Electronics System Design and Manufacturing

Strategic Importance of ESDM Sector  

A Communications and Brand Building Campaign for promotion of ESDM sector in India has been launched with the objective to build “Made in India” as leading global brand in ESDM and increasing awareness regarding initiatives taken by Government to promote investments

 

The electronics industry emerged in the 20th century and has quickly become a global industry worth of millions of dollars with products ranging from simple consumer products to highly complicated aerospace ones. Over the years electronics has become a meta-resource, the building blocks of modern technology and is redefining how the world operates every day. India also has been a part of this great transformation, where electronics today has become a way of life.  

The demand for electronics hardware in the country is projected to increase from USD 45 billion in 2009 to USD 400 billion by  020 (Source: Task Force Report). This provides a huge opportunity for India to become an Electronics System Design and Manufacturing (ESDM) hub to meet the domestic as well as the global requirements. Most of India’s domestic demand is presently being met through imports. This has   serious economic and strategic implications for the country. Every country is unique. India’s uniqueness is about diversity but at the same time, masses have similar kind of expectations from consumer products, more so from consumer durables, particularly electronic products. Under such a dynamic environment ESDM is set to be the area of interest for India in the years to come.  

Importance of the ESDM Sector in the Indian Context 

Trade Imbalance

During the last few years India has been the centre of a strong economic growth. With trade barriers lightened and rapid improvements in infrastructure and technology the Indian consumer had global products at his finger tips. While India strived ahead in the Hi-Tech service sector, here was a gap in the Hi-Tech manufacturing, specifically in the electronics area. As a result of which India had to rely on heavy imports to meet the consumer demands. If we look at the current figures, India produces just about 45 percent of the demands (Source: Task Force Report) creating an export import gap of around USD 45 billion. Estimates show that the demand for electronic goods will grow    a CAGR of around 22 percent and reach a figure of USD 400 billion in year 2020. As of now, the domestic production growth rate stands at 16 percent and holding on to this growth rate would give India a total production of USD 104 billion creating a trade imbalance of USD 296 billion in the year 2020 (Source: Task Force Report). Looking at these figures we do need to start taking proactive steps to bridge this huge gap and make sure that ESDM sector contributes to India’s FOREX reserves rather than depend on it to meet the import obligations. 

Employment Generation 

The electronics manufacturing sector is one of the very few sectors that can provide high employment across all education levels. This gives a positive thrust to the overall socio economic condition in India. According to the Skill Gap Analysis Report, the electronics industry has the potential to employ around 3.2 million people by the year 2022 if we are able to hold on to the current electronics production growth rate of around 16 percent (Source: Skill Gap Analysis Report). This can reach a figure as high as 28 million if we are able to provide sufficient impetus to this sector.  

Intellectual Property

 Over the last decade or so India has become the intellectual powerhouse in the hi-tech service industry. However India could never lay a right to this intellectual excellence since most of the organizations where innovations took place were based out of a foreign soil having operations in India. This has caused a significant loss in terms of the total value creation to an extent of 90 percent (Source: Task Force Report). In such a scenario, re-usability of the Intellectual Property created does not always benefit the Indian Industry. Indian software industry is a fitting example of the loss of   Intellectual Property. While Indian software companies have done wonders in Information technology field but it could rarely hold on to the Intellectual Property generated because most of the deliverables where fully owned by their clients. ESDM sector provides India to take a corrective and holistic view to address this problem. With a well defined roadmap and policy level interventions to encourage companies to have the Intellectual Property to reside in India, we should be able to stake claim on the entire value created, rather than the approximate 10 percent that we do now.

 

Sectors of national importance 

As we move forward in this decade, major investments are expected  in 3 major areas of strategic importance to India; Defence, Avionics and Nuclear sector. Estimates state that India is going to be the 3rd largest market for defence equipment by the year 2015 (the total market size would be around 325 billion, Source: Task Force Report). With technology becoming the heart of modern warfare and overall security apparatus, ESDM becomes the indispensable area of focus. We are seeing a visible thrust on indigenous defence equipment development to reduce our reliance on imports as well as remove the bottlenecks of foreign technology transfers.  

In the recent years we have seen a surge of demand for aircrafts in India, China and Russia. It is expected the combined demand these three countries would account for 15 percent of the total demand of this industry. (Source: Task force Report). Visibly avionics, a highly electronics dependent sector, would be the next vital area here ESDM sector of India can play a defining role. Creating a strong base of OEM’s or of parts and subsystem manufacturers to supply Tier I OEMS’s would help in creating a niche for India in the avionics field. The effects of this could be far reaching, starting from creating a strong Intellectual property base to driving healthy exports.   

Over the last decade there has been a worldwide consensus to look for greener alternatives to generate energy and India as a country cannot ignore such a mandate. This has given a great boost to the Nuclear power (considered one of the cleanest source of energy) in India. With a formal worldwide recognition and endorsement, India’s nuclear power is expected to contribute 25 percent to 50 percent of power generated by 2050, a massive leap from the current 3 percent (Source: Task Force Report). This opens new fronts for the ESDM here, where they can contribute a sizeable portion of the power plant equipment costs. On one side this will significantly lower the costs of the nuclear plant setup, reduce dependency on imports and on the other side will create an invaluable knowledge repository and expertise for exports in the future.  

Government’s Initiative in meeting the Challanges  

The Government attaches high priority to electronics hardware manufacturing and has taken a number of steps for promotion of this  industry. The vision is to establish India as a leading global destination for electronics system design and manufacturing (ESDM). The Government is aiming to meet all the domestic demands of electronic sector and gather surplus for exports by the year 2020. Following are some of the initiative highlights.  

NPE (National Policy on Electronics)  

The draft National Policy on Electronics was released by hon’ble Minister of Communications and Information Technology in October 2011. The Policy has  seen finalized after widespread consultations and it is expected to be approved shortly. Parts of the policies such EMC (Electronics Manufacturing Clusters) and M-SIPS (Modified Special Incentive package) has already been approved in principle. The Policy will provide a clear road map for the development of electronics sector in the country for the coming decade.  

Creating opportunities…  

As  art of the vision to make India a leading destination for the ESDM sector, the draft National Policy on Electronics (NPE) proposes to achieve a domestic production of about USD 400 Billion by 2020 in the ESDM sector by creating an industry friendly policy framework and ecosystem which provides a level playing field for the domestic industry. This will involve investment of about USD 100 Billion and provide employment to around 28 million by 2020. This inter-alia includes achieving a turnover of USD 55 Billion of chip design and embedded software industry and USD 80 Billion of exports in the sector. Moreover, the policy also proposes setting up of over 200 Electronic Manufacturing clusters. The draft NPE also proposes to set up two semiconductor wafer manufacturing facilities and to create and sustain a vibrant research and development and innovation eco-system in the ESDM sector. Another important objective of the policy is to significantly upscale high-end human resource creation to 2500 PhDs annually by 2020 in the sector. The renaming of the Department, and bringing back of electronics with IT, is reaffirmation of the thrust that this sector deserves. 

Setting up Semiconductor Wafer Fabs 

An Empowered Committee (EC) has been set up for identifying technology and investors for setting up two Semiconductor Wafer Fabrication (Fab) Manufacturing facilities after obtaining approval of Cabinet in its meeting held on 20^th April 2011. The EC after interacting with the potential investors will crystallize the nature and quantum of Government support in physical/ financial terms and recommend to the Government the course of action to attract investments in the sector. The Expression of Interest (EOI) was sought through advertisement in leading global and national dailies and websites during June-July, 2011.  

Preference to Domestically Manufactured Electronic Goods 

Vide Gazette Notification dated 10th February, 2012, the Government has laid down the policy for providing preference to domestically manufactured electronic products, in procurement of those electronic products which have security implications for the country and in Government procurement not with a view to commercial resale or with a view to use in the production of goods for commercial sale. The policy is expected to strengthen the cyber security ecosystem in the country as well as provide a boost to the domestic manufacturing.

 

Electronics Manufacturing Clusters 

The importance of clusters in ESDM is a well accepted phenomenon worldwide. A well developed cluster can give a unit located in it a cost advantage of 5 to 8 percent because of various reasons such as increased supply chain responsiveness, consolidation of suppliers, decreased time-to market, superior access to talent and lower logistics costs. Setting up of EMCs is an integral part of this strategy to make India a leading destination for the ESDM sector.  

The Union Cabinet in its meeting held on July 4, 2012 approved the proposal to offer financial support for the development of Electronics Manufacturing Clusters (EMCs) as these EMCs would aid the growth of the ESDM sector. In this regard a notification was issued on July 21, 2012 in all leading newspapers of India and the ESDM department has already started getting enquiries from the domestic and international players.  

The proposed EMCs scheme would support setting up of both Greenfield and Brownfield EMCs. 

The policy covers all States and districts and provides them an opportunity to attract investments in electronics manufacturing.

 

Modified Special Incentive Package Scheme 

The Union Cabinet on 12^th July, 2012 approved the proposal to provide a special incentive package to promote large-scale manufacturing in the ESDM sector. The scheme is called the Modified Special Incentive Package Scheme (M-SIPS). The main features of M-SIPS are as follows:  

The scheme provides subsidy for investment in capital expenditure - 20 percent for investments in SEZs and 25 percent in non-SEZs. It also provides for reimbursement of CVD/excise for capital equipment for the non-SEZ units. For high technology and high capital investment units, like fabs, reimbursement of central taxes and duties is also provided. The incentives are available for investments made in a project within a period of 10 years from the date of approval.  

The incentives are available for 29 categories of electronic products and product components including semiconductor chips and chip components. The scheme also provides incentives for relocation of units from abroad.  

The scheme is open for three years from notification. Approvals for incentives not exceeding Rs. 10,000 crores will be granted during the XII Plan period. The projects with incentives of Rs 10,000 crores have potential to create employment for nearly 0.5 million persons.  

The policy is expected to create an indigenous manufacturing ecosystem 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. 

Developing Human Resource 

The projected requirement to reach the target of USD 400 billion is 28 million people. Several initiatives have been taken up to meet this challenge. Sector skill Council has been set up for Electronics and that for Telecom sector is in pipeline. The Department will work closely with these Sector Skill Councils to help them develop necessary competency framework for the myriad of skills required by this multi-faceted sector.  

The Department is also strengthening capacities in NIELIT (formerly known as DOEACC) and CDAC to train larger number of students in electronics design and production technology.

 

The Department is in the process of extending and expanding the Special Manpower Development Programme for VLSI and chip design. The Phase II of the programme which covered 32 institutions and generated 5400 BTech/MTech and PhDs in the high tech segment is ending in March 2013. Phase-III of the programme will encompass chip to system design and will cover approximately 50 institutions and target around 10,000 students including 300 PhDs. 

Standards 

Unlike most countries of the world India lacked a system of standardization of electronic products. This resulted in the unregulated inflow of sub-standard and unsafe electronic goods which pose safety hazard. The Department, in consultation with Bureau of Indian Standards, industry and consumer groups is working on a standardization regime.

 

Initiatives in Pipeline 

Apart from the above, Electronic Development Fund (EDF) is another major initiative. The EDF would provide risk capital for taking up new product development and generating IPR in the sector. The draft Detailed Project Report (DPR) for setting up of EDF has been finalized after extensive stakeholder consultations and process for obtaining requisite approvals is underway. 

Communication and Marketing 

Government of India is also making a concerted effort to market the policies and India as a destination for investment in ESDM. Initial work in this regard has already commenced.  

A meeting of Chief Ministers and Ministers concerned of the States was organized on August 29, 2011 to highlight the importance of ESDM sector in India and role which the States can play in this sector by emphasizing the importance of the role of the State Governments in the promotion of ESDM industry in the country by developing attractive policies for attracting the investment to their respective states.  

A Communications and Brand Building Campaign for promotion of ESDM sector in India has been launched with the objective to build “Made in India” as leading global brand in ESDM and increasing awareness regarding initiatives taken by Government to promote investments in ESDM sector. As a part of the Campaign, State level workshops, specific verticals related Workshops and outreach activities in academia pertaining to ESDM are being promoted.  A Communications Need Assessment Study to help orchestrate the Campaign is also underway. 

An e-Newsletter relating to ESDM has also been launched with the objective of keeping the ESDM stakeholder community better informed about the policy initiatives, decisions and actions of the Government in the sector. 

Strengthening of the Electronic Governance Structure 

There are over 50 major strategies which have been outlined in the draft National Policy on Electronics. The existing governance structure in the Department will be strengthened so that the desired focus on the sector can be provided in an ongoing manner. A Project Management Unit has been created and further strengthening will be taken up in due course. 

Conclusion 

The last few months have been very exciting for the ESDM unit of DeitY. Large milestones have been achieved in terms of the NPE, approval of EMC’s and MSIPS. The government is following a well thought out road map by which electronic manufacturing becomes the biggest driver of growth for India. Thrust would be to drive investments, innovations and create huge employment opportunity, but not at the cost of environment or Intellectual Property.  

In the recent years companies have started looking at a “China plus one” option to reduce dependency of manufacturing on one country and distribute the risks across Asia. Vietnam has been one of the favoured nations in such a case due to its friendly policies. The NPE is one big step to capitalize on the “China plus one” strategy of companies. India is already recognized as a strong design hub for electronics but our efforts are to drive India into an ESDM powerhouse. This is not about low end technology but how innovative ways and high end technology could be used to produce goods that bring down the price point. Thus we need to be excited about the opportunity.

 

By: J. Satyanarayana The author is Secretary, Department of Electronics & Information Technology, Government of India.