A common vision for both the industry as well as the government is the creation of an ecosystem for a globally competitive electronic system design and manufacturing (ESDM) sector in India, which can meet the country’s needs and serve the international market. There has never been a better time to ‘Make in India’. Experts from both sides expressed their views on how to foster innovation, enhance skill development, protect intellectual property and build a best-in-class manufacturing infrastructure in conversation with Sudeshna Das, senior executive editor, Electronics Bazaar
“The ESDM industry in India is expected to grow significantly this year and move ahead towards its ‘zero net import by 2020’ goal
—Dr Ajay Kumar, joint secretary, Department
of Electronics and Information Technology
The vision for the Indian ESDM Industry in 2015-16
The ESDM industry in India is expected to grow significantly this year and move ahead towards its ‘zero net import by 2020’ goal.
In order to achieve this goal, the industry needs to focus on continually developing innovative products, which it can use to serve the domestic market as well as export to markets abroad.
The Indian ESDM industry needs to focus on growing the business to the level that enables it to achieve economies of scale. This will allow the industry to move faster on the technology front. Technology is the key driver of innovation today, and continual innovation is essential for long- term survival. In today’s world, one cannot create a product and survive on that product for five years. Timelines are much shorter and innovations happen every month.
The status of different programmes created to achieve ‘net zero’ imports
MSIPS: Under this scheme, we have provided 30 approvals to Indian as well as multinational companies across sectors that include component manufacturing, consumer electronics, EMS, automotive electronics, telecom, strategic electronics and LEDs. The maximum demand has been from the automotive electronics, consumer electronics and electronic components sectors.
There is a continuous and steady inflow of investment. We have seen automotive and other companies including Bosch, Magneti Marelli, Nidec Motors, Continental, Motherson Sumi, Calsonic Kansei, Tissolve, Tata SED, Tejas, Panasonic, Jabil, GE, BEL, Deki, SGS and Vikram Solar, among others, setting up plants in India.
Several component manufacturers have set up manufacturing facilities here. Apart from automotive electronic components manufacturers, who have a direct bearing on the automotive industry, we have Nidec which is making DC brushless motors to service a range of electronic and electrical product markets. Manufacture of niche capacitors, PCBs and inputs for solar photovoltaic cells have started on a large scale.
Industry would benefit tremendously from investments as this would have a direct bearing on the growth trajectory, thus helping make India a potentially more competitive space for other OEMs as well.
A revised modified special incentives package scheme (MSIPS) is likely to be finalised very soon. Not only would it be a more investor-friendly version, but will also have extended scope.
The Electronics Manufacturing Clusters (EMC) scheme: Infrastructure is a big challenge for the growth of the ESDM industry in India. Through the EMC scheme, the government provides assistance to develop world-class infrastructure in order to attract investments in the ESDM sector. In a cluster, there is a promoter that sets up the infrastructure and then invites industries to set up operations. What typically happens is we take up various greenfield areas, where the infrastructure and industry is set up only when the proposals are approved. The people involved in planning for the clusters double up as marketing agents for further investments as they club their clusters with investment.
Twelve new clusters are on the verge of being developed, of which two have been finally approved while 10 have been given in-principle approval and a few more are in the pipe line. The approved clusters will take two to three years to be completely operational. The effect of this will be seen within a few years.
The Preferential Market Access (PMA) policy: Various ministries have started to procure preferentially from Indian manufacturers. Though some ministries have now started to incorporate the PMA clause, we are continually trying to create greater awareness about this policy. In this regard, we have set up a portal where all ministries need to provide periodical updates on their implementation of the policy.
Electronics Development Fund: The government is fully committed to promoting the industry and providing support to it. Recently, the government approved an Electronics Development Fund to invest in entrepreneurial ventures in the IT and electronics space.
The fund, which is like a ‘fund of funds’, will participate in ‘daughter funds’, which in turn will provide risk capital to companies developing new technologies in the area of electronics, nanoelectronics and IT.
The corpus of this open-ended fund will be managed by SIDBI or a similar financial institution, and the government’s investment will be decided on a case-to-case basis, determined by market dynamics. This is expected to act as a catalyst for attracting foreign funds into the electronics sector, as government investment in these ventures will give assurances to foreign companies.
National Centre for Large Area Flexible Electronics: We have approved the setting up of the National Centre for Large Area Flexible Electronics. In areas of electronics that are in the early stages of maturity, the developmental capabilities fall short of expected standards. However, in these new fields, we need to have technological capabilities for the industry to compete on the global platform. One such field is large area flexible electronics, an emerging sub-sector which is expected to grow significantly in the next three to five years. The idea is to create an ecosystem for research and development in large area flexible electronics in close coordination with industry.
Large area electronics represents a segment of electronics where monolithic integration of electronics typically results in products that are large in size and applications. At the heart of this is a flexible fitting property of products and their manufacture using printing-based methods.
One such centre already exists at IIT Kanpur, and we plan to set up more of them.
Incubators for innovation: Innovation in products and processes is the key to success in the ESDM industry. To bring in heightened focus around innovation we decided to launch several ‘incubators’. For example, we are working with the fabrication design industry to promote innovation at the design level. The idea is to make innovation attractive to youngsters in the electronics industry as well as partner with the private sector. We are in the process of setting up the incubators; two in Delhi and Patna are operational, while one is in the advanced stages of being set up in Kochi.
Fostering skill development: Besides innovation and infrastructure development, we also plan to focus on talent development. In this regard, we plan to scale the number of PhDs in the field of electronics. We are encouraging institutions to scale up capabilities to create more and more skilled people in the country, for electronics.
GMR in Hosur, bordering Bengaluru
ELCINA in Bhiwadi, Haryana
Andhra Pradesh Industrial Infrastructure Corporation (APIIC) in E-city, Hyderabad
“Zero import duty is the biggest hindrance to achieving net zero imports by 2020
Pawan Sharma, managing director, Victor Component System Pvt Ltd
I am hopeful about the vision for ‘net zero imports by 2020’ but at the same time I think that the zero import duty policy is likely to impede the realisation of this vision. The zero import duty policy is also likely to be a big hindrance to the growth of the components manufacturing industry. Without the development of the components manufacturing industry, the ‘Make in India’ vision will in all likelihood turn into ‘Assemble in India’.
Moreover, there is a need for the government to address issues related to corruption, which is even faced in SEZs and is a big problem hampering the growth of Indian industry.
I also feel that a quality conscious mindset is key to achieving success in the components industry. The government should promote quality management in components manufacturing like RoHS compliance, etc. It would prevent India from becoming a dumping ground for junk components from other countries like China.
“Our expectation from the government is not related to subsidies and benefits but a level playing field so that we can be globally competitive
Sanjiv Narayan, managing director, SGS Tekniks
We are expecting this year to be the beginning of a much-awaited golden era for the ESDM industry as far as local manufacturing is concerned. The industry, however, needs to be on its toes to compete with the zero duty import policy. Our expectation from the government is not related to providing subsidies and benefits but about providing a level playing field so that we can be globally competitive.
We have some solutions in mind which can bring about modifications in the tax regime. For example, the cost of power, freight and finance are very high in India in comparison to other countries. So we propose a tax rebate—double the expenses against these three heads in the balance sheet. Also, the sector can be considered as a priority sector for lending just to improve the availability of bank loans. In addition, sales from SEZs could be exempted from taxes.
We hail the government for the steps taken to implement the MSIPS and are waiting for the notification concerned with further simplification and flexibility. For example, we propose that within the MSIPS procedure, the date of application should be considered rather than the date of approval. We also expect that if a company gets approval under MSIPS for a product under a specific product category, then the approval should also be valid for manufacturing any product under the same category.
“Each state needs to come up with its own policy for the ESDM industry
Vinod Sharma, managing director , Deki Electronics
I expect that, this year, the Indian ESDM industry will begin to gain confidence about its future and move towards an optimistic scenario from the ‘Let’s watch’ phase.
Central government policies and schemes are in the right direction for supporting this scenario. But since the actual implementation will happen in the states, it is important for each state to come up with specific policies for the implementation of the Centre’s mandate.
We are waiting for a revised MSIPS which has already been agreed upon. We expect it to further extend the scope of MSIPS by moving up the value chain – that is, from specific electronic components manufacturing to further upstream, to its raw materials.
Deki has already started expansion under MSIPS. It has invested Rs 120 million for the first project and we are planning to come up with the second project soon.
“Government policies and schemes will help the ESDM industry to get rid of major disability factors like the cost of finance, power and infrastructure
Subhash Goyal, managing director, Digital Circuits Pvt Ltd
The ESDM industry is passing through a critical phase. A number of policies such as Make in India, Digital India, etc, have the potential to change the entire value chain of the industry. This is important since this sector lags behind other manufacturing sectors with about 60 to 65 per cent of local demand not being serviced yet. This supply-side constraint is largely due to some major disability factors like the high cost of finance, the low availability and poor quality of power, and the lack of proper infrastructure for setting up plants.
The most important of these constraints is the cost of finance. The rate of interest on loans Indian companies take is 13-14 per cent, which is almost 10-12 per cent higher than in other competing countries. The interest element alone acts as an additional burden of 30-40 per cent at every stage of the value chain.
Power costs are also a problem. We are forced to maintain our own power back-up infrastructure at a high cost due to the low availability and poor quality of power.
Moreover, infrastructure is a big issue in India in comparison to major competing countries. We hope that government policies and schemes will help ease these constraints for the industry.
Another major issue is red tape. The number of government departments created to support industry, ultimately end up being a hindrance to its growth due to the complex rules and regulations. This complexity results in additional costs, delays, etc.
“Foreign investors will keep an eye on the progress of NPE implementation and would eventually approach us as investors or as technology partners
Amrit Manwani, managing director, Sahasra Electronics
This could be a watershed year for the ESDM industry in India. Several of the companies whose applications were approved for grants under the MSIPS will begin to invest significantly in 2015-16. India’s recent ‘Look East’ policy has a significant bearing on fresh FDI investments in ESDM and on technology partnerships with countries like Japan, Taiwan, Korea and China. These countries are world leaders in electronics hardware manufacturing and have the required technology needed by Indian industry. There are significant opportunities for JVs and technology partnerships with manufacturers from these countries in 2015-16.
The Indian ESDM industry faces three major challenges:
The high cost of capital
Inadequate infrastructure like erratic electricity, poor transportation systems, inadequate capacity at sea and airports for handling bulk cargo, etc
Availability of raw materials and components
Additionally, as India is a WTO country, ESDM falls under the zero duty regime, resulting in severe competition for Indian manufacturers.
Some of the schemes introduced in the National Electronics Policy (NPE) like MSIPS, EMC, PMA, and EDF are truly great initiatives that have the potential to go a long way to achieve the ‘Make in India’ vision. Foreign investors will keep an eye on the progress of policy implementation and will eventually approach us as investors or as technology partners. The world simply cannot ignore the growing market for electronic products in India. As big players set up operations here, opportunities will open up for Indian manufacturers and investors.
The government has already created institutional mechanisms in this regard such as the Flexible Electronics Centre at IIT Kanpur sanctioned by DeiTY with an initial grant of Rs 1.32 billion for R&D efforts in large area and print electronics. This initiative will bring government, academia and industry together to enhance electronics manufacturing through local R&D efforts, especially in those areas where foreign investors have been reluctant to share technological knowhow with India.
Government emphasis on skills development is another important initiative, through fiscal support from NSDC and DeiTY. This initiative will encourage employable young people to acquire skillsets for the ESDM industry and provide an appropriate environment for their growth.
India’s leadership in the software industry is well known. With a likely four-fold increase in demand for electronics over the next five to six years, coupled with rising labour costs in China, the ESDM industry could well be the next sunrise sector in India. All stakeholders need to be constantly made aware of the potential this industry offers, through expos, seminars, industry meets, etc.