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Emerging Business Opportunities for Indian MSMEs in Electronic System Design and
Manufacturing Sector
Aggregate
demand for electronic hardware in India is expected to increase to a total value
of $400 billion by year 2020, up from $40 billion in 2009, whereas domestic
production of electronic hardware will only reach an estimated value of $100
billion in the next six years. The ensuing demand-supply mismatch of about $300
billion will encourage global electronic system and design manufacturing (ESDM)
companies to consider India as their next investment destination.
The National
Policy on Electronics provides for the establishment of some 200 electronic
manufacturing clusters (EMCs) which in turn will create new business
opportunities for MSMEs. The EMCs will help the ESDM enterprises to raise their
productivity levels, cut costs and promote innovations by leveraging shared
infrastructure and resources, making the ICTE manufacturing sector more
competitive.
Government is
offering various schemes and incentives to encourage MSMEs to foray into
electronic manufacturing. These include schemes for promotion of lean
manufacturing, use of information and communication tools, setting up of mini
tools rooms in the PPP mode, and entrepreneurial management development through
incubators.
Reflecting on
the emerging trends in the ESDM sector, in a session organized by CII on
Emerging Opportunities for SMEs in Electronics Manufacturing, Dr Ajay Kumar,
Joint Secretary, Department of Information Technology, Ministry of Information
Technology & Communications, Government of India, said that today electronics
are key components of various devices. Most medical devices are electronically
operated. Likewise, traditional lighting is giving way to LED lighting.
Electronics is pervasive in areas like IT, telecom, automotive, solar PV, smart
cards, etc.
Demand for
electronics hardware in India is growing at 20-21% per annum, but most of it is
being met through imports. Taking cognizance of the imperative for promoting
electronics manufacturing, Government has introduced a variety of schemes to
encourage Indian electronics manufacturing companies. Dr Kumar said that India
will be able to increase its share of global electronics manufacturing output by
leveraging its low-cost manpower resources (vis-a-vis China). China accounts for
nearly 40% of global electronics manufacturing output.
Dr Kumar said
the National Policy on Electronics has underlined the need to develop new chips
to meet local needs at affordable costs (‘Billion Needs, Million Chips’). On a
larger plane, Government aims to increase domestic electronics manufacturing
growth at the same rate as the demand growth.
To accelerate
electronics manufacturing, Government has decided to meet 50% of the cost of
creating common facilities in Greenfield EMCs. This amount will be subject to a
ceiling of Rs 50 crore for every 100 acres, but with no upper limit. Likewise,
Government will meet 75% of the cost of creating common facilities in brownfield
EMCs, subject to a ceiling of Rs 50 crore.
Dr Kumar said
that since the introduction of this scheme, Government has granted in-principle
approval for 7 greenfield EMCs -- GMR is setting up an EMC in Hosur, Tamil Nadu;
Andhra Pradesh Industrial Development Corporation is setting up 2 EMCs near
Hyderabad; ELCINA is setting an EMC in Bhiwadi; Madhya Pradesh Electronics
Development Corporation, plans to set up 2 EMCs in Bhopal and Jabalpur; Kerala
Industrial Infrastructure Development Corporation is setting up an EMC in Kochi.
To encourage MSMEs to set up EMCs, Government offers to meet the costs incurred
in the preparation of DPRs.
Dr Kumar
informed that the brownfield EMC in Electronic City, Bangalore has decided to
create common infrastructure for which Government will meet 75% of the total
cost (Rs 70-80 crore). He added that Government is developing two incubators –
one, in the area of chip design and the other to enable small companies to test
their new design chips. The first incubator is coming up in Bangalore. It will
be a centralised facility that can be accessed online. The second incubator is
being set up in collaboration with Delhi University and STPI.
Government is
also offering 25% investment subsidy to electronic manufacturing units being set
up in non-SEZ areas, and 20% investment subsidy to units coming up in SEZs. This
scheme is being extended to units across the entire electronic manufacturing
value chain, with a low minimum threshold limit of Rs 1 crore. The threshold
limit varies for each manufacturing segment. “MSMEs can take advantage of this,”
he said. Earlier, the minimum threshold limit was as high as Rs 1,000 crore.
In addition,
Government provides for reimbursement of counter-veiling duty and excise duty
for capital invested in this sector. This is available for setting up new units
as well as for expansion or relocation of existing units. Hence, a unit that is
not viable in Europe can be relocated to India and the duty concessions can be
availed thereof.
Referring to
the Modified Special Incentive
Package Scheme (M-SIPS), Dr Kumar said that Government has received proposals
worth $12 billion under the scheme until end-March.
Stating that
Union Cabinet has given its approval for setting up two wafer fabs in the
country, Dr Kumar said an ecosystem will come up around the fabs which will
create a host of business opportunities for MSME vendors and suppliers. The
project involves Rs 65,000 crore worth of investments.
He also said
that Government is giving preference to domestic manufactured electronic goods
in public procurements. As a case in point, 12-13 Indian companies (working on
both ARM-based and Intel-based platforms) have bid for the procurement of Akash
tablets.
Domestic manufacturers are also invited to participate in the tenders for the
Gigabit Passive Optical Network (GPON) project.
Besides, DGS&D
has finalised separate manual for procurements from domestic and non-domestic
manufacturing companies. Dr Kumar said, “We also want to increase the items that
Government buys.”
He informed
that Government is planning to create venture funds to support start-up
electronics manufacturing activities. Besides, 2-5% export incentives are being
given to a large number of electronic items manufactured in the country.
Highlighting
the importance of creating a strong manpower base, Dr Kumar said the training
programmes related to this industry have to be aligned with current industry
needs. Hence, Government is proactively promoting skill development for this
industry through different schemes. Industry is required to identify the
training needs and recommend the training centres for skilling people.
Government will meet 75% of the training costs. Dr Kumar said that one lakh
people will be trained under this scheme.
He added that
Government is also aiming to increase the number of PhD submissions per annum in
the electronics discipline to about 1,500 by 2017-18. Toward this, Rs 400 crore
has been earmarked for all PhD granting institutes to increase their intake of
scholars. The PhD topics will be identified by industry. “We will create a
platform where industry can highlight the areas in which research is to be
carried out,” he said. The Union Cabinet took this decision in February 2014 and
the scheme will be implemented from the new academic year beginning in June-July
2014.
Underlining
the importance of R&D, Dr Kumar cited the example of an SME in Taiwan where 50%
of its 115 people have a PhD. The company is looking to export medical
electronics items to India. He asserted that Indian companies should be keen to
pursue research, innovation and IPs.
Government
has also introduced a scheme to support MSMEs to comply with the electronics
safety standards. These standards came into effect on January 3, 2014. Companies
have to adhere to the standards, for both manufacturing and imports. Government
has agreed to reimburse the testing and certification costs incurred by these
companies.
In addition,
Government has recently approved a scheme to help MSMEs meet the quality
standards in export destination markets. Under the scheme, Government will
reimburse the associated costs.
Dr Kumar said
that his ministry is planning to fund technology development also through its
partnership with Global Innovation & Technology Alliance (GITA). Besides, the
MSME Ministry plans to set up a Technology Centre exclusively for electronics.
Later, while
responding to the various queries raised by the participants, Dr Kumar said that
to promote collaborations his ministry has created an online B2B platform and
publishes an electronics newsletter that goes to over 1 lakh readers.
Referring to
the plan for setting up EMCs, he said the primary objective is to support
globally competitive clusters. However, the clusters will be market driven. He
also said that the EMCs should come up in areas that have high success factors.
Stating that
investments are mainly flowing into areas like automotive components, LED,
consumer electronics, Dr Kumar said that due efforts are being made to draw
investments in many other promising segments of electronics manufacturing.
Toward this, the department is creating a joint working group for smart cards.
Further,
Government is facilitating common sourcing from global suppliers to reduce MSMEs
transaction costs and other sourcing costs.
Referring to
solar product manufacturing, he said that the MSIPS will be revised to include
solar products. Currently, the focus is on PV cells, sub-strata etc.
Noting that
many defence offset opportunities are underutilised by MSMEs, Dr Kumar said an
Inter-Ministerial Committee looks into the concerns of domestic manufacturers
with regard to public procurements. He added that R&D costs will also be covered
under MSIPS.
Mr Deepak
Sharma, Joint Director, Department of Information Technology, Ministry of
Information Technology & Communications, Government of India, also participated
in the session.