Strengthening ESDM in India- Better Nation, Brighter Tomorrow

Date:   Wednesday , October 08, 2014

IESA is the premier trade body representing the Indian Electronic System Design and Manufacturing (ESDM) industry and has been represented it since 2005.

Indian ESDM Industry The Indian electronics system design and manufacturing (ESDM) industry has witnessed an accelerated momentum over the past few years. Driven by uninterrupted growth, the ESDM industry in India is globally renowned for its consumption potential. Changing global landscapes in electronics design and manufacturing capabilities, and cost structures have turned the attention of global companies towards India. The global fraternity in the electronics landscape is looking to build local capabilities in India with an agenda to bring more competitiveness in the domestic market and also spread the Indian innovation across the world.

Developing the ecosystem is crucial for bridging the supply demand gap. Although India\'s ESDM market is growing at a robust rate, most of the demand is being met through imports. The domestic ESDM market is expected to reach $94.2 billion in 2015 from $68.3 billion in 2012. The major challenge faced by India today is that there is not adequate manufacturing in the country to meet the demand for ESDM. It is estimated that by 2020, the demand-supply gap will reach close to $300 billion and will lead to a situation where the electronics import bill for the country will exceed oil import costs.

Government as an Enabler for the ESDM Sector
The Indian Government, through the Department of Electronics and Information Technology (DeitY), has instituted a number of forward-looking policies to foster the growth of the Indian electronics ecosystem. These policies are aimed at holistic development of the ESDM industry by offering specific incentives for the development of each element in the value chain. These policy measures are:

National Policy on Electronics (NPE): The ultimate aim of the policy is for the Indian ESDM sector to develop core competencies in strategic and core infrastructure sectors.
National Manufacturing Policy (NMP): The government has brought out the NMP to increase the growth of the manufacturing sector to 12 to 14 percent over the medium term and enable manufacturing to contribute at least 25 percent to the National GDP by 2022.

Modified Special Incentive Package Scheme (MSIPS): Aims to offset cost disabilities and attract investments in the India ESDM sector through an Rs.10,000 crore corpus.

Setting up semiconductor fabrication units: Various incentives are being offered by the government to this effect - 25 percent subsidy on capital expenditure, reimbursement of CVD and excise duty, exemption from basic customs duties and 200 percent deduction on R&D activities, among other incentives such as reimbursement of training costs, deduction for income tax and various forms of viability gap funding.

Electronic Manufacturing Clusters (EMCs): The government is offering financial support for the development of EMCs. For Greenfield EMCs, assistance will be given up to 50 percent of the project cost subject to a ceiling of Rs.50 crore for every 100 acres of land. For brownfield EMCs, assistance will be given up to 75 percent of the project cost subject to a ceiling of Rs.50 crore.

Electronics Development Fund (EDF): Aims to create an ecosystem of R&D in electronics in India which will promote IP generation and large scale manufacturing, while simultaneously fostering the growth of the ESDM ecosystem. The focus of EDF will largely revolve around small and medium enterprises (SME) in line with the goal of promoting innovation and job creation.

Manufacturing at the Grassroots- Active participation from MSMEs will lead to inclusive growth in the Electronic Manufacturing Clusters coming up in seven states in the country, and also increase investment and employment opportunities in the non-urban parts of India.

Attracting Global Investments- The increase in FDI limit, coupled with the Rs.5000 crore defence outlay, will boost indigenous manufacturing of defence electronics in collaboration with global counterparts. Global collaboration will also lead to development of innovative products and modernization of the aerospace & defence sectors.

Powering Startups- Along with his promise to look into higher capital ceiling for MSMEs, the Finance Minister also spoke of setting up a Rs.10,000-crore start-up fund and extending governmental support to companies. This will help in further strengthening the start-up ecosystem in India and encourage R&D.

Modi-fied Agenda
\"Come, make in India,\" A clarion call by Prime Minister Narendra Modi in his maiden Independence Day address, inviting global firms to set up manufacturing bases, as he intended to drive multiple economic problems including employment creation, economic growth and trade deficit through this India\'s Manufacturing agenda.

Need of the Hour
Indian industry is in need of several investments both financial and technological. While financial are important to keep the nation\'s growth and economy afloat, technological investments will lead to technological innovations which in turn will generate great business opportunity.

The Future of Electronics- Defence & Aviation
India\'s aerospace and defence industry is one of the fastest growing with immense potential. India\'s National Defence budget for the current fiscal year is $37.33Bn and is expected to grow to $65.4Bn by 2020. India is the world\'s largest arms\' importer sourcing 65 percent of its supplies. Moreover, in the present context Indian Air Force has a demand for more than 200 Fighter Aircrafts, 300 Military helicopters. Indian Army and Indian Navy have massive requirements for guns, submarines, and others. With a demand for at least 1000 civil aircraft forecast over the next decade, the civil aviation sector is also booming. All of this translates into huge market opportunities for the ecosystem.

Challenges faced by this industry: Traditionally, the Indian Defense Industry in India is with PSU\'s and DRDO labs and is a much closed segment. Though there had been policy statements by governments about opening this segment to the Private Sector, and some well- intended policies have been formulated, the success on the ground is slow. The much acclaimed offset policy has not yielded results yet, since there are many riders and constraints. The PSU\'s and Defense lab are plagued by their intrinsic and well stated problems of capacity, manpower limitations, huge cost and time overruns on the ongoing projects - though they have some well acclaimed success stories. Essentially they are not set up to scale the demands of the ever bludgeoning defense requirements and more so the high technology electronics segment which accounts for 25 to 30 percent of the requirements.

FDI in Defence
We need to understand that our domestic defence industry is struggling to survive due to lack of technology, innovation and financial support. FDI can eradicate all these challenges and bring fresh thoughts in the ecosystem. Increase in FDI will lead to increased job opportunities and will improve the Balance of Payments and foreign exchange reserves and also enable the industry to become independent of PSUs.

The road ahead
We believe the steps outlined by government will put India on the journey of becoming the \"Design Led Electronics Manufacturing hub\" by attracting investments, promoting entrepreneurship and creation of jobs.

The \"Acche Din\" campaign has caught the fancy of the entire nation. And the maiden budget from the newly elected government gives us the hope that good days are indeed ahead for the ESDM industry.