Fitbit is the
hugely popular global manufacturer of fitness band and activity trackers. It
has recently launched through Amazon in India its fitness watch Fitbit Blaze at
Rs 20000 (USD 300). In US it is sold at a maximum of USD 200, with deals in
shops like Best Buy dipping the price lower. Fitbit Charge HR is retailed at
USD 225 (Rs 15000) in India, compared to USD 125 in US, promotional pricing
being USD 100. Microsoft Surface Pro 4 in its mid-range specification (i5, 4GB,
128 GB) costs Rs 90000 (USD 1400) on Amazon India which is the price in US of
the top rated Surface 4 Pro (i7, 16 GB, 256 GB) model. Similar is the case with
all other electronic products, from smart phones to flat televisions and from
washing machines to refrigerators, whether they are wholly imported or made in
India.
A UHD curved
television costs Rs 300000 (USD 4500) in India while in the US a comparable
model costs USD 2500. The usurious pricing of Apple electronic products in
India is well known. It cannot be said
that the rather high pricing that prevails in India is only due to import
duties, if any. Customs duties on different types of products range from 6
percent to 28 percent, duties on parts being on the lower side. Samsung claims
to make its latest range of Galaxy S7 smart phones in India; but they are
priced no less with prices upwards of USD 800, a near 50 percent premium on
corresponding unlocked models in US. Clearly, whether imported into India or
made in India, electronic products seem to have their own premium pricing
logic. The economics of electronic products need greater research, it appears.
Bare necessities
Someone must
really put their pencil and pen to paper to understand the economic travesty of
electronics in India. A pencil in India is probably 10 percent of the cost in
US and a pen is probably 20 percent of the cost. There is no reason why we
should not aim at cheaper pricing for electronics products in India, in terms
of purchase power parity. Given that the exchange parity between US and India
is 66 to 1, the impact of high pricing of electronic products on the consumer
surplus in terms of broader ability to purchase more necessary products is
evident. The price premium (over above the basic benchmark price) that is
embedded in one electronic product such as a smart phone (which may be say, Rs
25000) sucks away the money that could be spent on 333 rice packs of 1 kg, 100
knowledge books of Rs 250 each, 12500 A4 white sheets, 2500 ball pens of Rs10
each, subscription for 5000 issues of daily newspaper, or an angiogram, in a
manner of speaking.
The comparison
is not to suggest that people of India should shun electronics. A nation, in
contemporary and futuristic times, can only grow when it is
electronics-oriented. However, it must just not be through only consumption of
electronic products (that too imported ones); it must be through design and
manufacturing of electronics products, from multiple base chips to a range of
products in India. A review of history of developed nations suggests that only
those nations which balanced competencies in electronics and non-electronics could
become
leaders in industrial development. The point
is that electronic products must also be designed, manufactured and sold in
India in a manner as natural as any of the bare necessity products. Electronics
is no longer a luxury class of products; it is a class of bare necessities!
No more monopolies
There was a
time in the 1980s when the semiconductor industry was dominated by Japanese
manufacturers such as NEC, Toshiba, Hitachi, Fujitsu, Mitsubishi, Matsushita,
Sony and Panasonic. From the 1990s, however, Intel began to dominate the chip
industry, partly abetted by Japan’s strengthening Yen. In the 2000s, it came to
be believed that Intel and to an extent AMD only can dominate the chip
industry. India, apart from failing to see the importance of a domestic
electronics base, lacked the confidence to establish such an industry for want
of basic research base in semiconductors. However, other manufacturers in US
such as Qualcomm, Micron, Broadcom, SanDisk and Nvidia and manufacturers from
Korea such as Samsung and SK Hynix began researching for newer chips and
started dominating the chip manufacture. Part of the decline came from a dip in
personal computer chips but the more significant decline was because of Intel’s
misjudgement on the growth of mobile devices and the need for customized mobile
chips.
At another
level, monopolies in manufacture of electronic products got dismantled more
decisively even earlier. Korea, followed by Taiwan and China started
manufacturing a range of electronics equipment, including more lately tablets
and smart phones. Japan, of course, maintained its pioneering dominance in electronics
while European countries which were early pioneers recovered and kept making
progress with renewed technologies. Throughout all this, China has emerged as
the world’s chosen base for electronics manufacture, irrespective of the brand,
so much so they have by now established their own status independent
electronics producers (Lenovo, Haier, Huawei, TCL, ZTE etc.,). That a Chinese
company (Foxconn) has become a white knight for a Japanese company in deep
trouble (Sharp) shows the extent to which China has matured in electronics. India has missed the boat during this period.
Ways to go
India has the promise
to be the next hub for electronics manufacture as China has been a couple of
decades ago, notwithstanding the missteps even on the few first steps such as
Nokia Park. Notwithstanding this, Foxconn has signed an agreement with
Government of Maharashtra to set up a USD 5 billion electronics manufacturing
park. There are two routes to spur electronics manufacture in India. One is to
encourage contract electronics manufacturers such as Foxconn to set up their
manufacturing bases in India. The parallel step is to encourage electronics
giants such as Sony, Panasonic, Samsung, LG and Apple to set up their own
manufacturing bases in India. Both these strategies are likely to lead to a
good multiplier effect on the industrial economy of India with newer component
bases, newer manufacturing processes, and large number of jobs. What happened
in automobile industry can be foreseen in electronics too in India. That may
not be the whole story, however.
The key to
developing an electronics base lies in research into new materials, and new
processors. Samsung has over 500 patents on graphene, the new material for a
host of futuristic technologies. Similarly, global giants have patents on other
materials belonging to classes of metals, polymers and biomaterials as well as wearables,
sensors and other futuristic gadgets. Water and dust resistant smart phones use
materials that conduct signals but do not allow water in their openings. Now,
Apple would like to use a material that makes antenna holes invisible. It is
difficult to conceive of developing new electronic products without developing
new materials. For example, a new development in wearables envisages wearable skin-like
polymer. Manufacturing of new electronic products under contract or captive use
is one great leap for India but development and manufacture of new materials
and new components would be an even greater leap.
100% research
China and India
achieved major milestones in manufacture through 100 percent special economic
zones for manufacturing. China has, however, gone forward by facilitating
exclusive zones for innovation research and demonstration. There are 14 such
zones in China now. China has also promised minimal governmental intervention
in such zones and research endeavours. In
2006 itself, China identified lack of indigenous technology intellectual
property and indigenous innovation as two major national problems. A
nationalistic Chinese government declared in 2006 that without independent
innovation, China would be unable to claim an equal place in the world or
achieve national honour. Apart from providing financial grants and incentives
to encourage R&D, Chinese government openly traded access to the vast
Chinese market for technology transfer by MNCs. In fact, as many as 400 of
Fortune 500 firms have their R&D centres in China.
Interestingly,
China has provided targeted support to key emerging industries over the last
decade. These are electronics, supercomputing, semiconductors, digital machine
tools, robotics, and more recently nanotechnology and rare earth materials.
China has also relied on overseas Chinese diaspora in the fields of science and
technology to lead such innovation efforts. India needs to develop a completely
novel innovation strategy which has path-breaking elements. The following are
suggested: (i) complete electronics value chain, from chips and semiconductors
to electronic devices and electronics in other devices, (ii) Internet of
Things, (iii) new materials (iii) nanotechnologies (iv) wearable technologies,
and (vi) autonomous devices and equipment. The current strengths in information
technology, heavy industries, capital goods and other industries must, of
course, be continuously reinforced with new innovations.
100% research
will happen with 100% support from public and private sectors, and all
scientific and technical personnel in India and abroad. Governments in India are
pooling or providing thousands of acres for airports, seaports, roads and
conventional industries, and even financial cities and capital cities which
support construction activity and provide direct employment generation. A few
thousand acres must be allocated for National Innovation Centres for setting up
world-class laboratories in the above areas, and provided free of charge in
exchange with equity ownership, with returns expected from commercialized
technologies through equity ownership. Governments, public sector corporations
and private sector companies must also start making bold moves by acquiring
stakes in overseas technology companies developing leading edge technologies.
Electronics and electronic products in their various hues are the basic
necessities of life, and require dedicated focus, investments and nurturing by
all stakeholders in India. Otherwise, Indian economy will continue to fork out
huge premiums on imports, and more importantly will not be able to fulfil its
true scientific and technical potential.
Posted by Dr CB
Rao on May 29, 2016
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