The National Policy for Electronics was launched three years ago, leading to tremendous expectations from the electronics industry. In a guest article for Electronics Bazaar, Rajoo Goel, secretary general, ELCINA, delves deep into what’s plaguing the policy, and addresses the issues that need to be worked upon
The National Policy for Electronics (NPE) was announced in October 2012 with much fanfare and expectations, both from the industry as well as the government. Both sides expected this policy to give the much needed boost that the ESDM sector in the country had been waiting for.
The Modified Special Incentive Package Scheme (MSIPS) for investments made in the ESDM sector expires on July 26, 2015, and needs to be extended to achieve the goals outlined in the National Policy for Electronics 2015.
The NPE 2012 envisioned addressing the increasing gap between the booming demand for electronic goods and the stagnant indigenous production levels, and aimed to encourage investments so that the gap (which is currently met by imports) is reduced. To date, the gap continues to increase and the NPE is yet to deliver the expected results. Against a demand of US$ 100 billion, we produce under US$ 40 billion worth of electronics and, that too, with low value addition. An ambitious target of US$ 400 billion to serve the projected market by 2020 and exports of US$ 100 billion with ‘zero net imports’ looks like a distant dream. We, as a country, need to commit to developing a resilient electronics hardware sector, which would enhance our global competitiveness and the quality of life of our citizens. Just maintaining the status quo would get us deeper into the vicious circle of low investments and high imports.
The actual implementation of the policy began in the latter half of 2013 when the guidelines for implementation were released for the various schemes, of which the key ones are:
1. Modified Special Incentive Package Scheme (MSIPS)
2. Electronics Manufacturing Cluster Scheme (EMC)
3. The semiconductor fab unit policy
4. The Preferential Market Access policy
5. The Electronics Development Fund (EDF)
6. Mandating safety standards
7. Human resources development
The above schemes are the main pillars on which the edifice of NPE 2012 stands. Taking stock of the situation after over two years, we have found that in spite of tireless efforts by the Department of Electronics and Information Technology (DeitY), a lot is still left to be done. Most of the above schemes have been launched with an obvious expectation of varying degrees of success. The schemes that have been the most successful and demonstrated the maximum potential are EMC, MSIPS, human resources development and the mandating of safety standards. The EDF has been announced only a few months ago and needs more time for effective implementation, while the semiconductor fab scheme is another very long term initiative and is possibly a bit too ambitious for this early stage.
The stakeholders, domestic as well as global, who are interested in investing in electronics manufacturing in India are keen on the EMC scheme and MSIPS, which have the maximum potential for success and profitability. It is important to note that these two schemes must move in tandem because the success of one depends on the other. The clusters under the EMC scheme are long term projects and only now, after three years, are beginning to see the light of day.
It will probably be another six to 12 months before the first few clusters open up for investments and actual construction of new manufacturing facilities begin. To a large extent, MSIPS benefits will accrue only when these new units are set-up and start making an impact on the value chain and on domestic production. As of now, while a significant number of MSIPS projects have been approved by DeitY, adding up to an estimated ₹ 60 billion (as against applications amounting to Rs 200 billion) the actual disbursements have just commenced. In a majority of cases, the new units coming up in greenfield clusters have not been able to apply for benefits under the MSIPS yet.
ELCINA has made a number of recommendations with respect to modifications in MSIPS and the EMC scheme. These are important for effective implementation and for the benefits of these schemes to flow down to the industry. Currently, we are going through the learning process and we understand that DeitY has accepted many of these suggestions, which are largely related to investment thresholds, simpler and more effective procedures and quicker implementation. Yet, it is a matter of concern that about eight to 10 months have elapsed and approval of these recommendations is still awaited from the Union Cabinet. This conveys the wrong message to potential investors, and raises concerns about the commitment of the government to continue supporting the MSIPS and EMC scheme.
It is imperative that the EMC scheme and MSIPS continue together for at least five more years in order to help us achieve the target of US$ 400 billion by 2020. At the very least, the MSIPS needs to continue for two years beyond the tenure of the EMC scheme (which concludes in November 2017), because new units will come up in these clusters only much after they are opened for investment.
The following factors make a compelling case for strong support and continuation of the MSIPS and EMC scheme:
1) Both schemes are interdependent and together have the potential to enhance competitiveness, counter disability factors and reduce manufacturing costs by six to eight per cent for the ESDM industry, making it globally competitive.
2) If either scheme is withdrawn, the impact of the other will be drastically reduced and obviate the synergies arising out of this combination.
3) Two years is too short a period for the successful implementation of these schemes which will have an impact only after four to five years. Two years is barely enough for the industry and officials to understand these policies and move up the learning curve for successful implementation.
4) There has been intensive information dissemination and promotion of these schemes by government officials and industry associations during the last 10-12 months, and withdrawal or even curtailing of these two schemes will cause considerable confusion and disappointment among global investors.
5) The vast exposure and excitement about the ‘Make in India’ initiative has enhanced interest among foreign companies to come to India. MSIPS and the EMC schemes are a major reason for a global firm to decide in favour of India as the next manufacturing destination.
6) Value added manufacturing in electronics hardware is capital intensive in nature. With India’s high finance costs, MSIPS is essential to incentivise fresh investments.
In conclusion, ELCINA and the Indian electronics manufacturing industry appeal to the government of India to expeditiously approve the long awaited modifications in the MSIPS and EMC scheme, and extend the former for another five years to enable successful implementation. The MSIPS is going to expire on July 26, 2015, just as its benefits have begun to be realised. This will be a big setback to the ESDM sector and to the aspirations of India’s electronics manufacturing sector that hopes to account for 25 per cent of the country’s GDP. The ‘Make in India’ drive within the electronics industry and the dream of a ‘zero duty’ sector will certainly lose its appeal for investors.
