Electronics in Kerala's Industrialisation K K Subrahmanian K J Joseph This paper reviews the growth of the elctronics industry in Kerala. The focus is on the existing structure and competitiveness in an inter-regional context with a view to identifying strategy options that could maximise the potential of this industry as a vital link in the rapid industrialisation of the state, given the availability of a vast pool of skilled human resource. The development of the electronics industry in Kerala has taken place almost entirely at the initiative of the state government Therefore, an attempt is made to provide a perspective of the role of the state government THERE is now a burgeoning literature which suggests that a capital-deficient economy could stimulate growth and create considerable employment through the development and diffusion of the electronics industry if it has a vast pool of skilled human resource. Some economists' would even attribute to electronics the same role conventionally assumed for capital goods in the growth process because it is a crucial source of skill-based innovations that have a wider degree of applicability throughout the economy and society. Thus electronics has become a critical sector in modern industrialisation not only for its direct con- tribution to output and employment but also for its role in contributing to efficient resource-utilisation, greater productivity, and hence rapid growth in the economy as a whole. In a large economy like India the develop- ment of electronics industry has other rationale as well. In particular, as a foot- loose industry with supposedly no locational specificity based on raw material, the elec- tronics sector opens up opportunities for regional development. In India the central government has taken a number of major steps to foster the development of the elec- tronics sector with geographical dispersal as an important objective. 2 And a number of state governments have evinced considerable interest in developing electronics as a key sector for rapid and dispersed industrialisa- tion of their regional economies. This paper reviews the progress of elec- tronics industry in Kerala. The analysis is focused on the existing structure and com- petitiveness in an inter-regional context with a view to identify strategy-options that will maximise the potential of electronics in- dustry as a vital link in the rapid industria- lisation based on the availability of the vast pool of skilled human resources. As the development of electronics industry in Kerala has taken place almost entirely due to the initiative of the state government, a case study of Kerala State Electronics Development Corporation (Keltron) is also attempted in order to put in perspective the role of the state government. GROWTH OF INDIAN ELECTRONICS: AN OVERVIEW As regional industrialisation in India takes place within the overall framework of the national policy regime, the development of electronics industry in Kerala has to be assessed essentially against the backdrop of the national scene. Although the origin of the industry in India can be traced back to the 50s, a concerted effort towards its development on modern lines started only with the setting up of the Department of Electronics in 1971 and vesting it in 1975 with the total responsibility of regulating the import and production capacity of elec- tronics goods. The government of India's strategy initially aimed at a balanced and self-reliant industry to meet the domestic requirements, in particular of the strategic sectors, with a major role assigned to public sector enterprises and the small-scale sector. The above strategy had its implications on the evolution of the industrial structure— product-composition and organisation- structure, competitiveness, and overall output growth-rate of Indian electronics sector. Under the strategy, the three major sub-sectors of the industry, viz, (I) consumer electronics, (2) professional electronics, and (3) components, were regulated to grow in an integrated manner. Thus, the capacity- creation for the component sector was planned on a derivative basis of the defined requirements of equipment (both consumer and professional) for the domestic market. In terms of organisation-structure the organised private sector was not given any significant place. The production of elec- tronics goods under these structural features for a narrow domestic market was charact- erised by high cost, technological backward- ness and inefficiency. As a result, the overall rate of growth (compound) 3 of Indian elec- tronics was only 17 per cent per annum during the decade 4971-81 (Table 1). In striking contrast, other newly industria- lising countries (e g, South Korea) achieved a much higher growth-rate in overall output under a different strategy concerning the industrial structure and market orientation. In those NICs each sub-sector developed along separate lines propelled by different market forces though the inter-linkage between them in the production base was weak. The emphasis was on the development of consumer electronics and components for the export market. They could reap scale economies and technological progress and produce electronics goods with high degree of cost effectiveness, and product quality. Some studies 4 which made a comparative analysis of Indian performance vis-a-vis South Korea have concluded that India missed 'the electronics bus' due to its self- reliant strategy pursued within certain struc- tural constraints. In any case and perhaps carried away by the 'success' of South Korea, the government of India changed its electronics strategy in the early eighties. The emphasis under the new strategy was placed on a greater play of market forces. Administrative controls and regulations on import, capacity crea- tion, technology acquisition, location, etc, were relaxed and the government came out with packages of liberalisation and promo- tional measures for different branches of electronics industry by mid-eighties. In general, the policy-emphasis now shifted to minimum viable capacity, scale economies, easier access to foreign technology, relatively free entry to the private sector (including monopoly houses) with the aim of sup- posedly making the industry modern, cost- effective, and competitive. The strategy-shift and consequent policy changes exerted significant impact on chang- ing the product structure of the industry in the eighties (Table 2). The share of consumer electronics sub-sector increased and that of Economic and Political Weekly June 11, 1988 1233