The government has a $3-billion incentive plan to create electronics brands and boost private research spending on the sector. It aims to draw investments and generate business worth over $15 billion, for which research and development would be critical. Mint explains.
Why the hefty R&D spending?
What India does today is assemble devices at scale, for which research isn’t vital. However, assembling operations typically have very little margins, and a significant part of it is earned by firms from China—leaving India with little value apart from being a market where access to labour is cheap. India can only move up the value chain when companies manufacture core components domestically, and also own patents for devices that are built and sold commercially. Acquiring patents requires companies to innovate and create new solutions, which is impossible without research and development investments.
Read more: Govt mulling $3 billion incentives package for electronics R&D, products
What is India really missing without R&D?
Having local brands that own patents means that technology can be licensed as products for both local and foreign markets from India itself. Currently, most patents in electronics are owned by companies from the US or China, which earn hefty revenues by simply allowing clients access to their technologies. In comparison with mere assembly of electronics, R&D-led innovation can expand the revenue in the domestic market by nearly 10x or even more, which will be crucial to generating greater value. Until any of this happens, it’s unlikely that local brands would be competitive with global ones.
Has India ever had electronics brands?
Mumbai’s Onida is a prominent name, though it only licenses its brand name now. A lack of competitive R&D wiped out India’s smartphone brands Karbonn, Lava and Micromax. Exactly a decade ago, these three sold over 35% of all phones in India. The main problem was their failure to keep up with the pricing-led innovations that Chinese brands like Xiaomi brought.
So, where do we really stand today?
Investing in R&D can create consumer brands again, akin to how Apple, Motorola and others came up in the US decades ago. A wave of nationalist sentiment, coupled with a more fragmented world geopolitically, has made this the right moment to push domestic brands. Experts say foreign firms, which view India as a consumer market and not for innovation, should sign technology transfer agreements. But, markets such as smartphones are already mature. History says it won’t be easy to break through.
Read more: Chinese checkers: How PC maker Lenovo stayed safe
Can India replicate the US, China success?
In developed categories such as phones, innovating to become a recognized brand is difficult. However, R&D can open up new avenues. Google’s investment in AI research at Stanford University led to the development of generative AI. India’s private enterprises, prioritizing returns to shareholders, do not invest much in research. Last fiscal, TCS spent only 1.1% of its revenue in research. With the world’s second-largest engineer base, India can emerge as an innovation economy with the right funds and incentives.
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#Mint #Primer #private #important #electronics