Nokia: electronics & labour in India

The decision to close production at Nokia’s Sriperumbudur plant near Chennai has intersected with some interesting political developments in the south Indian state of Tamil Nadu. The plant closure is affecting about 1,100 workers in the factory and may have knock-on effects on other firms linked to Nokia’s local production of mobile phone handsets. While I don’t have any special or insider knowledge of the case, or of the campaign by the Centre of Indian Trade Unions (CITU) demanding state intervention to protect workers’ jobs, the issue raises questions about electronics manufacturing in India and invites broader reflection about the trajectory of Indian economic development and the consequences for workers.

First, let’s establish some context: the Finnish transnational electronics giant, Nokia, has announced it will end production at its Chennai plant by November. Earlier in the year, Nokia sold its global handset operations to Microsoft for €5.4 billion. After the deal was announced, the Government of Tamil Nadu accused Nokia of claiming tax breaks for export sales targets it had not fulfilled. Such subsidies are a normal part of ‘business’ in India. They form part of national ‘Special Economic Zones’ (SEZ) policy designed to attract export-oriented investment from foreign and domestic corporations. Many states in India have their own version of the national policy, with subsidies like tax holidays on export sales, cheap water and electricity, public investment in roads and land offered at below-market rates (Banerjee-Guha, 2008). Governments in Tamil Nadu, ruled for decades by coalitions led by either of the two main Tamil regionalist parties, AIADMK (currently in power) and DMK, have had some success in attracting foreign investment in different industries. For example, the government succeeded in getting Hyundai and Ford to set-up major auto factories in the late 1990s. In 2006, Nokia established a major facility in Sriperumbudur, where Hyundai is also located.

After accusing Nokia of illegally dodging tax, leading to an ongoing court case, the government froze Nokia’s factory assets. For most of 2014, Nokia has continued to produce as a contractor for Microsoft, keeping several hundred workers on its payroll. Now, with Microsoft deciding to stop sourcing handsets from Chennai, the factory is set to close. The factory union, the Nokia India Employees Union, is linked to CITU, one of the key trade union confederations in India, which has led protests calling for the AIADMK-led government to take control of production at the factory and produce ‘Amma’ brand mobile phones. ‘Amma’ (Tamil for ‘mother’) is linked to the decision of the former Chief Minister J Jayalalithaa—widely known as ‘Amma’—to establish state-subsidised production of water, salt and even pharmaceutical products. For instance, the state has fixed prices for bottled ‘Amma’ water at Rs 10 per litre. Whether or not CITU’s call is a wise move is unclear to me, especially given Jayalalithaa’s recent conviction for corruption and DMK’s rather opportunistic support for the protests.

While I’d be interested to hear more about the actual struggle—about which I I hope activists @TNLabourBlog might be able to enlighten me—the wider issue I want to reflect upon concerns the future of electronics production in India. Electronics production is really not that big India by regional (i.e. Asian) and global standards. It lags well behind China’s massive electronics output, led by the likes of Foxconn, with a local market worth hundreds of billions of dollars and several hundred thousand workers concentrated into industrial colonies, particularly in Shenzen (see Hong Kong-based activist group, Sacom, for a labour activist perspective on the Foxconn workers, although there are some other scholarly sources too, e.g. Jenny Chan’s research in Contemporary China Studies at Oxford).

In India, the industry peak body, the India Electronics and Semiconductor Association (IESA), claims that local product output is worth about $US71 billion in 2014. Production is mainly domestic oriented and focuses on consumer durables like mobile phones, TVs and computers. IESA is upbeat about the industry’s prospects, especially as it is supposed to receive a Rs 10,000 crore boost (about $US 1.6 billion) from Modi’s ‘Make in India’ campaign. This is the prime minister’s flagship program to encourage investment in India through a range of reforms, including SEZ-type policies as well as the removal of ‘unnecessary laws and regulations’ (like protective labour laws) and fewer bureaucratic procedures for investment approvals. Details of this program are still being rolled out and no one can yet say how much impact it will have—although one must point out that investment rules in India have been gradually but substantially liberalised over the past two decades. For example, in the auto industry (my main area of study), approvals for foreign TNCs have shifted from maximum 49 percent shares in joint ventures with local firms in the mid-1990s to automatic approval for 100 percent foreign-owned factories since 2000.

Even with these changes, electronics manufacturing in India has always lagged behind other ‘emerging markets’. It is much more famous for its software services. The dominant explanation for this has been, first, India’s ‘comparative advantage’ in well-educated, English-speaking ‘middle class’ professionals and, second, trade and investment liberalisation since 1991. In the 1990s, India became the destination of choice for global IT offshore outsourcing and some Indian firms, like TCS, Infosys and Wipro, transformed from small start-ups to substantial transnational corporations. The IT industry’s growth since the 1980s is commonly explained as a triumph of liberal reform. For example, in 2004, The Economist claimed that such reform “has brought faster growth, particularly in those parts of the country and of the economy that have opened up most to competition and have been least shackled by government. The most obvious example is the IT industry”.

A useful retort to this argument come from the ‘developmental state’ tradition in international relations scholarship. In particular, the work of Evans (1995) and Pinglé (1999) focused upon the role of state institutions, rather than ‘free markets’, in nurturing successful industries in countries like India. Evans argued that thriving industries needed to demonstrate ‘embedded autonomy’: bureaucrats from state institutions needed to work closely alongside private industrialists (i.e. be ‘embedded’) but not beholden to their interests as cronies (i.e. be ‘autonomous’). Autonomy was crucial so that state institutions could ‘discipline’ capital into achieving the performance targets (e.g. export volume) needed to generate high levels of industrial growth. Pinglé argued that this analysis had operated in India at an industry level through the creation of ‘developmental ensembles’ between state and capital. So NASSCOM, the peak industry body for software services firms, worked very closely with the Department of Electronics to create such a developmental ensemble, leading to a thriving software services industry in the 1990s. The failure to do this in electronics manufacturing explains why India never followed its East Asian counterparts in developing strong manufacturing sectors, she argued.

A different approach comes from Jyoti Saraswati in his outstanding 2012 book, Dot.compradors. In my view, this is the best book written on the origins and development of well-known India’s IT industry (also see Saraswati, 2008, for an article length version of his framework). Rather than a state- or market-centric explanation, he argues that the IT industry’s success and electronics manufacturing’s relative failure was a consequence institutional conflict between the state and sections of private industry. His framework is influenced by the ‘linkagency’ approach developed by the radical economist Ben Fine. I think this is somewhat similar to the notion of ‘uneven and combined development’ used by several other radical/Marxist scholars.

Saraswati demonstrates, firstly, that the demand for IT was initially connected with the state’s geopolitical concerns. In 1962, India was defeated in a border war with China. This was followed by China’s detonation of a nuclear device in 1964 and the US embargo imposed against India during its 1965 war with Pakistan. Following these episodes, a government report (the Bhabha Report) recommended that Indian-owned firms were necessary to build national self-reliance in electronics production and recommended that the government reduce foreign ownership in this sector. The report generated conflict between sections of the state. Foreign ownership restrictions were opposed by the Ministry of Defence (MOD). The MOD’s electronics unit, Bharat Electronics (BEL), which produced electronic equipment in Bangalore to service the Indian military, had contracts with TNC subsidiaries which were threatened by the Bhabha Report’s recommendation. The Report’s authors were influenced by the Department of Atomic Energy (DAE), which was highly influential in the state and a “champion of self-sufficiency” (Saraswati, 2008: 1142). Tensions led to the establishment of the Department of Electronics (DOE) in 1970.

At this time, American giant IBM had a near-monopoly on computer sales in India, having generated large profits by importing and leasing second-hand computers for Indian firms. This practice was widely interpreted as a problem for India’s foreign exchange position. Having inherited the DAE’s preference for self-sufficiency, the DOE tried to curb IBM’s market power. After several years of negotiation, IBM famously opted to close its Indian operation in 1977 rather than share control with the DOE. During this period, the DOE and the DAE agreed to establish a new state-owned electronics firm, Electronics Computers of India Limited (ECIL), to produce computers for the domestic market.

Following IBM’s departure, ECIL became the dominant firm in the IT industry. However, it was unable to successfully create a market for computers. Institutional rivalry between the DAE and the MOD prevented it from sharing the foreign-acquired technology of BEL. The ongoing inefficiency of ECIL’s operations meant that the successful domestic hardware industry was unable to thrive. Local computers required substantial maintenance, creating a market for early software service providers in the 1970s and early 1980s. Another state-owned firm, the Computer Maintenance Corporation (CMC) had been established in 1975 for this purpose.

Following IBM’s departure, the CMC became the main vehicle for software development and maintenance in the country: “In short, the emergence of CMC, and corresponding software capacity, was to some extent an unanticipated but deliberate consequence of India’s determination to develop indigenous capacity in hardware provision” (Saraswati, 2008: 1144). Additionally, a small number of management consultants emerged. Some small firms benefited from the Software Export Scheme established in 1972 in response to ongoing foreign exchange shortages. This scheme lowered duties on imported computers was provided credit for capital spending on export production. These firms were allowed to service the growing international demand for software and began providing services to large Indian firms who had begun to import cheap computers and electronic parts from East Asian countries. By the early 1980s, these imports were seen as a substitute for ECIL’s low-quality products.

It is in this period that India’s software services sector emerged. Small software services firms flourished by providing services for both the US export market and for domestic firms requiring system maintenance for cheap imported hardware. Thus, while selective liberalisation has played a role in the success of India’s IT industry, its emergence is equally the consequence of institutional conflict and the unintended consequences of ‘self-reliance’. Since the 1980s, these software firms, marshalled by NASSCOM, have received enormous subsidies from the state, including the SEZ policies mentioned above.

Since the 1990s, electronics manufacturers, like Nokia, have also received a generous share of subsidies. But one of the implications of this argument is that India never developed supremacy in electronics production like some East Asian emerging economies—above all, China in the 1990s and 2000s—because the state did not target this industry and especially because of an unintended consequence of institutional conflict. The failure of local electronics production helped to create a market for dynamic local software firms, tipping the focus of the IT industry from hardware production to software and maintenance. It remains to be seen whether this situation will change. Perhaps Modi’s ‘Make in India’ rhetoric will shift things—it is still too early to tell. But I think it helps to understand Nokia’s (and Microsoft’s) decision to wind down production in Tamil Nadu, and the implications of this for electronics workers and unions, in this longer-term context.

References:

Banerjee-Guha, S. (2008) “Space relations of capital and significance of new economic enclaves: SEZs in India,” Economic and Political Weekly, 43(7): 51-59

Evans, P. (1995) Embedded Autonomy: States and Industrial Transformation, Princeton: Princeton University Press

Pinglé V (1999) Rethinking the developmental State: India’s Industry in Comparative Perspective, New Delhi: Oxford University Press

Saraswati, J. (2008) “The Indian IT industry and neoliberalism: The irony of a mythology,” Third World Quarterly, 29(6): 1139-1152

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