Making india hub of global electronics

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Dr Ajay KumarDr Ajay Kumar
Joint Secretary, Department of Electronics & Information Technology (DeitY), Ministry of Communications & IT, Government of India.

“Electronics manufacturing industry of $400 billion can provide direct jobs to 28 million people in India,” says Dr Ajay Kumar, Joint Secretary, Department of Electronics & Information Technology, DeitY, Ministry of Communications & IT, Government of India.”

The demand for electronics in India has been increasing over the years. What steps are being taken to promote the IT industry?

You have rightly said that the demand for electronics is increasing. India is one of the countries where growth in demand is one of the fastest. Electronics has huge strategic implications. For instance, you have the Smart Grid, which makes it possible for a hacker to put the electrical transmission of the entire country at risk. Electronics is also being used for defense, space, and atomic energy sectors. In civilian sector, we can’t think of life without electronics. Therefore on one side there is a huge economic opportunity, and the other side there is a huge strategic need. The demand for electronics hardware is currently about $45 billion and is expected to cross USD 400 billion by 2020. Today in value terms, we are producing less than 5 percent of the demand that we actually have. And unless we increase the manufacturing capabilities, very shortly we can have a situation where our import bill for electronics will be higher than our oil import bill.

Electronics Manufacturing Cluster Scheme Notified
The Electronics Manufacturing Clusters (EMC) Scheme has been notified on October 22, 2012 vide Notification No:36(3)/2012–IPHW. The scheme proposes to provide support for developing world-class infrastructure for both Greenfield and Brownfield EMCs.

Electronics must also be seen from the perspective of job creation. What kind of job creation can we expect from this sector?

The kind of jobs that young India needs can only come from manufacturing industry. Electronics manufacturing industry of $400 billion can provide direct jobs to 28 million people in India. Unless we revive manufacturing in the country, the so called demographic dividend, of young Indians, will never be realized. So we have to make all out efforts to promote electronics manufacturing. One thing that I would like to say is that electronics manufacturing has better chance to succeed than some other traditional manufacturing sectors. India is already becoming a fairly well-known internationally for our capabilities in IT. We are strong in software and in chip design but we lack in physical manufacturing. If the product is a combination of design and software, we are good in half of it. Lot of human resource is available in the country, so there is no reason why we can’t attain the same kind of success in electronics, as we
have attained in IT.

With the bulk of the electronics that we see in India and abroad is manufactured by China. Why can’t  india have an electronic industry that matches China?

That is what we need to change! China produces about 40 percent of world’selectronics whereas 95 percent of electronics used in India is imported. This is due to many factors. Firstly, electronics is the only sector in the world, which has zero duty. This is like a border-less global market with no duty. In order to manufacture in India, you have to be globally competitive. In other manufacturing sectors like automotive, there is a huge tariff barrier ranging from 40 percent to 75 percent and in some cases 100 percent, which is put on any imported product. But if it is manufactured in India, it will cost much less. Naturally, with such high tariffs, there is incentive for manufacturing in India although in electronics sector, this is not possible. The second challenge is the freight charges. If I have to import something I have to pay freight charges but in electronics the chip size is so small that the charge of freight is negligible. The cost of transport is very low for electronics. It is very easy to export from one country to another.

What steps are you taking to enable more electronics manufacturing in India?

A number of steps have been taken as today 100 percent FDI is permitted under automatic route in semiconductor fabs. Government of India is in the process of developing a policy framework to provide preference for domestically produced electronics goods in Government/ Government influenced procurement. Apart from attractive financial and fiscal incentives for capital investment in the projects, Government of India will also provide assistance for setting up of worldclass infrastructure for the semiconductor fabs and its eco-system units. The thing is that despite the best policies of Government of India, we continue to fail to attract investments in electronics sector. This is also due to the Information Technology Agreement, under WTO. Because of this agreement manufacturing has got concentrated in some countries. It is produced in few countries like China, Taiwan, Japan, Korea and sold to rest of the world. These countries have developed huge economies of scale. So today there is no incentive for anyone to manufacture in India.

What are the challenges in setting up of semi-conductor wafer fab units in the country?

One of the major challenges in electronics is setting up of a semi-conductor wafer fab. It is a very hi-tech technology. A fab can cost more than $5 billion to set up. And this technology is very fast changing; typically, it changes over a period of 18 months to 36 months. The technology is most cutting-edge. Only four or five companies in the world are capable of setting up such units. There has been several attempts in the past to set up a fab in India, but these attempts were unsuccessful. We have tried to set up a fab in the country and did a global expression of interest. It will be a private project but government will provide special incentive of setting up a fab. China has over 100 fabs but we don’t have a single one. We have now formed an empowered committee to find out ways for setting up of the fab in the country. A global expression of interest has also been floated.

If fab units are set up, they can supply to the global manufacturers. This could be a huge boost for local
electronics industry? What is your view on this?

Studies in electronics have shown that wherever fabs have come up, they have resulted in a huge eco-system. We have started a policy to subsidise the companies that are setting up units in the country.

What kind of developments are we expecting from the passing of National Policy on Electronics?

The Union Cabinet approved the National Policy on Electronics 2012. There is potential to develop the Electronic System and Design and Manufacturing (ESDM) sector to meet our domestic demand as well as to use the capabilities so created to successfully export ESDM products from the country. The policy is expected to create an indigenous manufacturing eco-system for electronics in the country. It will foster the manufacturing of indigenously designed and manufactured chips creating a more cyber secure ecosystem in the country. It will enable India to tap the great economic potential that this knowledge sector offers. The increased development and manufacturing in the sector will lead to greater economic growth through more manufacturing and consequently greater employment in the sector. The Policy envisages that a turnover of $400 billion will create an employment for two million people.

The government has developed schemes like Modified SIPS and Electronics Manufacturing Clusters. What kind of results are we seeing from these?

Under the EMC, the undeveloped SEZs can be developed in Electronic Manufacturing Clusters (EMCs); specific sectors like LED or medical electronics could develop sector specific EMCs; Avionics EMC could be developed around airports
with MRO and other related facilities. Sector specific EMC could plan to provide for common tooling, testing facilities, training facility, warehousing facility, etc., which could make the units within the cluster more competitive. Alternative source of electric transmission to provide greater reliability of power to units could be considered.
Country specific clusters could be thought of like a Taiwan village, a Japanese village or a Korean village. A country specific EMC could plan civic amenities like clubs, restaurants, karaoke, etc., which creates a home away from home for their nationals working in these companies. The most important thing would be the USP of the EMC which makes the EMC different from a typical industrial estate. It is not essential for a SPV to be made before an application under the EMC scheme can be made. A Chief Promoter can initiate action and form the SPV in due course. Similarly, under Modified SIPS, there is potential to maximize the benefit under the scheme by planning their investments for the next ten years and getting approval of the ten year project. They do not have to produce financial closure for the whole project. The guidelines provide that financial closure be furnished only for a part of the project. However, by providing investment plan for ten years enables the companies to claim incentives under the scheme for ten years once their whole project is approved. We are encouraging the SEZ developers to explore the possibility of developing Electronic Manufacturing Clusters as ESDM is likely to attract significant investment in future, especially in the wake of the new policies announced by the Government.

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