as double-sided PCBs are flooding Indian market from the Far East as the manufacturers like
Samsung are relying on their old partners for outsourcing than Indian manufacturers because it is
cheaper.18

Hardware industry is at crossroads, where on the one hand it has to compete with strong players
like China and Taiwan while on the other hand it has to deal with restrictions, slow bureaucracy
and red tapism. Another hurdle is in form of a PC centric approach that hampers manufacturing
of other components. However, the Indian hardware industry can learn from Taiwan, where
16
www.american.edu/carmel/pho6a/page8.html
17
Singh, Udayan; The Elephant Stirs;
www.circuitree.com/CDA/ArticleInformation/features/BNP_Fea…/0,2133,7729,00.ht
m
18
ibid
companies which started as assemblers have become world leaders. The example of D-Link is a
pointer to the fact how through setting up a local manufacturing unit it has tied up with the
Taiwan based Gigabyte Technology to produce motherboards (approx. 3,000 per month) and the
cost savings will be approx. $5 per motherboard. And there is no debate on the quality as the
example of Legend computers, the largest maker of PCs in China, buys network interface cards
from India.19 These arguments furthermore strengthen the arguments for a strong contract
manufacturing future.

The process has not been waiting to be kicked off and the Mico Bosch’s buy of Philip’s close
circuit television manufacturing facility, TYCO Electronics Corporation India Pvt. Ltd’s
networking division plans to set up an assembly unit at Bangalore for domestic consumption as
well as export indicate the beginning of the process. Singaporean Flextronics International Ltd.
Bought Motorola’s 40,000 sq.foot cell phone plant in Bangalore for sub-assembling for local
needs. It has also invested in the MosChip Semiconductor Ltd. Analysts, believe that for the next
four or five China will be in lead because of its developed infrastructure but the India will score a
point with its cheap labour costs (as for instance in Inkjet printers 150 plastic parts are to be
manually assembled). Printed Circuit Boards, product assembly and semiconductor assembly are
likely to be the prime areas of focus.20

The article Globalisation and Workplace Relations in Electronics Industry in India, China,
Malaysia and The Philippines 21 makes a comparative study of employment relations in the four
countries India, China, Malaysia and the Philippines. The article argues that while globalisation
brings greater competition, the result in the workplace relations exhibit both convergences and
divergences – convergence in the form of certain uniformities across the countries and
divergences within the country.

Basically, globalisation brings in two styles of management strategy: The low road strategy –
which favours hierarchical and specialised division of labour with many low skilled jobs,
payment according to time worked, very limited worker training and flexibility based on changes
is hours worked (Wage Flexibility) and number of persons employed (numerical flexibility)
19
De, Rajneesh and R.P., Srikanth; Indian Hardware: Pipe dream or gold rush; www.express-
computer.com/20020408/cover1.shtml
20
Ganguly, A.; India Closing the hardware gap with China; www.atimes.com/atimes/South_Asia/DL24Df02.html
21
Kuruvilla, Sarosh and Stephen Frenkel, “Globalisation and Workplace Relations in Electronics Industry in India,
China, Malaysia and The Philippines”, in The Indian Journal of Labour Economics, Vol. 44, no.3, July-September,
2001, pp.429-445.
which are varied according to demand and either non-union labour relations (management
preferred) or conflictual relations with one or more unions. On the other hand, the same
competition may result in the other strategy –high road strategy characterised by emphasis on
quality in combination with product and process innovation, supports higher margins and higher
pay, team-based work organisation with broad task and supervisory responsibilities,
performance-related pay, continuous skill formation for flexible roles (functional flexibility) and
innovation, and either non-union relations (management preferred ) or co-operative relations
with a single union..

The study concludes that India is moving towards the high-road strategy, Malaysia and the
Philippines are adopting a mixed strategy whereas China clearly favours the low-road strategy.
The strategy adopted may depend upon the nature of labour market, government policies that do
not permit certain kinds of practices such as anti-labour union policies. The study uses
convenient sampling and the sample size is also very small and biased towards MNCs.
However, a more concentrated focus on small-scale sectors in India and bigger sample might
give a different picture than from the one projected in the study, especially in case of India,
where the major focus of our study would be. However, the models used in the study with
regards to the differing employment relations’ responses to globalisation provide valuable
insights.

The available literature with regards to globalisation and electronics industry is rich in certain
parts where as much remains to be explored in certain other areas. For example, production and
export details are very elaborate and complete; data regarding the exact number of units, their
geographical distribution especially in case of small-scale and unregistered units, employment
strength are hard to come by. In essence, the picture represented by the survey is the increasing
penetration of multi-national companies, greater competition and significant growth rates in the
electronics industry in the post-liberalisation period.