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The nightmare that is Indian Logistics - A real hinderance in India’s growth

ipv1

Introduction

 

Make in India is a program launched by the Prime Minister Of India Mr. Narendera Modi on 24th September, 2014 with the aim of promoting skill enhancement and creation of jobs. The thought process was possibly to create an attractive scheme to foreign investors to start bringing in their money. It was reported that within a year, many companies presented proposals for setting up electronics manufacturing in India worth 18US Billion Dollars. Consequently there was a growth of 5% cellphone manufacturing and sales that were made in India. The big names involved were Spice Group, Hitachi, Huawaei, Xiaomi, Lenovo and Motorola and countries like Japan promised to invest as well. The interesting thing is that most of this focused on cellphone manufacturing where as the basic parts like silicon or IC manufacturing is still being ‘imported’ because its not yet manufactured in India.

 

 

 

In 2016, a similar scheme by the name of 'startup India' was announced which promoted bank financing for startups and removed constraints like land permissions, foreign investment proposal, environmental clearances etc. Kudos. So that means I can setup my own business quickly and easily… sort of. The question that I am asking here is, “How useful are these schemes for inventors and small designers?” and “What are the nightmares that await if I chose to start a small business?"

 

 

Electronics Manufacturing In India

 

 

Lets talk about electronics manufacturing in general for starters. Assume you have a great idea that can change the world- a gadget that will be truly useful for everyone and can be made cheaply. That means you are a thinker and understand technology pretty well and can setup production on your own. Great! Before you jump to find the forms to fill in to get your own manufacturing system up and running, consider this- you need parts. When you have an electronic gadget to be manufactured, you need parts. These parts like ICs and other components are not manufactured in India. You need to bring these in from part manufacturers and in most cases you can get them from distributors like Element14. In other cases you will need to import these directly from a manufacturer who may be in China or Taiwan etc. Either way you depend on a logistics provider to get these parts to you on time and without problems- you pay them for this service. There are customs duties to be paid and then there are state taxes etc etc. So there is a large overhead involved in the simplest of manufacturers. Then with production you need semi-skilled labour to assemble the devices and when you expand to large quantities, we will need pick and place machines and soldering ovens etc. I can make those indigenously as well- given the availability of all the parts. Once production finishes, quality control and then packaging are the logical steps when I will be spending a LOT on boxes and bubble wrap. Lastly again- Logistics to send them to their destinations.

 

The bottom line is that I will be heavily dependent on logistics to make and sell my gadgets and the quality of the carrier will also effect costs.

 

The Nightmare begins

 

With the ‘Make in India’ initiative, I can get bank loans easily but the problem is that most of us don’t want a loan to start a business. We need a bit of support in other terms. As an electronics designer, I will confess, it is still cheaper to get a PCB manufactured in China and get it imported here via Singapore post because when I am doing prototyping, the local taxes are just ridiculous. Add to that the cost of domestic logistics via brands such as FedEx, DHL and UPS and you are looking at upto 300% overheads. My Indian Postal service is much better and faster - thank you! Then when I need to start production, more issues arise such as if I am dependent on a local guy to make a case for me(say) then with time, he will start to hike up price for no reason. If I get something from China and my supplier causes issues, I can simply change vendors. For components and other stuff Indian Customs must levi a duty amount which is either on a declared value or something. The likes of DHL and UPS will charge INR500 just for clearance even if Indian Customs say ‘No charge’.  The value of the INR 500 can be better understood when you look at the fact that a meal from a roadside stall can set you back by INR30 in Amritsar and every odd Sunday, I spend INR150 for breakfast for me and my wife as a treat!.(Amritsari Kulcha Rocks!) When I have to spend thousands of rupees monthly on clearance fees, this can really rock my budget.(See attached pictures)

 

So this raises another question- Will small scale domestic manufacturing ever work in India? Will I ever be able to focus on Low cost products or will China always rule?

 

Production Drama and Packaging

 

Depending upon what you are manufacturing, you need space to test out things and most production units have to be setup in Industrial estates outside city limits to reduce rents on the space. Logistics can wreak havoc when you are away from the city and the local courier wala will bounce your package around like Ace Ventura

 

 

That maybe a bit much but with all the broken roads, you get the point. As a consequence, most vendors will ship packages within package within packaging. My Cel Robox 3D printer was ‘dropped’ at my doorstep… literally and had to be repaired consequently. Another example was when I asked SiLabs to send me a sample micro controller. Here is what they did.

 

 

You can see the overkill in this instance and you can zoom into the micro controller in the stick at the top right end. Yep! One sample and...

 

There are a couple of things to note in the above note. The first thing is that even though the declared value of the device was only a few cents, the duty applied was very large. No one bothered to understand this- not even DHL. The second interesting thing is that the customs duty is far less than the handling fees by DHL. These are facts applicable to DHL, FedEx and UPS and after all the taxes and everything, the entire shipment will become unaffordable. Should it not be the job of the logistics company to ‘handle things’ correctly. After all that is what they are charging us excessively for.

 

It is clear that logistics will effect duties on raw materials, time taken to make things and even the cost of the packaging all of which will indirectly effect the longterm cost of the product to the end user. I will never be able to deliver the promised low cost unless I have my own distribution system and the ability to import things directly.

 

Which brings me to my next question,”Is the Make In India Initiative only for large firms who will ultimately gain a monopoly in their product markets or will India ever work towards improving small scale manufacturing?” I am not asking people to stop asking me to pay taxes or give me exemption on duties. I am just asking them to do their jobs… their complete job.

 

Other bureaucratic nonsense

 

India is riddled with corruption and that is something that is well know. The street cop is in cahoots with the local robbers and bag/chain snatchers(two guys on a bike without name tags will ride past you and grab neck chains, bags, purses and everything that may be dangling) and the city administration has people who will demand money even to file complaints against illegal road excavations and public property destruction. The fact is people are OK with things. The poor have nothing to loose and don’t care and the rich pay their way around promoting corruption unintentionally. I once met a guy who introduced himself by saying, “Call me when you feel like slapping a beat cop” and these are the things that no one will talk about. This is a major reason why the State of Punjab in India has lost so much business in the past and I do not think its a place to start a manufacturing system.

 

 

The major issues again making stuff in India on a small scale are corruption and irresponsibility of the people. Privatisation had the upper hand where employees were penalised for poor service but it seems logistics at least have been infected by the plague that is indifference. In a recent transaction, UPS India refused to talk to me to resolve an issue. My email and pleas fell to deaf ears and even after contacting the UPS office in the US, all I got was an email address to send the details of the problem, never to be heard from again.

 

 

Conclusion

 

Make in India and Startup India are schemes designed to attract foreign investors and they are quite friendly to the same. They were never meant for small manufacturing and there does not seem to be any initiative for us on the horizon. There are a variety of problems in the country and their severity varies with the State and their administration. There are always problems but the bigger issue is the lack of initiative to resolve these issues. I am no politician and never will be because I am an engineer- I will always call it as I see it. Private firms had the advantage of being more streamlined but that seems to be changing as well. As time passes, people have become indifferent to other peoples problems and that is a real shame in my mind.

 

As a teacher, I try and promote a better habits in students but the only way things will change is if everyone changes. For my endeavours, I have chosen to take my manufacturing requirements to China and vendors like Seeedstudios and all my part purchases to Wurth Eleckronik and Newark. My preferred choice of logistics is and always will be the domestic postal service which gives me the biggest bang for the buck and for sale of any products, I will be using online stores at Seeed and Tindie. For finance I will never be asking any bank and will head towards crowd supply. Can I make a profit. Possibly but I would rather make a smaller profit as opposed to waste my time with ‘Making In India’. I know it sounds very anti-national but actually its pointing out a problem that not many will dare to speak about. Its upto the reader to act upon and try and make things better.

Anonymous

  • I got so fed up of all the trouble that I moved to a different continent!

  • I had the same problem with DHL here in Pakistan. I got a shirt from UK and it was sent through DHL and also there was clearly mentioned in the package that its a gift item and when I asked DHL if this shirt is checked and its value was accessed by local custom department and then all these duties are applied they told me yes it was all done by local custom so you have to pay these charges along with our custom handling charges. After one month of trouble I found out everything is just a big mess. The custom documents were prepared when shirt was booked in UK and all those declared and assessed values were created by DHL not local custom department. The most stranged thing that I found out about DHL was the custom clearance document. In that document there were lots of goods and strikingly lots of different category items had same so called accessed value.

    It was proved DHL is --- when I received it the package was never opened or checked by anyone. So this prove DHL is a big ---- So avoid it all cost if you can.

     

    On the other hand recently I got a shirt from E14 which was sent through UPS. It was delayed by 3 days due to custom clearance procedure. It was checked by local custom and custom cleared sticker was attached to it and there was not a single rupee of duty or any other handling charges on it.

     

    Strange isn't it.

  • Nice post.

     

    It reminds me of the early experience the US had in building up the Tenth Air Force during WWII.

    To get across India by rail took 5 or 6 days and as long as a month by road.

     

    That was one of the main reasons why the US established the first Air Transport Command to fly needed people and materiel quickly from port to base.

     

    I am surprised the hear that the situation is still a little chaotic, but I do sympathize.  India is much larger than most people realize and with the huge population it takes a lot of resources and commitment to build the basic infrastructure needed.

     

    Don't be discouraged.  In 1940, the US did an exercise to move a single Army unit from the east coast to the west coast by road.  It took three weeks over the abysmal road network then in existence.

    After the War, US President Eisenhower created the Interstate Initiative, but even then it took a lot of years, people and money to improve the US road network to the level that it exists today.

     

    I do not envy India in its task.  They have much to do and little money to do it.

     

    DAB

  • in reply to shabaz

    Thank you Shabaz sir. Funding in India is not a big issue anymore and the Department of Science and Technology (dst.gov.in) offers many schemes and if you have a valid business plan, they can fund you as well. The paperwork is lengthy but it works. The issue is that you can have a big business and pay low wages to your employees and make bigger profits for yourself which is what happens in most cases. Since the labour has no idea about how to sell his product, the business guys take advantage and bite off most of the profits. I know for a fact that a lot of niche marketing firms charge upto 50% of total sale value as their cut. The end result is that after deducting the material costs as well as the marketing cost and the capital investment recovery and taxes, what remains is left between the production labour as well as the company owners and staff. In India, IT products depreciate 100% annually and other taxable incomes are recovered by company heads purchasing expensive vehicles like Audis and Mercedes etc which are shown as depreciating assets of the company and hence the depreciated value is subtracted from the annual profits (but the bosses get new big cars too.)

     

    Deducting salaries for the staff as well as the company heads, what is left is how the salaries will be calculated. Now these labourers spend hours everyday and commute on bicycles and in bad weather to work because their employers will deduct a day's salary if they don't show up. From this amount, subtract amounts that go into the pockets of corrupt politicians, local officials and losses in customs and unnecessary fees by transportation and logistics people and you have businesses that make profits at the cost of the poor. Either that or the manufacturing cost goes up and profits down with bankruptcy on the long run.

     

    I have been to those depths and understand Indian Tax Laws, unofficial taxes and expenditures and do not feel comfortable doing business like that. "The only way modern business in India can make any money is if someone else looses the same amount"- Anonymous

     

    As an educator, I make a fraction of what I did in the corporate world but that's fine as long as I am happy with what I do. I will be applying for a position elsewhere once my PhD is complete so that my son has a better education as well as a better quality of life.(All parents do)

     

    My hopes with this little post was to make people understand how turning a blind eye has a ripple effect everywhere. The discovery of gravitational waves is new but we all knew that everything was connected long before that.

     

    Thanks again for reading.

    Cheers,

    IP