The Union Cabinet has recently approved the National Policy on Electronics (NPE) for the Electronics System Design and Manufacturing (ESDM) sector in India. The aim of the policy is to make India a global hub for ESDM by creating an enabling environment for the industry.
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About the policy
- NPE 2019 is a final version of the draft policy prepared by the Ministry of Information Technology and Telecommunication (MeiTY) in 2018.
- The policy has huge importance for the country considering the increasing electronics imports, higher domestic demand, electronics manufacturing potential etc.
- It will result in the creation of different schemes, initiatives, and measures for the development of ESDM sector.
- Main focus of the policy is to achieve a turnover of US $ 400 Billion by 2025 in the ESDM sector by taking domestic manufacturing to the next level with more focus on exports.
What is the status of electronic manufacturing in India?
- India’s Imports of electronics hardware constitute more than half of its domestic production. This has been rising rapidly from $37 billion in 2014-15 to $53 billion in 2017-18.
- The draft policy predicts demand for electronics hardware to rise rapidly to about US$ 400 billion by 2023-24. In that case, India cannot afford such a big import bill in electronics.
- Therefore, promoting domestic electronics hardware manufacturing becomes very critical.
- According to the draft policy, the global electronics production is estimated to be USD 1,740 billion in 2017 and has registered a growth rate of 5%.
- But India’s electronics hardware output constitute only 1.5% of world output.
- Investments in the electronics sector have not been impressive.
- Getting global companies to start semiconductor (heart of electronics) manufacturing units in India is the key to Make in India vision.
- The Modified Special Incentive Package Scheme (M-SIPS) which provides subsidies for the electronics sector was launched in 2012. But the approval rate and the resultant investments remain low.
Some positive developments:
- The manufacturing of mobile phones, LCD/LED TVs and LED products in the country has considerably increased. Over the past few years, the demand for these products is increasingly being met out of domestic production.
- Also, the Phased Manufacturing Programme (PMP) for mobile phones and related subassemblies components production has created robust manufacturing eco-system in the country.
What were the earlier measures taken for the electronics sector?
- National Policy on Electronics 2012: It is the previous arrangement for the promotion of electronics production as it provided a roadmap for the development of the electronics sector in the country.
- Modified Special Incentive Package Scheme (M-SIPS) that provided financial incentives across the ESDM value chain to compensate for disability costs in manufacturing.
- Electronics Manufacturing Clusters (EMC) that created world-class infrastructure and logistics in the country.
- Mandating Safety Standards.
- Rationalization of Tariff structure and
- Giving preference to domestically manufactured electronic products in Government procurement under the Public Procurement Order 2017 etc.
All these measures supported the growth of the sector. As a consequence, the ESDM sector has witnessed upward growth in India and has the potential to become a vehicle of economic growth and development.
What are the key features of NPE 2019?
- Creating an eco-system of internationally competitive ESDM sector for promoting domestic manufacturing and export in the entire value chain.
- Providing incentives and support for the production of core electronic components.
- Providing a special package of incentives for mega projects which are extremely high-tech and require huge investments. Example: semiconductor facilities, display fabrication, etc.
- Creating suitable schemes and incentive programmes to promote the new units and expansion of present units.
- Encouraging Industry-led R&D (research and development) and innovation in all sub-sectors of electronics. These include grass root level innovations and early stage Start-ups in emerging technology areas like 5G, loT/Sensors, Artificial Intelligence, Machine Learning, Virtual Reality, Drones, Robotics, Additive Manufacturing, Photonics, Nano-based devices, etc.
- Providing incentives and support for considerably increasing the availability of skilled manpower, including re-
- To encourage the development and acquisition of IPs (Intellectual Property) in the ESDM sector.
- Promoting trusted electronics value chain initiatives to improve national cybersecurity
What are the major initiatives announced under the NPE 2019?
- First one is the interest subvention scheme that is already provided to sectors such as agriculture.
- Here, the government will provide an interest subsidy of 4% on loans up to Rs 10000 crores. The loan amount should be spent on plant and machinery.
Credit Guarantee Fund Scheme:
- Another incentive under the NPE is the Credit Guarantee Fund Scheme that will offer default guarantee to banks up to 75% of the loan amount on plant and machinery for loans up to Rs 100 crores.
- With the Credit Guarantee Fund, small and new investors need not provide any third-party collateral such as bank guarantee to secure loans.
Electronics Manufacturing Clusters 2.0:
- The NPE also upgrades the existing Electronics Manufacturing Clusters scheme into Electronics Manufacturing 2.0.
- Sovereign Patent Fund will be used to upgrade technology and knowledge in this initiative.
- The objective is to ensure that the chips and components can be made available to Indian firms at a low cost.
- Similarly, the policy also proposes to create fresh industrial clusters to promote full value chain generation.
- Latest technologies such as artificial intelligence, medical/defence electronics, and consumer electronics will be a focus of this policy.
Sovereign Patent Fund:
- The NPE 2019 seeks to create a Sovereign Patent Fund (SPF) to promote the development and acquisition of IPs (Intellectual Property) in the ESDM sector.
- Sovereign Patent Fund’s objective is to help the domestic industry to obtain critical IP and thus to reduce the knowledge gap.
- The policy here will apply special thrust on industries like fabless chip design industry, medical electronic devices industry, automotive electronics industry and power electronics for mobility and strategic electronics industry.
An estimate of the policy
The policy is likely to enable the flow of investment and technology, resulting in:
- Higher value addition in the domestically manufactured electronic products.
- Increased electronics hardware manufacturing in the country and their export.
- Generation of substantial employment opportunities, to around 1 crore people.
The global electronics ecosystem has been looking beyond China because of increasing labour costs there. Hence NPE 2019 could pave the way for making India the next major global hub for manufacturing of mobile phones, refrigerators, televisions, ACs, etc.
Robust R&D is very important to move up the value chain. Considering this, interest subvention and a credit guarantee fund may not be adequate.
- Also, there are other factors that affect R&D investment by industry, beyond the tax structure, which needs to be addressed.
- India’s scientific human resource pool needs to be engaged in this respect.
- R&D institutions could be promoted via the PPP route for balancing the market orientation and long-term priorities.
The new National Policy on Electronics thus aims to create an enabling ecosystem for the development of the ESDM sector. The host of initiatives announced is expected to reduce import dependence and to develop a growth platform for the sector.