Second National Policy of Electronics has been framed; It seeks to turn India’s Electronic consumption market into $400 million markets: Vinod Sharma, Deki Electronics

Vinod Sharma, Managing Director, Deki Electronics Ltd; Sunil Duggal, CEO, Hindustan Zinc and Amar Kaul, Chairman & Managing Director, Ingersoll Rand India Limited talks about the impact of lockdown amid COVID-19 on their companies as well as on entire manufacturing sector during an interview with Swati Khandelwal, Zee Business. 

Edited Excerpts:

Q: Electronics is an important contributor to our economy and several opportunities are seen in the segment. However, manufacturing was not allowed under the complete lockdown that existed for 40 days with exceptions in essential items. What is your view on the impact of COVID-19 and the lockdown on the manufacturing sector about electronics specifically and what will be the roadmap in future to come back to normal?

Vinod Sharma: It would be wrong to term electronics as a sector or vertical anymore as it has become horizontal. It has turned up to be an integral part of our daily lives like I talking with you through a laptop, Skype and TV, this is electronics. Even the Direct Benefit Transfers (DBTs) that is used to send money in the accounts of poor is an electronic transfer and it is done through electronics. When it comes to medical electronics than ventilators, sanitizer and non-touch sanitizers are a part of it. It is a very important sector and turned up to be a meta-resource. The government of India, fortunately, has understood it in the last 5-6 years. The speciality of the sector is that we are not able to match with the rest of the countries. For instance, if we talk about quality, then we have to compete with Japan; when it comes to reliability than we have to compete with Germany. When it comes to pricing than China stands ahead of us. This is almost a zero duty sector due to which we have faced difficulties in competing with them under the existing situation. 

I would like to share a figure; global electronics has a contribution of around $ 1.2 trillion. If divided with 7 billion people then it turns to be $300 per capita consumption. However, India has reached only $ 60 per capita to date. Thus, we need to grow five times to match the global average. If it happens then it should not depend on import and trading but should be manufactured here. It will help in creating millions of jobs. 

So, I have shown two aspects of the sector and I feel there is an opportunity. It also carries a security angle. So, strategically, job-wise and revenue-wise, it is an extremely important sector for us to invest. When it comes to COVID’s impact on the sector then it is necessary to know that it is a supply chain driven sector and we can never say that it can be manufactured only in India or China. They are global components and products as several items like zinc and other metals are also used in it. Unfortunately, at the time when the virus started in China, before hitting India, we felt the stupidity that we have committed in the last 10-15 years and managed to put all our eggs in the Chinese basket, we have paid a lot due to it. We are getting this opportunity again and will take another a month or two to start. It seems that we will reap the benefit of the opportunity and will be able to run it smoothly. 

Q: Production cuts have been announced by several metal companies and there is a mismatch between inventory and supply-demand and metal prices have crashed severely in the last few months. How your company is dealing with it and what is your outlook from the production point of view as well as pricing?

Sunil Duggal: An unprecedented situation has emerged and a sudden shock was seen. The metal prices, however, was already going through a downturn before it, the virus, stuck and this was a special unprecedented shock. But can say that the metal & mining and oil industry has dealt bravely with it. As far as India is concerned, a break has been put on it in a circular economy but it has its advantages and opportunities. India’s import bill stands around $500 billion of which $250 billion is spent only on metal, mineral and fuel, which is a natural resource and Vedanta deals with all-natural resources. Contribution of the segment to GDP, over the years, has gone down to 1.50%. So, the existing situation is providing an opportunity to rethink. However, we have been able to maintain our average production level between 40%-50%. Some inventories have also gone up but we got some opportunities like demand for some metal like steel and zinc among has came from China after it went through a lockdown. 

As far as the oil sector is concerned than we were in a deficit and have been importing around 85-90% oil in the country. So this demand doesn’t have any impact on us. But it is throwing an opportunity to us and I have been talking about the same at different levels as a representative of FIMI (Federation of Indian Mineral Industries) and the mining community of CII. We have told the government that there is a need to take some brave steps.

In the process, we have seen that our geography is equal to the geography of the African nations like South Africa as well as Australia. Then, what is the thing that led us to import or why our import bill is so high? Have we missed any opportunity? Then yes and it is related to exploration and that is that we haven’t explored. Earlier, exploration rights were granted through approvals and on first come first serve basis. But to bring transparency in the process, the government, in the last few years, has introduced the process of auction and it was good. But the question is that what opportunity is available today. I have suggested the government to ask people to come forward and explore them at places where they feel that mineral is available and we will support you. This will help in attracting FDIs, foreign players and best companies. It will also boost the morale of the industry and allow them to encroach and explore them and convert them into mining. As far as natural resource companies are concerned then it will have a multiplication factor on employment, which can be up to 1:15. If we want to generate employment and give a boost to the GDP then we must support exploration and seamless transaction should be converted into a mining lease. Many players will be attracted toward it leading to an increase in investment. We have also suggested that if you want to inculcate transparency then the fundamental of profit mining should be adopted as it happens in the petroleum industry in which the profit is shared with the government. We also face problems associated with land reforms in India like environmental clearance and forest diversion. The government should look forward to resolving this policy paralysis and introduce big reforms. If we fail in introducing the reforms than I feel that we will miss a big buzz and lose an important opportunity. The government, private sector and foreign players, together, should create a conducive and supportive environment and go ahead. I feel the government will be able to generate revenues through this process and at the same time, it will also be able to generate employment opportunities and give a boost to our circular economy. 

Q: You were saying that electronics is a missed opportunity as it has the capability of generating employment opportunities. We are dependent on China but what is the way out from it? Do you know about some countries that are looking towards India for electronic manufacturing or India’s domestic demand is a big opportunity in itself? What is the roadmap for creating India into a very strong electronic hub?

Vinod Sharma: If I talk about mobile assembling in India and then about the electronics manufacturing and export hub. Then  I would like to inform that we, CII, sector association and government, have framed the second National Policy of Electronics in the past few months. The policy aims at turning the $100 billion electronic consumption market into a $400 billion consumption market in the next 5 years. When the target of $400 billion is achieved then we want to export electronics items of at least $100 billion, the current consumption level of India. You were asking that in the Indian market is enough for it then I will say that we must not commit this mistake.

There is a need to understand that the central and sectoral policies are framed at the central level or in Delhi but the business like manufacturing or export happens in states. So, the states should be taken together at this point of time for almost everything like talks related to land, electricity, transport or infrastructure, labour and labour reforms. You will be surprised to know that even today if I have to make some electronic items than I have to first decide whether the product is being made for sale in India or export purposes. But if I am a Chinese, Korean or a Vietnamese than I will not have to sit and think as I can export products from the same factory to India and also sell them within the country itself. So, there are some knots in our policy that forces a businessman to decide and open two-three factories for the same purpose. 

Q: How COVID-19 has impacted your sector and what is the roadmap for recovery as lockdown is being lifted in a phased manner?

Amar Kaul: Our industry is primarily engaged in manufacturing compressors, which is the heart of any manufacturing industry because it is required in every factory. So, it has had a major impact on us especially from capital goods point of view. However, factories like us were operational to supply our products to many essential goods companies like medical companies, ventilators and hospitals where our compressors and vacuum pumps are used. But, special permissions were needed to keep them operational with the help of just 10-15 workers and they were on their heels to help those patients. Having said that with the permission that was granted now we are gradually getting towards mobilizing those things but again it is not more than 25-30%. So important is to balance the precautions notified by the central government and state governments and social distancing making sure that the basic hygiene is created. But also starting our manufacturing activity is essential because if the economy will not work then we will end up losing our people. So, the balance of that is very important. 

Q: My question to all panellists that what is their strategy to optimize the cost and prospects of job cuts or there is an alternative way to deal with it and how you will address the concerns of your employees related to jobs? Migrant labours have returned to their homes and there is no idea that when they will return. So do you think their absence can create a concern related to the availability of people to run your factories?

Amar Kaul: We are lucky in this because we don’t have too many migrant labourers and if they are then they stayed in the same location. Our factories are primarily located in Ahmedabad and they are very close in the vicinity. Currently, we are trying to scan through the hot spots to make sure that it is not transmitted so it is only for those people who can come to the factory and we are starting with them. I think more than labour, we as industry people have to operate on that what is in it for us to restart that manufacturing activity. So, you would have heard that the government is trying to do 100 companies to come to India after shutting their process in China. So, we have both opportunities as well as challenges in it for instance not getting into the specific on the product like several products are used like the compressor is also imported from China. But even after paying the import duty of 21-22% none of the suppliers in India can get close to that cost and the quality is at par with anybody and they give a warranty of 18 months. Thus, they don’t compromise on quality. So, for us the advancement that China has achieved in terms of quality as well as the volume that they have and the price point and cost that they have is nominal. And, I think that is something which should be private-public kind of thing where we, the government and we as the industrialist, can work together making sure that how the cost is under control and we get advanced in our technology. 

Sunil Duggal: You have two questions and they are what we are doing to control the cost and effect of migrant labourers who have shifted back to their homes. 

As far as cost is concerned than we have decided to divide the cost into six buckets and they are input, commodities, raw materials, power and fuel, people cost and admin cost and tried to figure out what is internal and external. These factors have helped us to see the way to drive the structural initiatives so that the cost-benefit stays as it is when the commodity cycle goes up. We are looking on the ways to reset the cost base, however, short term opportunities like distract parcels and materials of fuel, coking coal and different raw materials are globally available. Different parcels are available for short term and long term benefits. There is a saying that necessity is the mother of invention. In this period of difficulties, we found that what used to be an activity of 10 people was being done by just 2 people due to automation of the process where it was required. This automation of the process has decreased the need of people and we felt that 85-90% production was achieved by engaging just 30-50% people. So, it changed our mindset that it is not possible to increase productivity with this manpower. Thus, a new normal has been created. We have redesigned the rate after we felt that the margin is stressed when the commodity prices are low. Redesigning has provided opportunities and we reaped on its benefits. 

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As far as migrant labourers are concerned, then several organizations have developed labour colonies where people are comfortable and living with ease. So, I don’t think that their migration will have a major impact on the industry. The industries should provide comfort to them if there are some migrant labours. 

Vinod Sharma: We, our company, is a family of 600 members and we meet almost daily to discuss the ways to sale through this challenging phase. Cash availability will be less as the money that we would have received from our customers is almost negligible from the last 6 weeks. And, we have to pay salaries to everyone. This is why we are discussing things to reach the best decision maintaining transparency. I can happily say that our team is standing with me during this period of crisis. 

If seen from the industry point of view than there is anger especially from the SME industry side due to the activities of last 3-4 days. Till then, I had a feeling that the government is tacking the issue in a logical and coordinated manner and I am sure that they will rectify the conditions. If you have a look at the timing of sending back the workers than you can understand. Secondly, the functional certificate is being asked in many districts to reopen the factories that we took 30 years ago. So, certain things have occurred that is creating a rift between the central, state government, employer and employee. I hope that we will sit together and find ways to solve it.