India makes some gains in electronic manufacturing but faces a long, arduous road ahead

According to a recent study, little value addition in electronic manufacturing and unemployable graduates will cause a 150 million jobless youth in a decade or so -- in other words, social armageddon -- if the Indian government fails to up the education and skills quotient in the country.
Written by Rajiv Rao, Contributing Writer

Early this year, India's Prime Minister Narendra Modi jumpstarted the "Make in India" initiative in an effort to woo foreign direct investment and the desperately-needed manufacturing jobs that it would ostensibly bring with it, especially to the electronics manufacturing sector.

Launched on a large stage in Girgaum Chowpaty on one of the most iconic beaches in the middle of urban Mumbai, the event literally started off with fireworks -- an electric short circuit that sparked a huge conflagration that burnt the stage down, racked up close to a million dollars in damage, and caused a huge embarrassment to the government.

You couldn't conjure up a more poetic metaphor for India's woeful track record in manufacturing. When it comes to electronics, the gulf between its seemingly insatiable appetite for things like smartphones and kitchen appliances and its ability to produce them is especially stark and a painful reminder of how it has failed, while its neighbor, China, has become a factory to the world.

This is only getting worse by the day. The country is already home to the second-largest user base for smartphones at 220 million, eclipsing the US last year, and on track to hit 500 million in the next five years at a market value size of $400 billion.

The problem is that since few of these goodies are made at home, India will need to ship in $300 billion worth of electronic items by 2020, roughly equivalent to its entire tab for imported oil. This is a disgrace considering both the global talent in tech that the country has spawned and the abundant tech-minded workforce it could hypothetically churn out to pull off such a feat.

It is not as if the country has not recognized this problem or tried to address it in the past. The previous Congress government launched an ambitious national electronics program in 2012, replete with plans for East Asian-like ecosystems, from assembly units to semi-conductor fabs. The current Modi government extended that effort under an ambitious plan called "Make in India" that aims to replace China as the next big locus for electronic manufacturing.

And many proud Indians would say that the plan seems to be working, that over the past 18 months, 40 new domestic assembly units and 12 new component or accessory manufacturing units have mushroomed as part of this initiative. Research outfit Counterpoint thinks that at least 180 million mobile phones will be assembled in the country out of a total of 267 million phones sold here in 2016.

Furthermore, attractive subsidies and schemes have attracted the likes of Foxconn (maker of Apple's iPhone amongst other things) which last year announced plans to invest $5 billion in a factory in the Indian state of Maharashtra. Other plans have also been inked and executed such as this "brilliant factory" built by GE, also in the state of Maharashtra.

Many large tech companies -- Cisco and Microsoft to name a few -- have also plonked large investments in R&D facilities that are the biggest outside of the United States. Subsequently, as Quartz notes, India zoomed to become the number one foreign direct investment destination in the world, having increased 39 percent in just 18 months, making Make in India a big success so far.

Smoke and Mirrors?

Yet, it would be a grave mistake to buy into these statistics as a sign of India's manufacturing ascendancy. In reality, a recent study says that the actual value of all the local manufacturing going on in India to produce the $11 billion worth of components going into 267 million phones (which utilize $80 billion worth of components) is under a paltry 6 percent this year compared to 70 percent in China and 35 percent in Vietnam.

In fact, according to the Boston Consulting Group, India has only created 4 million manufacturing jobs since 2010 and at present pace will only generate another 8 million by 2022. These are mere glimpses of a great tragedy destined to unfold if India doesn't get its act together in lifting vast chunks of its population above the roughly $1,600 per capita income it has today.

Most of India is still deeply agrarian -- only 17 percent of its population is in manufacturing jobs -- but the problem is landholdings have fragmented so drastically that the majority of farmland owned by the average farmer is under an acre, which doesn't leave much room for improved productivity needed to boost income levels. And so far, there have been no workable mass models of farming (community-based collectives, for instance) that could suggest an alternative to massive industrialization targeted to eliminate poverty, which China has successfully demonstrated in the last few decades.

With an additional, staggering 150 million Indians entering the workforce in the next 15 years this is no time to cheer essentially empty stats.

One of the big reasons why it is so hard to generate these desperately needed jobs in electronic manufacturing (make that any kind of manufacturing) is because of the dismal state of education -- hard to imagine considering that the country has churned out the likes of Google's Sundar Pichai, Microsoft's Satya Nadella, and Sun Microsystems' Vinod Khosla to name just a few global corporate and entrepreneurial tech stars. Apparently, around 15 percent of companies in Silicon Valley alone have been started by Indians.

Most recruiters in India say that college students considering an electronics career either don't know how to think creatively or are dismal problem solvers -- their raison d'etre firmly attached to clearing exams. Technology in many of the country's college labs is seriously outdated. Teachers are not valued, salaries are pathetic, and so instruction invariably is of very poor quality.

Those students that do become competent in spite of this systemic failure flock to what some describe as less rigorous software jobs that have built the $150 billion, mainly export-oriented industry in the last decade and a half. Consequently, the majority of college graduates -- especially those in engineering -- that the country churns out are simply unemployable, say employers and recruiters.

Nevertheless, gains have to come from somewhere and the study suggests a three-step process to drive local value addition with trips to Taiwan for rigorous benchmarking. Phase 1 will churn out things like batteries, chargers, cable, and housing locally; phase 2 things like displays and cameras; and phase 3 semiconductor components generated by local fabs, which various governments over the years have endlessly debated and planned to no avail.

Here's another colossal problem facing India apart from their potentially 100 million-plus under-educated youth hanging out with no jobs or opportunities to chase, time to kill, and growing rage at the BMWs and Audis that swish by: By the time we find ourselves well and truly in the muck, the world would have moved on to automated robots handling mass production.

In other words, as the Quartz article states, the jobs that will compete with the robots will be those that command cheaper and cheaper wages, exactly the opposite of what India needs.

As the Economist so eloquently puts it (in the Quartz article), "The technological transformation now under way appears to be permanently changing the economics of development ... China may be among the last economies to be able to ride industrialisation to middle-income status." Take a peek at these stats that show manufacturing jobs in industrialising countries cresting at lower and lower average wages over the years.

India, some say, is a little too late to the party. Its future workers will neither have the skills to compete with uber automation nor the desire to work for the paltry wages that capital equipment will be able to. Somehow, it has to avoid what today looks like a near-certain future social armageddon.

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