Date : 29/05/2023

Relevance: GS-3: Indian Economy and issues relating to Planning, Mobilization of Resources, Growth, Development and Employment.

Key Phrases: Vietnam's Electronics Manufacturing Hub, incentivizing investment, Special Economic Zones (SEZs), Geographical Clusters, a $100 billion electronics export target, primary electronics manufacturing hub.

Why in News?

• India's electronics export industry has shown promising growth, with mobile phone exports doubling from $5 billion to $10 billion in the past year.
• This growth was driven primarily by Apple, which accounted for half the mobile phone exports from India in 2022-23.
• India's electronics export industry has shown promising growth, but benchmarking against other countries highlights the vast potential that remains untapped.

Case Study: Vietnam's Electronics Manufacturing Hub

• Attracting investment through incentives:
  • Vietnam's strategic approach to incentivizing investment in the electronics industry was instrumental in its growth trajectory.
  • By offering a corporate tax holiday for five years, Vietnam attracted significant interest from major players.
• Concentrated regional development:
  • Vietnam designated a specific province, Bac Ninh, as its primary electronics manufacturing hub. By providing support for setting up and expanding operations in this region, Vietnam fostered the establishment of numerous Samsung factories, resulting in a concentrated cluster of electronics manufacturers.
• Diversification and ascending the value chain:
  • Vietnam strategically positioned its northern region as an attractive destination for electronics manufacturers seeking to diversify away from China.
  • This strategy led to substantial investments in components and semiconductors, further enhancing Vietnam's position in the global electronics market.

Case Study: China's Special Economic Zones

• Creating favourable business environments:
  • China's establishment of Special Economic Zones (SEZs) offered extreme flexibility in legal frameworks and ease of doing business, attracting early investors and encouraging industrial development.
• Shenzhen's success story:
  • The city of Shenzhen, within an SEZ, evolved into a vibrant electronics ecosystem, facilitating large-scale contract manufacturing for companies like Apple, Intel, and Sony.
  • The resulting exports exceeded $250 billion and generated significant employment opportunities.

The Power of Geographical Clusters:

• Historical examples:
  • Geographical clusters have been influential in driving industrial development throughout history.
  • Manchester's emergence as a looming city, Detroit's association with the automotive industry, and Silicon Valley's establishment as a digital hub exemplify the network effects and economies of scale associated with concentrated clusters.
• Organic growth vs. deliberate strategy:
  • While clusters like Tirupur, Ludhiana, and Kanpur in India grew organically, East Asian countries strategically developed competitive clusters by prioritizing export competitiveness.
  • This deliberate approach has allowed these countries to achieve remarkable success.

Prioritizing Large Export Clusters in India

• Government leadership:
  • State governments must take the lead in establishing large regions (minimum 250sqkm) dedicated to electronics manufacturing, prioritizing industry responsiveness and infrastructure development.
• Anchor investor and related units:
  • By attracting a significant anchor investor and facilitating the establishment of related units within the cluster, India can achieve initial scale and foster an ecosystem that moves up the value chain.
• Transformative opportunities:
  • With companies seeking alternatives to China, India has a unique opportunity to position itself as a compelling choice, aiming for a $100 billion electronics export target within a single cluster.

Conclusion:

• By emulating successful strategies employed by countries like Vietnam and China, India can unlock its full potential as an electronics manufacturing and export hub.
• The establishment of a large export cluster with a prominent anchor investor will not only boost the initial scale but also foster an ecosystem that drives growth, innovation, and higher-skill job creation.
• The time to act is now, as the window of opportunity to attract companies looking to diversify away from China may not remain open indefinitely.
• By setting ambitious goals and aligning all necessary resources, India can become a global leader in electronics exports.

Source: Live Mint

Mains Question:

Q. Analyse the significance of creating a large electronics cluster with an anchor investor for India's export competitiveness in the global market.