New Chip Import Monitoring System And Its Impact On PLI Schemes

The government of India has made amendments to the rules that govern chip imports in the country and made it mandatory for the importers to feed data to the new system. Subsequently, the government is trying to make India ‘atmanirbhar’ (self-dependent) for the manufacture of electronic goods in India. Will the new rules help or hinder? EFY tries to find out.

Chips, well they power anything and everything electronic. As a matter of fact, they have become more than just what powers an electronic device, and the proof of the pudding lies in the advertisements of laptops and smartphones that you see. More than a bunch of companies now openly share the kind of chips and chipsets they are using in a particular device. The same, for every valid reason, helps an end consumer decide whether he wants to go with the device or not!

The government of India, in an update shared very recently, has amended the import policy for integrated chips. The Director General of Foreign Trade (DGFT) vide Gazette Notif. 5/2015-20 dated 10th May 2021 shared the amended import policy for Integrated Circuits (ICs) with HS Codes 85423100, 85423900, 85423200, 85429000, and 85423300. This in simple words means that the importers of chips need to post the details of their consignments on online ‘Chip Import Monitoring System (CHIMS),’ prior to filing the Bill of Entry. The objective of this amendment is to obtain the technical and statistical details of IC chips getting imported into the country.

There is one major problem (which might trigger many others)—India imports 100 percent of the chips used in the country! Second, there seems to be a China angle to the same.

India imported about $50.7 billion worth of electronics in 2019, and more than half of these imports were from China and Hong Kong. In fact, 20 percent of India’s electronic items’ imports are of microprocessor chips. Out of the $10 billion worth of microprocessor chips imported in the country, around $7 million worth of chips were imported from China.

The new amendments, slated to come into effect on 1st August 2021, mandates the importers to submit advance information in an online system for import of items and obtain an automatic registration number by paying registration fee of one rupee per thousand, subject to minimum of 100 rupees and maximum of 500 rupees on CIF value.

It also states that importers can apply for registration not earlier than 60th day before the expected date of arrival of import consignment and can apply till the date of arrival of the import consignment. The automatically generated registration number shall remain valid for a period of 75 days. Importers shall have to enter this registration number and expiry date of the registration in the bill of entry to enable customs clearance of the consignment.

More paperwork

There used to be a time when India, as a country, was ranked 142 in terms of ease of doing business. It was the first time in 2019 that the country’s rank was raised to 69 among 180 countries. In 2020, the World Bank gave India 63rd rank out of 190 countries for the same. Now, while the country has been raising its standards, the new amendments in terms of chip imports might add red-tapism to the overall process. This, when clubbed with the fact that there have been more laws announced around the import of other electronics goods like telecom equipment, might make the ‘ease of doing business in India’ a little more difficult once again.

“The lead time of chips ranges from eight to twelve weeks. I think the new amendments will lead to unnecessary paperwork. May be the government wants to collect some data, but it is unnecessary work for us. We might have to depute an additional professional to do all the entries on the system. It will increase our burden,” says Sunil Hasija, MD, Elektronika Sales.

He adds, “We also have to find out what kind of system will the government be using in terms of customs clearances once these new amendments come into effect. If I submit a bill of entry, sometimes it goes to an officer in Delhi and sometimes to another city. You can’t go out to meet and run after officers for getting approvals again and again.”

The new amendments have come at a time when the government of India has also introduced various production linked incentive (PLI) schemes for promoting local manufacture of electronics in the country. There were reports by the media that the government was gearing up to offer $1 billion as incentives to chip companies that are ready to set up fabrication plants here. As a matter of fact, a close look at most of the PLI schemes reveals the importance of these chips for such schemes to be successful. Be it a smartphone or a machine used to design and fabricate PCBs, chips are integral to all of them.

The total outlay for PLI around smartphones alone is 409.51 billion rupees. While the scheme is meant to increase India’s efficiency in the manufacture of these, there is nothing about the manufacture of chips mentioned in the scheme. The delays in importing of chips can severely impact all the PLI schemes and the companies that received the nod to participate in these schemes.

An industry body (name not revealed on purpose) in an email addressed to the Ministry of Electronics & Information Technology (MeitY) has also tried to mention these problems to the government of India. The email, which the team at EFY managed to have a look at, has requested the government to make it mandatory to pre-register on CHIMS prior to arrival of the consignment. This requirement, as per the association, in effect becomes a prior permission to import, which must be avoided. Invariably, there are delays due to several reasons and this will have cost implications for manufacturers.

The association has also recommended that updating information on CHIMS should be a post-facto requirement—after the filing of bill of entry and arrival of the consignment. This may be allowed within one week (five working days) of import, as the same will ensure accurate information and prevent delays in arrival of consignments for manufacturers. To ensure compliance, it may be mandated that import of the next consignment will not be allowed unless details are filed within the stipulated time and penalty imposed in case of delay in filing.

Not to be discussed but not to be left alone as well, the Internet servers that the government of India relies upon are questionable too. The ease of booking a railway ticket through the government of India’s railway portal is well known. Even a small problem in the speed of the server on the delivery day of a consignment full of chips can be a nightmare for the importer.

A lot of professionals associated with the industry, who did not agree to reveal their names, are of the view that the new system will bring the concept of red-tapism when importing chips. The process that the industry had once lauded the current government for might now become something to scrutinise and speak against for a lot of national and international companies. (EFY was not able to find a single positive comment from the industry for the new amendments while preparing this article!)

The product design and cycle

Every professional in the hardware side of electronics knows that a new product goes through several changes before it enters the final production stage. The final production stage is the one where companies usually place orders in bulk for the kind of chips they are embedding into the product. Before that it is not unusual for companies and their research and development teams to try hundreds of chip combinations.

Sanket Bandyopadhyay, co-founder & VP, Daikoku Innovations, in a recent interaction with the Electronics For You team had shed light on the different stages of a product cycle. These stages consist of the ideation phase, feasibility study, design and development, testing and verification, collateral production, manufacturing, feedback and improvement, all of which have one thing in common—they all require the product and components to be tested again and again.

Now one problem that the product development teams might have to face will come in the form of finalising the set of chips they intend to use well in advance. Then there are instances when a lot of components need to be changed after the feedback and improvement stage. This applies both to third-party manufacturers as well as original equipment manufacturers.

“We usually submit the credentials of the components finalised to the purchase team three to four months before the manufacturing stage starts. The lead time on a lot of chips that are imported is six to eight weeks. The new rules may cause difficulty if there is a change in the kind of chips that we are looking to embed in the product. The new rules might lead to getting the product manufacturing stage extended by unnecessary time,” says a hardware engineer not wishing to be named.

Many other electronics manufacturing companies that EFY reached out to had the same reaction towards the new amendments. It is important to realise that often there are mistakes in ordering as well as dispatching a consignment full of chips. The present process to ship back the consignment and request a new one, keeping customs clearance in mind, is simple. The importer fills in a form and the wrong consignment is sent back before the new one arrives. However, there is no clarity on what happens to the wrong consignments when the new amendments take place.

The key issue that the industry association is concerned about is the requirement under CHIMS for filing information prior to arrival of the consignment. This is going to create serious roadblocks in imports of semiconductors for which electronics manufacturers are completely dependent on foreign sources. There are several uncertainties with respect to items covered in each bill of entry, their exact value, volume, scheduling, etc, which is likely to result in inaccuracies in the information uploaded on CHIMS.

Any kind of delay in clearing of consignments due to reasons beyond the control of the importer can also result in loss to the manufacturer. This might add to the overall cost of manufacturing electronics products for a company in India, thus creating a roadblock in the way of making the country ‘atmanirbhar’ in terms of electronics manufacturing, and creating a negative mindset for India in many other countries.

Further, a company looking to import different types of chips under one consignment may also find it difficult to make entries on CHIMS as the present changes have not clarified anything on this front. It is not clear whether a company, as an example, looking to import 5,000 chips for a smartphone, 3,000 for a laptop, and 7,000 for a smartwatch can do so under one consignment or three different consignments?

Similarly, CHIMS mandates the importers to fill in all the technical specifications of every chip to be imported. There are instances when an importer will only know (or want to know) about the technical specifications of a particular variety of chips that are associated with the product the manufacturer is developing. These might also add additional work that an importer will have to do in addition to what he is already doing.

The positive about the amendments made in the chip imports laws seems to be the country’s eagerness to become self-reliant (atmanirbhar) in terms of manufacturing chips. The data that gets fed to the CHIMS system might help in knowing what kind of chips are in demand, so that their manufacture within the country can be considered.

This takes us back to the age-old question: When will India have its own semiconductor fab? Most companies will need time to get accustomed to the new rules. Thankfully, the government of India is providing the facility of online testing of CHIMS, without payment of registration fee, till the amendments come into practice. This should clear lot of doubts.