A recent government study has fueled that perception. Last year, the Indian government asked the electronics industry to recommend ways to boost both the hardware and software businesses. Two sets of recommendations were delivered. Those for aiding the software industry were accepted and implemented in six weeks, while recommendations for boosting India's hardware manufacturing sector still languish in the government bureaucracy.

"Electronics hardware is being neglected," said S.S. Swarn, editor of the trade publication Electronics Today. "Software and hardware are two sides of the same coin, and a one-sided coin is bad currency."

Few outside India are aware that very little electronics manufacturing takes place here, aside from television sets, music players and — of late — modems and PC printers. India has scant semiconductor manufacturing and exactly one fab — the government-owned Semiconductor Complex Ltd., which frequently loses top engineers to private companies. The government did repair the fab after a suspicious fire several years ago, but the facility's outdated technology has attracted few customers.

"The electronics manufacturing sector in India is a demoralized one," said Vinay Deshpande, vice president of the Manufacturers Association for Information Technology, the forum of India's hard-pressed hardware sector. "There is a notion that India cannot compete with countries like Taiwan when it comes to manufacturing. So people believe it is easier to import than to manufacture here."

India accounted for a respectable $5.65 billion of global information technology production in 1998-99. In the same period, its share of the $335 billion global component manufacturing market totaled $1.2 billion, or less than 1 percent, according to India's Electronic Component Industries Association.

Unfavorable policies

"Government policies are not favorable to component development," said Somnath Chatterjee, the association's secretary general. "Despite low penetration of IT-electronic products, the market potential is not realized as several companies are tied to only approved, imported components."

The group is pressing the government to quickly implement recommendations for boosting hardware manufacturing. Despite growing demand for electronics here and large potential revenues from direct and indirect taxes on purchases, Chatterjee said the government has failed to adopt policies that would attract manufacturing investments.

For now, the Indian government remains largely mute about when or if it will adopt industry recommendations.

Gautam Soni, adviser to the newly formed Ministry of Information Technology, admitted that the manufacturing picture remains bleak. "We do not have the same competitive advantage in hardware as we do in software," Soni said, citing infrastructure as a major problem. "But we [the ministry] are looking at it seriously."

India's small but active manufacturing sector hopes so. But generally, the government is widely seen here as more a hindrance to economic development than a supporter.

"I only hope the government listens to us and creates a vibrant manufacturing sector," said S. Narayanan, chairman and managing director of MRO-TEK, a Bangalore company that along with Israeli partner RAD Data Communications makes modems for both consumer and business markets.

Added L. H. Bhatia, director of international operations for BPL, a major Indian consumer electronics and appliance company, "You cannot ignore the need for setting up manufacturing units within the country to provide employment to an enormous Indian population. Gainful employment cannot come only from software, it will have to come from basic manufacturing activities."

Depending on imports

BPL recently began exporting PC monitors made with imported components to the United States. The company can't sell the monitors in India because there is no component manufacturing base to draw from. For example, there are no display makers in India, so tubes have to be imported, driving up costs and making the monitors too expensive for the Indian market.

According to International Data Corp. estimates, of the more than $954 million worth of PCs sold in India last year — or 844,550 units — none were manufactured here. More than half were assembled here, but all with imported components. "Importing is cheaper, so why make things here?" said IDC analyst Sabyasachi Satpathy.

Despite talk of explosive PC demand, observers said there is little hope of using the domestic market to jump-start components manufacturing. PC makers like Acer, Comqaq, IBM and Wipro all assemble computers here, but only to meet specialized needs.

India's import tariff structure adds to the manufacturing shortfall. Tariffs add about $900 to the cost of a typical PC that would otherwise sell for $1,125. While motherboards, processors and hard drives for PCs are all imported, Satpathy of IDC said it's possible that manufacturing could eventually get a boost now that modems and PC printers are being manufactured in volume in India.

About half the PC business here goes to India's computer gray market, mostly regional brands and knockoffs. But these machines are notoriously unreliable, leaving consumers to choose between costly imports and cheap gray-market PCs with no technical support. The result has been a stunted Indian PC market unable to support domestic manufacturing.

Then too, India's poor and costly transport network, along with bureaucratic red tape, combine to delay parts shipments. "What hits badly are [delays] that upset manufacturing schedules, [including] transport strikes, port closures, ships not getting a berth to dock and sales-tax charges," said Shashi Mal, a senior IBM India executive.

Unlike India's software industry, which regularly sends representatives overseas to drum up business back home, the hardware industry lacks a lobbying arm. "You need companies from here to attend global exhibitions, to go abroad and explain how business is done in India," said Vick Agarwala of Future Electronics, Singapore. "Only then can you attract investments in manufacturing into the country."

High tariffs

One company that has tried to manufacture in India is Motorola. It makes pagers and two-way radios, with investments so far totaling $12 million. But pager components bear tariffs as high as 55 percent. "Fiscal incentives and simplified procedures are required to make large-scale manufacturing" possible, said Bala Kumar, a Motorola executive.

"There is no world-class manufacturing of any kind of component in India," said Shobhana Prakash, vice president of the Consortium of Electronic Industries of Karnataka. "To have world-class manufacturing, you need a world-class atmosphere."