India can become high-tech leader with hardware

Sushma Ramachandran

Senior Financial Journalist

It is no doubt amazing for a country that found it difficult to feed its population in the 1950s to have become a major economy with the fastest growth rate in the world. A big role in this remarkable transformation has been played by technology. India has become one of the biggest software providers to the world, relying on a huge talent pool in the information technology (IT) industry. These human resources are spread all over the world as the diaspora has not only settled in developed economies like the US but also become integral to the global IT industry.

One of the major problems, however, in making the country a high-technology leader has been the shortfall in hardware production. The expertise in software has propelled the country’s services exports into expanding faster than merchandise trade. Services exports rose by 26.6 per cent in 2022-23, compared to 6 per cent for merchandise trade in the same period. On the other hand, high-tech hardware continues to be largely imported, even though there were early pioneers in this sector like HCL. It began manufacturing personal computers back in the 1980s. Yet the trend remains tilted heavily towards software.

This is surprising since the country’s higher education system, including the Indian Institutes of Technology (IITs) and the Regional Engineering Colleges, has been churning out qualified engineers, including electronics and computer specialists, for decades. Their goal, unfortunately, has always been to migrate abroad, in most cases to the US, where they might either opt for a management degree or get hired in one of the innumerable technology companies. The technological brain drain, as it is called, was glaringly apparent in the mid-1970s when I was asked to do a campus column for a financial paper. My first port of call was the nearest IIT, where the entire final-year class pronounced its intention of going abroad. The options, to be fair, were limited at the time, given that high-wage jobs were scarce in then ‘Licence Raj’ era.

It was only following the 1991 economic reforms that liberalisation brought in an environment within which IT companies, such as TCS and Infosys, began to flourish. Yet, the hardware segment remained neglected. High-tech equipment such as computers has been largely imported and assembled here, much like a wide range of white goods. Strangely, it was during the same period that automobile manufacturers like Maruti Suzuki were forced to gradually indigenise their vehicles. This led to the creation of an ecosystem of component manufacturers, which ensured that the finished products were mostly made in India. The result has been the appearance of several Indian car brands, while even foreign automakers use a large percentage of components sourced from within the country. It has also now become the third largest automobile market in the world, though exports are reported to account for only about 14 per cent of the output.

A similar trajectory did not take place in the high-technology area of electronics and information technology. The glaring lacuna in hardware was overlooked amid the euphoria over the country becoming an IT powerhouse. But a nation seeking to be a technology leader needs to produce critical electronics and IT hardware within the country; this includes the ubiquitous semiconductor or chip that is present in every high-tech product. The Covid pandemic highlighted the vulnerability of the economy to shortfalls in such critical components. A beginning was made a few years ago for mobile phones, which were earlier imported in a completely knocked-down condition and assembled here. The imports were largely from China and Taiwan.

The policy of setting up clusters of mobile phone manufacturing units, combined with the production linked incentive (PLI) scheme, helped in ensuring that mobile handsets are no longer produced merely by assembling kits from abroad. The advent of Apple and its Taiwan-based collaborators have further improved the scenario. But the percentage of domestically produced components is rising only gradually. Government spokespersons claim that 97 per cent of the handsets are wholly made here, but a study by ratings agency ICRA in 2022 said the proportion of domestic sourcing would reach 35-40 per cent in two years.

Clearly, it will take a while to develop the hardware manufacturing sector for making high-technology products. The recent imposition of import licensing for laptops, personal computers and tablets is evidently aimed at developing domestic production capacities for these goods, which have been largely imported till now. This comes on the heels of a revised PLI scheme tailored for the IT hardware industry, which could give an impetus to domestic production. An equally important goal is to curb the flood of imports from China.

These are rearguard efforts, however, as an initiative to develop the domestic IT hardware industry should have been taken long ago. This is a sector that should have been nurtured along with the software segment in the 1990s. Had a visionary approach been taken, India would not be lagging so far behind other countries that are now high-tech giants, such as China and Taiwan. The drive to set up semiconductor units has also come late in the day. As is now recalled, chips major IBM was prepared to make investments here in the 1960s, but was put off by the delay in decision-making.

The development of the IT hardware industry cannot be delayed any further. This country is already facing the consequences of having ceded space in the high-technology manufacturing to other countries. As far as semiconductors are concerned, the new policy to attract investments under the auspices of the India Semiconductor Mission must be followed through relentlessly. The results of this drive in terms of project implementation are bound to take several years, but it will be worthwhile in the long run. India’s economy is already far more digitised than those of many developed nations. It now needs to reach the last remaining frontier, the hardware industry. Only then can it truly become a global high-technology leader.

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