November 13, 2011 / 6:13 AM / 6 years ago

Electronics import bill could surpass oil - Sam Pitroda

MUMBAI (Reuters) - From chip plants to research parks, India must invest in an electronics manufacturing base to sate the swelling demand for smartphones, laptops and other gear or risk an import bill larger than for oil, a top adviser to the prime minister said.

Information technology and services may have powered India to be one of the world’s fastest-growing major economies, but manufacturing accounts for just 16 percent of output, roughly half of the share in China and far behind India’s targeted 25 percent over the next decade.

“We have lost all of the electronics manufacturing base, whatever little we had,” said Sam Pitroda in an interview on the sidelines of a World Economic Forum event in Mumbai.

“Electronic hardware (imports) could be $400 billion if we’re not careful, in the next 10-15 years.” he said. “It could be more than oil.”

India wants to upgrade its industrial base to diversify from service sector-led growth, create more jobs, and curb a swollen trade deficit that could more than double in three years, due in part to billions of dollars worth of Chinese imports.

The trade deficit could cross $150 billion for the fiscal year that ends in March, according to a top trade official, from just $14.3 billion in 2004.

India imported $27.2 billion worth of electronic goods last fiscal year, compared to $102 billion for oil. However, India is a major re-exporter of petroleum products.

Global chip makers such as Intel Corp, Advanced Micro Devices Inc and Freescale Semiconductor Holdings Ltd have design operations in India. But of the $6.55 billion of semiconductors used in Indian-bought products last year, almost none were made locally.

“We can’t ignore it. We have to say, look, we need local production,” said Pitroda, an adviser to Prime Minister Manmohan Singh who is credited with leading a telecoms revolution that has turned India into the world’s No. 2 cellular market.

“We need a foundry, we need ecosystems ... we need indigenization, we need our own products,” said Pitroda, who holds cabinet rank.

The potential demand for a domestic manufacturing base is huge. Rapidly growing in wealth and aspiration, Indians buy about 300 million mobile phones each year, Pitroda estimates.

Plagued by creaking infrastructure, bureaucratic red tape and a complex tax regime, India has struggled to accelerate industrial growth and attract investment to the sector.

A lack of local technology suppliers means that electronics manufacturers that do cater to the domestic market, such as Dell Inc and Hewlett Packard Co, often have to assemble products from parts sourced overseas.

“It’s one thing for Dell and HP to come and make products here, but their value-addition is very different,” said Pitroda. “The assembly cost is irrelevant.”

For more Reuters coverage of the World Economic Forum India Economic Summit, click:


(Editing by Tony Munroe)

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