SIDBI (Small Industries Development Bank of India) is the principal financial institution for the promotion, financing and development of the MSME sector. In a conversation with Sudeshna Das, senior executive editor, Electronics Bazaar, Dr Sandeep Garg, chief technical specialist, SIDBI, shared his views about the Indian electronic system design and manufacturing (ESDM) industry and the role of SIDBI in promoting this sector
EB: How does SIDBI work closely with different government departments, specifically the Department of Electronics and IT (DeitY), to improve this segment?
SIDBI, being a financial institute, is helping DeitY in assessment and evaluation of the Modified Special Incentive Package Scheme (MSIPS) proposals. The core competency of SIDBI is development banking and to help MSMEs in accelerating their growth in the manufacturing and services sectors. SIDBI is providing consulting services to DeitY and in the last six months, funds worth almost ₹ 20 billion have been allocated for different projects under MSIPS, through the successful evaluation by SIDBI.
Beyond this, SIDBI also facilitates the growth of the ESDM industry as a development banking organisation. It supports small and medium enterprises (SMEs) by offering different financial assistance tools. SMEs from the ESDM sector also avail benefits of these schemes. SIDBI has sanctioned loans amounting to almost ₹ 2 billion to the electronics industry, and around 75 per cent of this amount has already been disbursed.
The development banking role of SIDBI is quite important. As a development bank, it offers special rates of interest under specific schemes related to various options like working capital for the import of machinery, to import technology, for building capacity, etc. The rate of interest can go as low as 8.5 to 10 per cent. For example, if you look at the SMILE scheme of SIDBI, the average prevailing rate is between 9 to 10.5 per cent and if you have a good credit record, then that rate can be further lowered. MSMEs in the ESDM sector can also avail benefits of these schemes.
Besides the direct financing, SIDBI also offers indirect financing through other financial institutions. As the commercial rate of interest in other banks is quite high, SIDBI provides a refinancing option to all commercial banks as part of their development projects to support MSMEs. In some cases, support also happens indirectly. So the window of opportunity becomes very large. Not only through the SIDBI branches but beyond them—all commercial banks that add up to a network of 125,000 branches are able to offer these financial products.
EB: Are these SIDBI schemes easily available to those in the industry?
In my personal opinion, there is no shortage of funding. But let me also add that money is not free. Every day, you read about people having taken loans and not returning them. So, even though banks want to disburse loans, the fear of them turning bad, leads to financial institutions becoming more cautious. In the context of the current guidelines for the financial institutions, people need to make an extra effort to demonstrate that the money that they get from the bank will be utilised effectively and the loan will aid both the beneficiary and the bank. Even in our schemes, we follow a procedure to check the capacity of the project to return the capital, before lending money. I think this is the biggest challenge that the SMEs need to overcome to get funded.
However, there are many schemes from the government for which MSMEs have to be given preferential treatment. Banks do provide that treatment, and they take a more favourable view at various considerations.
EB: What is the critical factor for the success of the Indian electronics industry?
Remember, the first notification of DeitY which was announced in 2012, mentioned that all the electronic products to be produced in India must have at least 50 per cent domestic components. I am not sure whether that number has been achieved yet or not, but the efforts of the government point towards success. Let us look at the example of the LED industry. I understand that the chip is completely imported but even in the case of other components and materials, the electronics industry needs to work towards complying with this notification and must support the government. The industry is yet to make the leap forward towards achieving this objective.
Most of the components, materials, chemicals and consumables used in electronics manufacturing are still getting imported from neighbouring countries because our capabilities to manufacture smaller components and items are yet to be developed. The issue is, to what extent have we moved out of such import dependence.
I think we need to figure out how manufacturing is going to get established through a components approach and not a product approach.
EB: Why do you think that the product approach is not the right way?
DeitY allowed the product approach initially with usage of at least 50 per cent domestic components, which could increase on a year-on-year basis. This approach was to boost the components ecosystem. For example, let us consider a mobile phone manufactured in India. In this product, even though most of the components are not manufactured in India, yet it has boosted the assembly of the mobile set itself as a first step.
I think we need to start looking at what components are getting into the mobile. What is their localisation status? I think that’s a key concern about the product approach… Actually, in the product approach, the focus is on the product. So what we are getting is a full product and there is a time lag in supporting the components ecosystem.
However, I have interacted with a few people, who feel this is a good approach because companies have started assembling here. This will help the electronics industry to boom and the component guys will get some sort of boost. So I guess, if this approach can promote the component makers, it is good.
EB: In your opinion, what is the right approach?
My opinion is that while the product approach is good, there should be a declaration from the manufacturer mentioning to what extent local components have been used. Every procurement by the government follows a tendering process. So it should necessarily ask manufacturers to produce their bill of materials (BOM) for all components, which mentions from where these have been sourced. If 50 per cent or more is sourced domestically, then they should get some incentive from the government in the form of tax benefits, etc. This, in turn, will boost the components ecosystem of the country and ‘Make in India’ will actually happen.
For that matter, I would go a step ahead and say that if a company uses domestic components, it can be free for a certain time from paying sales tax or excise duty to encourage people to start getting the component developed locally, whether by themselves or by a local vendor from whom they can buy it. If what you buy is cheaper from abroad, people will never make it in India.
Currently, some components are available in India. So my suggestion would be that at least those components should be mandatorily bought locally by using the carrot and stick approach, which will slowly allow domestic manufacturing to pick up.
EB: What is the need of the hour for the ESDM industry?
We have already grown and gained expertise in the software segment, but now the time has come for hardware. We need hardware for all developmental spheres, be it smart cities, security systems, communication or lighting. So, we need to create hardware products in sufficient volumes to meet the demands of the Indian market.
The time has come to look at hardware manufacturing on a priority basis—even if we need to develop the new components required to manufacture a product. For example, if I consider a mobile phone, we should be able to produce screens, the glass, etc, domestically. We should not be making only the casings of the mobile, but also the mobile phones and components here. At the same time, we need to do something to reduce the trade barriers in order to enhance global competitiveness.
