Will the National Policy on Electronics 2012 work well?

Actions speak louder than words, feels industry

After a long wait, the National Policy on Electronics 2012 was approved by the Cabinet on October 25, 2012. Although the electronics industry is elated, it is apprehensive about the implementation of this policy within a timeframe, and in the right spirit. The industry unanimously feels that actions speak louder than words, and are hopeful that the policy will be implemented fast.

By EB Bureau
Frost & Sullivan estimates India’s electronics’ product market, which represents the total consumption market, to be US$ 41.91 billion in 2011, growing at a CAGR of 11.5 per cent to touch US$ 64.85 billion by 2015. On the other hand, India’s total domestic manufacturing of electronics market was estimated to be US$ 15.27 billion in 2011 and expected to grow at a CAGR of 10.4 per cent to reach US$ 22.68 billion by 2015. Domestic manufacturing, thus, represents a mere 36.4 per cent of the demand. A very significant aspect to note is that high value adding manufacturing of this total domestic manufacturing is currently only 8.9 per cent, and this is expected to decline to 6.7 per cent by 2015.

“High value add manufacturing represents higher level of local sourcing, local design and full product manufacturing; low value add manufacturing represents manufacturing/assembly at completely knocked down or semi-knocked down kit level. There is, therefore, an imminent need for policy measures to influence more local manufacturing. This need has manifested in the announcement of a slew of policy measures and the larger vision document of National Policy on Electronics,” says Deepa Doraiswamy, industry manager, electronics & security practice, Frost & Sullivan, South Asia & Middle East.

October 2012 was a very significant month for the electronics industry—with two major policies announced, which, if implemented in the right spirit, will dramatically transform the electronics industry for the better.
After a long wait by the industry, the National Policy on Electronics 2012 was approved by the Cabinet on October 25. The policy has been praised for its ambitious plans to make the domestic electronics hardware manufacturing segment grow into a US$ 400 billion industry by 2020.

In the same month, another significant policy—the Preferential Market Access (PMA) Policy—received a nod from the Cabinet. This policy will support domestic manufacturers and give preference to locally manufactured telecom and electronic products.

If we look at the promises made in these policies and Electronics Manufacturing Cluster policy approved earlier last year, they appear to be welcome moves in helping the country strengthen its manufacturing base. Although the industry is elated with these developments, it is apprehensive about the implementation of these policies within a timeframe, and in the right spirit. Those in the industry unanimously feel that actions speak louder than words, and are hopeful that these policies will be implemented fast.

It will be interesting to see how significantly these policies add to the growth of the electronics industry in the coming months. Here we present the reaction of the industry.

Sunil Vachani
managing director, Dixon Technologies

The slew of policy initiatives recently announced by the government have enthused the hardware industry once again to look at ‘made in India’ products as a possibility. Indian manufacturers in the hardware sector always had the conviction that given a level playing field and an industry-friendly policy framework, we in India can compete with the best in the world, including China.

The PMA policy will give a huge boost to the local industry by creating immense internal demand for our finished products. The recent move towards digitisation will create a potential demand of 120 million set-top boxes in two years, which will encourage Indian manufacturers to look at investments in R&D as well as value added manufacturing. However, some issues on the policy front still remain, such as the C form issue on set-top boxes. These issues continue to deter potential investors and manufacturers, who are now looking at neighbouring countries to set up base to sell in the Indian market, in case the issues are not resolved soon.
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Subhash Goyal
director, Digital Circuits

The Electronics Manufacturing Policy takes care of some of the disability factors faced by the Indian electronics industry. The M-SIPS will incentivise investment and reduce the cost of capital. Clusters will provide world class infrastructure and reduce the cost of logistics. They will facilitate backward and forward integration, increase the availability of trained manpower, and also provide facilities for testing and R&D. Preferential Market Access, on the other hand, will generate the demand for local manufacturing. All these steps taken by the government will definitely help the growth of the electronics industry. We have already started feeling the positive effects of these measures, as many foreign companies are trying to outsource to local manufacturers to meet the requirement for a certain percentage of local manufacturing laid down by the government.

However, the most important disability factor is the weak components base, because of which most active components have to be imported. In addition, the high cost of capital, the non-availability of quality power and its high cost, poor infrastructure, a complex and heavy tax structure, and a bureaucracy hampered by red tape are some of the many other disability factors that need to be addressed at the macro level to make the electronics industry competitive and vibrant.
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Sanjiv Narayan
managing director, SGS Tekniks Manufacturing Pvt Ltd

I firmly believe that the comprehensive policy initiatives taken up by the government, though late, are very welcome and will definitely help boost manufacturing in India. What is remarkable is that follow up actions with guidelines for implementation are coming in regularly, along with close interaction with the industry.

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BS Sethia
director (technical), Elin Electronics Ltd

The policy it is expected to encourage investments from Indian as well as foreign entrepreneurs. There is also a move to educate the state government officials about the good intentions of the government in promoting electronics hardware manufacturing in the country, so that the states can compete with each other in luring investments into their territories by providing complementary incentives to mitigate almost all disability factors that discourage entrepreneurs from investing in manufacturing, in spite of the massive growth in demand.
Greenfield clusters: Under this policy, activities of a common nature will be given funding support of about 50 per cent. Existing units can also go for substantial expansion of more than specified, and a 25 per cent subsidy on investments in capital goods and infrastructure to new and existing units under the M-SIPS will be a major motivating factor, as this will help increase ROI substantially.

Preferential Market Access and Mandatory

Registration: Preferential Market Access and Mandatory Registration of the notified products with the BIS are, practically, non-tariff barriers to imports. These are very good steps to motivate indigenous assembly and production of electronic hardware products, and will help increase value addition in manufacturing, provided the initial intent is not diluted under pressure from the MNCs.

Electronics is a meta resource for the development of all fields of manufacturing and services. It will play such an all-pervasive role in the next 10 years that it will be a major contributor of India’s economy (more than 10 per cent of GDP in the 2020s). The expected demand by 2020, which is projected to be worth Rs 20 trillion, can create 800 clusters, each covering 100 acres of land, and each providing direct employment to around 20,000 persons with a turnover of Rs 25 billion.

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Arun Gupta
managing director, NTL Electronics India Ltd

The policy initiatives announced by the government are really welcome steps to augment the growth of the electronics industry in India. These initiatives will provide the needed fillip to the sector and bring better job opportunities. It is, however, not very clear whether the industry will make foresighted investments in R&D, as it is important for the country to build a strong technology backbone, which is the only thing that will insulate us from the risk of an over-dependence on imports for the electronics systems and components for all our strategic and critical needs.

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Natarajan Balakrishnan
managing director, EPCOS India Pvt Ltd

The Electronics Manufacturing Policy, even if delayed, could not have come at a more appropriate time. The policy also has been announced in 2012 and, thus, the timing is good. While the benefits of the M-SIPS are clear, successful implementation and sustenance is highly challenging, as the implementers will have to identify the inherent weaknesses in the development models of other established electronics players in Korea, Taiwan, Malaysia, Thailand and China, and eliminate those bottlenecks in our model during implementation. The factors that will work in our favour are the huge domestic untapped market along with the equally large deployable workforce. The government and the industries, of course, need to pay very special attention to the skills development of the workforce to stay competitive in the industry.
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Shailendra Mathur
general manager India, ASYS Group

India’s large electronics market certainly requires proactive measures in this direction. Any incentives or preferential policies for manufacturing services development is a welcome step for both IT and electronics companies that are considering setting up manufacturing facilities in India. The real value of such schemes can be demonstrated through the complete ecosystem working on a sustained and committed basis, over a period of time. The manufacturing services industry needs to see the fructification of the projected results. The success of one company will inspire others to replicate.
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N Chandramohan
country head (SMT division), Juki India Pvt Ltd

The policy is good. But unless there is viability for manufacturing and a level playing field is created, the investments by themselves may not bolster manufacturing. The first and foremost step is to eliminate the inverted duty structure, which has been a big bane for the domestic manufacturing industry. Let’s take the example of set-top box (STB). With cable digitisation, the demand has been created, which is good. But since importing STBs from China is cheaper than manufacturing in India, all STBs are imported. So is the case with all the consumer electronics products. So the best way to bring value addition to Indian electronics manufacturing is through good policies, domestic demand and a level playing field.
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Sukhvinder Kumar
general manager, Elcoteq Electronics (India) Pvt Ltd

We are the third largest economy in the world, but our contribution to global electronics manufacturing is quite miniscule—just about 1 per cent. The digital revolution is creating a huge demand for electronics and we are largely importing electronics, negatively impacting our country’s GDP. This highlights the need and potential for growth in the ESDM sector not only for the domestic market but also for the world market.

2012 will be considered a landmark year as it has brought in the much awaited concrete steps for the ESDM sector in the form of the National Policy on Electronics, the M-SIPS and also the EMCS. These policies will, beyond doubt, promote and improve the Indian ESDM ecosystem in line with the globally adopted successful models by various countries.

These policies will create cost competitiveness and a level playing field for domestic manufacturers. This will, in turn, create enormous employment, growth opportunities and will also develop newer skills, competencies and a collaborative innovation culture in the country. The key now is speedy, disciplined and effective execution. The industry also has to play a very active role to support and utilise these initiatives to make India the high-end manufacturing hub of the world.
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Rahul Yadav
vice president, segment DC and sales operations, Phoenix Contact India Pvt Ltd

The policies announced by the government are a welcome step towards increasing the electronics manufacturing base in India. It will create high employment growth in the sector and increase technical knowhow in the country. M-SIPS is likely to increase investments, as the 20 per cent capital investment incentives for SEZs and 25 per cent for non-SEZs is a big improvement from earlier times. Reimbursement of central taxes on capital investments will also boost new investment.

The cluster policy will bring about the necessary cost advantages and technical expertise that will evolve from pooling resources. This model is already very successful in China and it should help the Indian electronics industry a great deal.

The Preferential Market Access policy is also a right step for increasing the manufacturing base in India. Overall, the government has given a positive signal that it aims to foster the growth of the electronics industry and increase the manufacturing base in India. Ultimately, the implementation of the policy would determine the success of electronics manufacturing in India.
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Sanjay Nayak
CEO and MD, Tejas Networks Ltd

We are excited to see the government’s focus and a holistic policy framework to kickstart the domestic ESDM industry and address the fundamental disability factors. India has two very critical ingredients—highly talented technical manpower and a large domestic market, both of which are needed to build a globally competitive ICTE manufacturing industry. Policies such as Preferential Market Access are very innovative, since without any cost to the government, they will create a strong market-pull for domestic ICT products. The EMC and M-SIPS policies are expected to reduce the various disabilities that Indian companies face, vis-à-vis global competitors. The next step is to ensure that these policies and initiatives are implemented in an effective and time-bound manner. The implementation and approval mechanisms should be simple and the industry should be able to avail them without much hassle.

I am confident that this favourable policy environment, coupled with fast-track implementation mechanisms, will motivate Indian entrepreneurs and global players alike, and enable India to become a global hub for ICT products.
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Raminder Soin
chairman and MD, Quad Electronics Solutions Pvt Ltd

We appreciate the new policies announced by the government to promote Indian manufacturing. There have been policies announced earlier as well, but we feel this time the sheer numbers involved have instilled a sense of urgency in the government. However, having said that, there are certain important issues to address here:

(a) For Preferential Market Access, the ‘value addition’ needs to be well defined and specific as to what percentage of the manufacturing would constitute ‘value-add’ in the true sense. A classic faux pas would be to denote ‘software loading’ as a value added activity in manufacturing. This would be counter-productive and the entire substance of the policy would lose meaning, especially with respect to creating employment.

(b) One of the most crucial steps the government has to take is focus on developing an ecosystem, and reduce the taxes and duties on raw materials while simultaneously increasing the same on finished goods being imported into India. This would propel volume manufacturing and bring about economies of scale to reduce the cost of production in India.

(c) It is also very crucial for the government to seek the active involvement of industries and firms that have adequate experience in the field to evolve a long-term workable solution. In the case of clusters, one success story could automatically stand to get replicated across other clusters.
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Sunil Bhatnagar
director, marketing, Artheon Electronics Ltd

The government initiatives regarding M-SIPS and electronic clusters are well appreciated. This step was long awaited and is a welcome step to boost electronics related trade in India. This would lead to increased dependence on India-made goods in the 29 sectors that are listed under this programme. This would also increase the employment opportunities and would lead to new investments in the ESDM segment. The electronic clusters would be more competitive due to their concentration in one area and individual firms would enjoy the supportive infrastructure of the cluster. The companies would get benefits to the tune of a 20-25 per cent subsidy on investments with a return on installation of machinery. This would make the Indian companies more competitive and the products more affordable. We can expect very good results from these schemes.
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Anil Bali
VP, Deki Electronics Ltd

The government has taken the right decision to boost electronics manufacturing in India with the cluster policy, M-SIPS, etc. China is currently the factory of the world because its government has provided adequate infrastructure—be it roads or electricity. In addition, the government gives nearly 7-8 per cent export benefits. So even if Chinese firms operate at rock bottom prices, they can still earn 8 per cent profit. The electronics companies there can earn an ROI of 20 per cent whilst we struggle to make even half of that. With the recent steps taken by the government, Indian electronics manufacturing can become globally competitive.
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Sanjeev Saini
director, technical, Su-Kam Power Systems Ltd

The recently introduced policy is a welcome initiative from the government that will go a long way in developing an enabling ecosystem that will help India become a global destination for electronics systems design and manufacturing. The policy definitely will encourage indigenous manufacturing and enhance India’s competitiveness in electronics in the global arena. It will also work towards bridging the significant skills gap among aspiring engineers while creating great employment opportunities for them.
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Muthu Sivan
managing director, Sanmina-SCI India

The recent government policies will work well for the electronics industry and help manufacturing grow in India only if the government considers all locally manufactured goods (irrespective of whether they come from an Indian company, from a foreign-owned OEM, ODM or EMS provider or from an SEZ, so long as the manufacturing facility is a physical establishment in India, and is registered here) for PMA.

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Deepa Doraiswamy
industry manager, the electronics & security practice, Frost & Sullivan, South Asia & Middle East

M-SIPS: M-SIPS policy in its current format is the right ingredient for invoking investments in the ESDM value chain. Capital investment subsidies offered under the scheme will be beneficial and attractive for companies that require investment support. Further, the provision of tax and duty incentives will help curtail the Opex and Capex spending, thus enabling companies to invest more on the core competencies of innovation and product development. The current format of M-SIPS has also addressed the challenges of the higher threshold limits for financial closure in the earlier SIPS policy announced in 2007 by defining different threshold limits for different kinds of products and activities, thereby enhancing the eligibility cover for a wide range of companies, including SMEs. M-SIPS, in combination with the other policies announced, is expected to aid in the overall development of the ESDM ecosystem in the coming years. Further, it would be a welcome move to consider re-defining M-SIPS to mandate certain value addition metrics to ensure that companies seeking funds through M-SIPS utilise it for not only mere assembling activities but also in doing high value added manufacturing within the country.

EMC: The absence of adequate infrastructure, a lack of feeding industries or a well-developed ecosystem, along with high disability costs due to the higher costs of logistics, utilities and inverted tax structures are the critical challenges facing indigenous manufacturing today. EMC policy is an appropriate initiative that shall alleviate the challenges of infrastructure and ecosystem unavailability to a large extent. Sector specific clusters can enable all round development of the sector by co-locating the entire value chain within the cluster. Not only will this significantly reduce costs, but by setting up incubation centres in each cluster, a culture of R&D and innovation will be fostered along with the development of the requisite testing facilities.

PMAS: The PMA mandates fixed local value addition targets. This is expected to trigger heightened activity in design, local sourcing and indigenous assembly. The policy is expected to infuse a spirit of entrepreneurship into the electronics industry at large. OEMs will look for local partners, besides increasing their investment in enhancing local value-addition.