Policy Changes to India’s OEM Market

Comment | Print | RSS

• Login to Rate

The consumption of electronics in the country is growing at a CAGR of 23 percent. By the end of September 2012, the country boasted 937.7 million telecom subscribers. By 2014, the country will phase in digitized pay TV services that will call for millions of set-top boxes, estimated to cost $2 billion. India has overtaken Brazil to become the sixth largest producer of automobiles, where electronics are playing a growing role. Demand for electronic products stood at $45 billion in 2008-09, and is expected to soar to $400 billion by 2020 in the country.

It is unfortunate, therefore, that the Indian market is dependent on imports for most electronic components. Domestic production is estimated to be capable of only meeting $100 billion worth of demand by 2020. If the problem is not tackled, Indian imports of electronics will exceed oil imports.

The new policy will take several steps that may reduce the problem:

Establishment of two semiconductor wafer fabrication facilities. To facilitate the estimated $5 billion initiative, an empowered committee has been set up to identify and shortlist potential technology and investors. The first facility is envisaged as a center for manufacturing a variety of chips to meet requirements of high-volume products. It could be a new facility or one relocated from abroad. The second unit would be a greenfield, state-of-the-art facility, and the government is open to providing equity or grants for an established integrated device manufacturer to establish a facility in India. Inquiries have already come in from five global semiconductor makers including Infineon Technologies, ST Microelectronics, Russia's Sitronics, Global Foundries, and a consortium comprising Jaypee Associates, IBM, and Israel's Tower Jazz. Intel has offered advisory support.

Modified special incentive packages. A subsidy is being offered to attract domestic and global players and promote large-scale manufacturing in 29 segments of electronic systems design and manufacturing (ESDM). It is also expected to offset the difficulties faced in terms of high transactional costs, complex administrative processes, poor supply chain, and infrastructural deficiencies. The incentive is being offered against investments in capital expenditure for a period of 10 years. A reimbursement of indirect taxes is also being offered.

Electronics manufacturing clusters (EMCs). The government will extend financial aid to special purpose vehicles (SPVs) that will help set up EMCs. The cluster approach has been adopted to promote entrepreneurial ecosystems, complete with increased supply chain responsiveness, consolidation of suppliers, decreased time-to-market, better access to talent, and lower logistics costs. EMCs are also easier to monitor for security reasons, curb inflow of sub-standard products, and mandate technical standards. Private industry has already responded with proposals to set up such clusters in Bhiwadi (Rajasthan) and Ananthapur (Andhra Pradesh). In addition, the state governments of Andhra Pradesh (Hyderabad and Vishakapatnam), Kerala (Kochi), and Punjab (Ropar) have also sent in proposals.

Preference to domestically manufactured electronics. All government departments and their agencies (except defense) have been instructed to specify a list of electronic products that may be procured only from manufacturing units located within India -- both for security considerations as well as for government’s "own-use" in line with WTO commitments. Generic products like computers will be under the purview of the Department of Information Technology/Telecommunications. Such procurement should not be less than 30 percent of the total value of the electronic product or products.

The policy also proposes an Electronic Development Fund, a human resources development plan, and a National Electronics Mission to establish India as a global destination for electronics manufacturing. Clearly, with these policy changes and the growing demand, both domestic and international OEMS need to start taking India seriously as a location for electronics manufacturing.