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As rupee falls, exporters take on China
  BANGALORE: "With the drop in the rupee, we are now much cheaper than China. We can today manufacture some products at 10% lower costs," says V Raja, MD of TE Connectivity India, which designs and manufactures products that connect and protect the flow of power, data and signals.

Raja, who has been with TE Connectivity since 2011 and who was CEO of GE Healthcare India for the seven years prior to that, says his parent company - the $13-billion US entity previously called Tyco Electronics - is examining the economics of exporting more out of India. "We are establishing a new facility in Bangalore, and we could create additional capacity for export if needed," he said.

The potential silver lining in the massive drop in the rupee value is beginning to emerge.

Manufacturing has been one of India's weakest links, but the rupee fall now makes a variety of products more exportable or import-substitutable. China, which has been the factory to the world for many years, has seen its currency actually appreciate slightly against the dollar during the past few months that the rupee collapsed, making Indian products even more attractive.

J Crasta, whose company CM Envirosystems makes environmental testing chambers to test a whole range of products, including missiles, says his exports have risen three-fold this year, in part due to the rupee depreciation. "By the end of the year, we might touch Rs 25 crore in exports, compared to about Rs 4 crore last year. We improved our product quality a lot, making them as good as or better than German and Japanese ones. But thanks to the rupee, we are now very, very competitive globally. The Japanese want to buy from us, and seeing that some Italians have come to us," says. Crasta, who is also the Karnataka head of industry chamber Assocham.

The depreciation comes at a time when the government has initiated significant measures to boost manufacturing.

Under the modified special incentive package scheme for the electronics sector announced last year, wherein it provides an attractive capital subsidy, the government is said to have already received project proposals worth Rs 11,500 crore. Of these, some have been approved, including a Rs 406-crore investment by Samsung to manufacture smartphones in Noida, and a Rs 544-crore investment by Bosch Automotive Electronics to make electronic control units of cars.

"The rupee depreciation is the icing on the cake," says P V G Menon, president of the India Electronics & Semiconductor Association (IESA). A study by IESA, which is yet to be concluded and which seeks to understand India's disability in manufacturing in comparison to China, finds that India has a 12-13% disability in certain high volume products, but has a 1-2% advantage in certain other industrial products such as flat panel displays. "Now with the depreciation, these figures may be more in favour of India. Labour in China has become four times as expensive as in India, and many companies are today looking at a China-plus-one strategy. So we should benefit," Menon says.

Electronic products is one of India's biggest import items currently, and is growing so rapidly (it grew 30% to Rs 1.57 lakh crore in 2011-12 over the previous year) that some estimate it will cross the oil import bill by 2020 if there aren't major import substitution efforts.

"In the last 18 months, there has been some movement in manufacturing from China to India largely in precision engineering as we are equipped in terms of technology and people. Also, China has lost its price-competitiveness in regular manufacturing," says Tamilselvan Sankaran, technical director in Detroit-headquartered engineering support services and technology solutions company EASi Engineering. But he says he is yet to see an impact due to the rupee depreciation.

For most, that could take time. It takes time to change customer mindsets and in many cases, companies have signed long-term contracts.

Sanjay Nayak, co-founder of Tejas Networks that makes telecom optical transmission products, says Indian customers have the choice to buy from Tejas or from a foreign vendor. "Many today have contracts with foreign vendors, but they should be motivated to shift in the medium term," he says. Nayak says Tejas is also more export-competitive now - it sells in over 60 countries - given that 50% of the cost of his product is the value addition that the Indian company makes on top of imported components.

But some of the older challenges to exports and manufacturing continue and will limit the potential. Infrastructure in terms of roads and ports are still problem areas. "Anomalies in the tax structure has to be rectified," says Anwar Shirpurwala, executive director in hardware association MAIT, referring to the lower customs duties on finished products in comparison to that on components.

TE Connectivity's Raja says labour laws are a critical concern for his parent company. "If I can't downsize in bad times, it's a big problem for me because we operate at very low margins. Global companies recognize India's capabilities, even Airbus and Boeing buy from me. If some of the problem areas are addressed, the potential is huge," he says.