Digital India: Employment Push Across Manufacturing And Services

Employment generation, a planned collateral benefit of the Digital India program, can help in correcting the balance between workforce (agrarian), share of GDP (low on manufacturing) and urban predominance (services economy).

In the first three articles on Digital India, we looked at the program overview, the challenges in creating the broadband infrastructure to enable the whole program and the plans and challenges aroundCitizen Services Delivery. This article looks at the thrust on employment generation, a planned collateral benefit of the Digital India program.

The government has dedicated two pillars for the Business Facilitation Layer – one in the area of manufacturing and one in services.

Electronics Manufacturing

In early July when the Digital India programme was launched, reading through a key tenet of this pillar with an eye on 2020 that relates to electronics manufacturing – “Target Net Zero import is a striking demonstration of intent” – would have sounded extremely ambitious.

Just a month and a half later, the focus on using electronics manufacturing to create jobs at high economies of scale aided by government procurement and promoting a few specific items like fabs, set- top boxes, mobile phones and consumer electronics, medical equipment, and smart cards seems to be getting traction.

Foxconn, the leading international electronics manufacturer, has committed an investment of $5 billion over the next 5 years in Maharashtra, after the Chief Minister Devendra Fadnavis worked extra hard to woo the Taiwanese firm to the state, competing not just with other Indian states but also with other South East Asian countries. This investment is expected to create 50,000 jobs in the Pune – Mumbai industrial belt.

Foxconn also started assembling Xiaomi phones in Sri City near Vizag in Andhra Pradesh earlier in August, a project that went live in just over six months. Redmi 2 Prime is the first phone model which can be labeled “Assembled in India”.

Cricket Semiconductors, the first Indian foundry fab that had committed $1 billion of investment in its plant in Pithampur in Indore near Madhya Pradesh in February also seems to have taken a step forward, hiring Aabid Husain, a senior executive working for the foundry giant Globalfoundries in Singapore.

In the healthcare space, Philips has plans to expand its Healthcare Innovation Center in Chakan near Pune – just one of the six such centers it operates globally including those in the US, China, and Netherlands. The Pune center, as well as another Bangalore facility, will focus on R&D and manufacturing of healthcare equipment, eyeing a domestic revenue potential of $1 billion in addition to exports.

Two other related industries – defense and aerospace – have also seen several joint ventures (JV) being announced with the intent to expand India-based manufacturing. Prominent among these are Anil Ambani- backed Pipavav Defence and Offshore Engineering’s JV with Zvyozdochka of Russia, Kalyani group’s JV with Rafael of France and Mahindra Aerospace’s JV with Airbus Group. These JVs while not directly in the area of electronics manufacturing will either source electronics components locally or invest in their manufacturing, further boosting this Digital India pillar indirectly.

These investments and proposals have been made possible on account of three major changes which the government has brought about in the first year of its tenure. Firstly, the government removed the requirement of defense license for dual use items, letting these items be subjected to the sectoral cap of foreign direct investment (FDI) norms. That automatically helps increased foreign investments in dual- use industrial equipment with FDI caps being much higher in many cases.

Secondly, the government is attacking the manufacturing space via not just Digital India, but also the Make In India program and the Pradhan Mantri Kaushal Vikas Yojana – part of the Skill India program. This development triangulates the business focus, availability of infrastructure and clearances and the skills required to make private players successful.

Thirdly, the government had opened up the Medical Devices sector late last year for 100% FDI, thus encouraging global players to extend their India footprint.

The electronics manufacturing area is incentivized alongside these policy changes via taxation incentives, creating manufacturing clusters for ease of facilities development, improving IPR laws to promote R&D and steps to improve MSME participation in the industry. Finally, the government is tweaking procurement norms, especially in the defense area, to buy more ‘made in India’ components – which provides an anchor customer for new manufacturing facilities.

States like Maharashtra, Andhra Pradesh, Madhya Pradesh and Gujarat seem to be fighting for all the new investments in the electronics manufacturing space. The benefits will have to trickle down in a much broader way over time to achieve the eventual aim of reducing rural reliance on agriculture and land-based occupations.

IT For Jobs

For over two decades now, India has been a global leader in the IT and IT-enabled services (ITeS) sectors. These sectors, however, tend to be concentrated in a few cities and the push towards moving to tier 2 cities has only started in all earnest in the last five years or so. Even then, most of the country does not directly benefit from the expansion of this sector.

With the plans to extend the BharatNet as described in Part 2 of this series to all gram panchayats in India, the government senses an opportunity to geographically diversify the fulfillment of IT / ITeS services across the country. Although Business Process Outsourcing (BPO) firms have been expanding in smaller towns, where the cost of operations as well as staff turnover, is low, lack of reliable connectivity has hindered these operations.

Rural BPOs can operate at fully loaded cost structures as low as $5 per FTE (full-time equivalent employee) per hour as opposed to the larger cities where the comparable cost can be as high as $15. BharatNet can reduce this connectivity arbitrage and also allow local Indian firms to deliver outsourced services, not just for the global clientele, but also expand the business for local clients – this is largely an untapped area of business.

Additionally, the government plans to give a fillip to the North East BPO Promotion Scheme (NEBPS) riding on the back of Digital India infrastructure. The North East region has an advantage of English skills – considered a prerequisite for ITeS sector and a talent pool, which usually has to migrate to other cities to find job opportunities. This scheme targets creating 12,000 jobs in the North East region over the next five years in the ITeS sector.

India adds about 12 million people to the workforce every year. A thin line of employability and employment opportunity divides this potential demographic dividend from social chaos. While the options for self-employment and entrepreneurship increase, rapid job creation at a large scale has no substitute.

If the interventions from Digital India program can work productively alongside Make In India, the government would solve an important economic challenge – correcting the balance between workforce (agrarian), share of GDP of economy sectors (low on manufacturing) and urban predominance (services economy).

You can read the previous parts of Aashish Chandorkar’s series on Digital India here:

1. Digital India- Great Ambitions, Hurdles Galore

2. Digital India: The Foundations: Changing Tyres On A Moving Car

3. Digital India: Citizen Services Delivery