Banmali Agrawala On India’s Electronics Manufacturing Opportunity | Ep 2 | FED Dialogues

India is stepping up its ambitions of gaining global market share in labour-intensive manufacturing. The success we have seen in electronics and smartphone assembly with the production-linked incentive or PLI scheme suggests that electronics manufacturing services (EMS) can be the perfect launchpad for achieving our goal of increasing the share of manufacturing from 13% to 25% of India’s GDP. In the second episode of FED Dialogues, our podcast featuring conversations on economic growth, Vinay Ramesh, COO at the Foundation for Economic Development, discusses the EMS opportunity with Banmali Agrawala, Chairman at Tata Electronics. Agrawala has been a champion for the electronics opportunity in India and shares intriguing insights about why this moment in India’s growth trajectory is particularly special from an exports and job creation standpoint.

VR: Right this moment, why do you think electronics is a big opportunity for India?

BA: Manufacturing as a sector is a significant opportunity. As a country, we have gone a bit slow on the manufacturing front. It just forms about 13%-15% of our economy and it needs to have a much larger share, because this is going to create the better-paying jobs. The global trade in manufacturing is $15 Tn plus, whereas services is $7 Tn; so manufacturing is double the size of services. Our share in the global trade in manufacturing is negligible, so there’s ample room for growth. Electronics on its own has a global trade worth $5 Tn. Given the pace of digitalisation the world over, it is only going to grow, and this is something India should be after. At the moment, there are some tailwinds as the world is looking at alternatives and companies don’t want to put all their eggs in the China basket. When it comes to intellectual property (IP), especially in the tech sector, you need a safe place and democratic setup to get these things done, so these tailwinds favour us a lot. We should be grabbing this opportunity with both our hands. 

VR: What follows from your observations is that while we may want to manufacture a lot of products for the domestic market, the real opportunity is exporting to the world.

BA: As a country, today we realise that given the rate at which our economy needs to grow, and the size of the economy that we need to have, our own domestic consumption is not going to be enough to meet those two aspirations. We must have the world as a marketplace. So, again, there’s a nice combination of an opportunity being combined with the need as well in India.

VR: If one reads the newspapers, there is so much action in the manufacturing sector. It almost overshadows everything else. In your opinion, how much progress have we made, and what are the areas of this progress?

BA: I would say we’ve made tremendous progress. The first is a complete shift in mindset and attitude. There’s now this realisation that we need to embrace manufacturing and the government has been pushing this agenda, not just through words but also with solid policy action to incentivise manufacturing, especially in the initial few years to remove the disadvantages that might hinder growth. I’ve been working for close to 40 years now and I’ve never seen the government, both at the Centre as well as the states, work with so much urgency and speed to get things done. This is remarkable and is indeed what is required, particularly for technology and manufacturing, because we do not have the luxury of sitting on files and waiting for decisions to be made. This is heaven for someone who wants to enter the manufacturing ecosystem. We’re seeing large manufacturing companies, particularly multinationals from Taiwan, some from Korea, some large US companies shifting their base and making India as a source for their supplies in a very significant manner. You see this happening at a very frantic pace. And I think we’ll see a lot more of this in the years to come. 

VR: It’s refreshing to hear that India is now moving at a much faster pace, at least in this space, and maybe this will set a precedent for other sectors where we can take similar proactive action to move forward.

BA: Absolutely! I think these are times, when speed of action is extremely important. I think one needs to be decisive and move ahead. And that is what we’re seeing in the ecosystem around.

VR: So just digging a little deeper into the electronics manufacturing value chain. Working backwards from the finished product, you have the assembly of the finished product itself. And before that, you have all the assemblies and components that go into a phone or a PC. And then, at the most basic level, you have the design and manufacture of the semiconductors, chips that basically go into all these components. At FED, one of the things that we’ve been advocating is while we should be present in all of them, because all of them are important, the first stage that I talked about that is the EMS or the electronic manufacturing services, which is basically assembly is the most important one for us to initially gain skill. Would you agree with that? How do you characterise it? 

BA: I would wholeheartedly agree with that. Whenever you start something new. It’s very important to see the finished product first. Once you begin to see the scale, etc., at which that operation takes place, then the rest of the ecosystem develops very quickly, because they see the ultimate product, they can touch it, feel it. That provides a lot of impetus. As you’re aware, the largest piece, even within electronics, as a segment, is smartphones. And if you look at the smartphone manufacturing ecosystem, we now have that growing so fast within India; it all started with electronics manufacturing services or EMS. Even within EMS, it started with final assembly first, then you’re working further upstream into manufacturing and machining. And then you see the component industry for smartphones mushrooming, all the way from glass, to batteries, to packaging of chips and all that. So, all of that is happening. EMS is maybe the single largest job creation opportunity. So, it also fulfils the other objective we have, which is to create a large number of well-paying and meaningful jobs.

VR: So just to summarise what I understood – start with something relatively low-skill like assembly, which creates many jobs. Understand the product and the whole system. And then it’s easy for the whole ecosystem to mushroom and become really world class.

BA: Yeah, the thing to also understand is that there’s nothing low in it. Assembly is reasonably complex. We have not seen in our country, scale, and precision and surface finish, all three things come together, at the same time, in a single location. So, this is something that we’ve got to get used to. But I don’t think it is insurmountable; we can definitely do it. We have the wherewithal and capability in the country, given our background with the auto and aerospace sectors, so we have the necessary skills. We just need to put it together in the right combination. 

VR: There are lots of people who are dismissive about this. They say all we’re doing is putting these phones together. But it also requires things that we’ve never generally done. It is relatively value-added and creates tons of jobs. 

BA: I would just encourage those people to maybe once visit a facility where something like this is being done to understand that this is not child’s play, by any stretch of imagination. Given the scale, the finish and all of that. This is complex, but we can do it, and we have been doing it, so no reason not to continue doing it. 

VR: Both the Centre and the state governments have been really proactive. We’ve not really seen this in India before. There’re a lot of things they’ve done, including the much talked about PLI scheme. Recently, there was some rethinking, and a downward revision of tariffs, which has been a key ask. But what are some other things that the government should be doing to boost electronics manufacturing? On the flip side, what do you think Indian corporates need to be doing to take advantage of this moment?

BA: Both the Centre and state governments should continue to act with that sense of urgency they have shown. The other thing is to make sure that the enabling infrastructure such as the quality of power and water supply — not just the quantity, but even the quality of power supply that matters. This makes the difference; the logistics in terms of connectivity to airports, proximity of airports. The government would do well to ensure that this enabling infrastructure is in place. A lot of this is in the domain of state governments.

The second-most crucial thing is going to be people, because this is going to be people-heavy. We need to have a lot of people doing these operations. So, we need to make sure that our towns and cities get properly developed and have the necessary ecosystem of education, healthcare, recreation, etc. Because we are talking about youngsters, maybe 50, to 70,000 people in a single factory or location, in the age group of maybe 20-25, mostly women, so we need to make sure that the entire supporting ecosystem is in place. One hears a lot on skill development. I would argue that more than skills, what is necessary is just the basic platform of education, so they have a knowhow of numeracy, communication and certain logical reasoning skills. The specific skills of manufacturing can be taught by the employer, or by the company in a fairly short period of time.

Therefore, for people in the age group of 14-18, the government can make sure that they have that foundation in place. We have seen a lot of interest from multinationals who want to come here. They’ve actually set up shop and are implementing things on scale. I would say it is also time for the Indian corporate sector to seize on this opportunity, to be willing to accept risk, try out something new, think of scale and size and not incremental. I would really urge Indian corporates to make the most of this opportunity and shed the conservatism and the risk aversion. 

Leave a Reply

Your email address will not be published. Required fields are marked *