Electronics System Design & Manufacturing (ESDM)

An Overview

Department of Electronics and Information Technology Ministry of Communications & Information Technology

March 5, 2012

Current Scenario of Electronics Sector in India

Substantial Demand - The demand for electronics in India was $45 Bn in 200809 and is expected to reach $400 Bn by 2020. Exponential Growth - Indias electronics industry is expected to grow at 22% per year, which is 7x the global rate Major Segments - 4 major Segments of demand in India by 2020 would be :
Telecom Products and Equipment - $152 bn Exports - $80 bn Semiconductor Design - $60 bn IT Systems and Hardware - $56 bn

Current and forecasted Electronics Systems Design & Manufacturing (ESDM) demand in India , 2009-2020E ($ Bn)
+22% $400 Bn

$125 Bn $45 Bn

Current Scenario of Electronics Sector in India

Major Demand Drivers of Electronics in India: Growth in per capita income and corporate spend on electronics Per capita income in India has doubled between 2004-05 and 2010-11 to touch Rs 54,835 per annum Government focus on e-governance infrastructure and applications like, National Optical Fibre Network, e-governance, broadcast, citizen service centres etc. Growing penetration of Internet including Broadband and Mobile phones Mobile phone connections in India have grown from 1 million in 1998 to 851 million subscribers as of June 2011 National Optical Fiber Plan Need for innovative products at low cost Medical Electronics Sub $100 tablet for education

Major Segments of Electronics Demand in India

Major segments of ESDM demand in India by 2020E
Segment-Wise Demand Telecom Products and Equipment Exports Semiconductor Design IT Systems and Hardware High-Tech Manufacturing Consumer Electronics Others Electronic Components Manufacturing Services $ Bn 152 80 60 56 24 16 8 4 4

Consumer Electronics, 4%

Others, 2% Exports , 20%

1 2

Telecom Products and Equipment, 38%

3
Semiconductor Design , 15%

4 5

IT Systems and Hardware, 14%

High-Tech Manufacturing , 6%

6 7 8 9

Electronic Components, Manufacturing 1% Services, 1%

Rationale for Encouraging ESDM Sector in India Low share of Global Pie
Indian electronics hardware production constitutes around just 1.31% of the global production compared to 33% for China in 2009

Low Value Add

The gross MVA is low at between 5 to 10 percent , meaning of the demand of $45 Bn, only $1-2 Bn was value added in the country and rest was imported.

Huge Forex Outgo

Unless the situation is corrected, the electronic imports may exceed oil imports by 2020.

Widening Demand-Supply Gap

At the current rate of growth for domestic production the demand supply gap aggregates to nearly $1200 Bn by 2020

Disability Costs
Cost disabilities for Indian exporters range from 19-22% as against 2 to 3% in developed countries due to poor supply chain and inadequate availability of land, high finance costs, unreliable and costly power supply etc.

Vision for Manufacturing

The Honble Finance Minster in his budget speech for 2011-12 has stated

We expect to take the share of manufacturing in GDP from about 16 per cent to 25 per cent over a period of ten years

ESDM is expected to play an important part in fulfilling this vision

Major Initiatives To Promote ESDM Sector

1. Setting up two Semiconductor Wafer Fabs for manufacture of Chips 2. Introducing Modified Special Incentive Package Scheme to encourage manufacture of high priority electronic products in India by providing capital grant 3. Provide incentives for setting up of Electronics Manufacturing Clusters. 4. Setting up of the National Electronics Mission (NEM) 5. Providing Preferential Market Access to domestically manufactured electronics products for government procurement and procurement by government licensees. 6. Setting up of Electronic Development Fund for promotion of innovation, R&D, Indian IPR and development of Indian Microprocessor.

Setting up of two Semiconductor Wafer Fabs (Approved)

An Empowered Committee has been set up with the approval of the Cabinet to identify the technology and investors for fabs:
Fab-1: To support fabrication of varieties of chips to meet the requirement of high volume products and fab-less design companies on pay per use basis. Fab-2: To be set up as a green field cutting edge state-of-the-art facility. Responses received from industry being evaluated and will be completed soon.

Importance of Semiconductor fab

Semiconductor is the basic building block for all electronics products and comprises 20-40% of product value Fab technology closely held with 4-5 companies / consortiums. Highly capital intensive cutting edge fab may cost $5-10 bn Fab acts as catalyst for the development of large number of downstream electronics industries

Preferential Market Access (Approved)

Preference to domestically manufactured electronic products in procurement which have security implications for the country in Government procurement for its own use Consistent with our WTO commitments Not less than 30% of the total procurement value of that electronic product or products, subject to matching of L1 price and on satisfying technical specifications

Percentage domestic value-addition in terms of Bill of Material (BOM) need to be 25% in Year 1, 30% in Year 2, 35% in Year 3, 40% in year 4 and 45% in Year 5
Applicable to all Ministries/Departments (except Defence) and their agencies not with a view to commercial resale or production of goods for commercial sale DIT/ DOT to notify for generic products procured across sectors, such as, computers, communication equipment, etc.

Proposed Modified Special Incentive Package Scheme

The special incentive package will be available for investment in Units covering the entire value chain of identified ESDM products within EMCs

The proposed package of financial incentive is in the form of subsidy by the Government as: Capex subsidy of 20% to SEZ Units Capex subsidy of 25% to Non-SEZ Units and exemption from Countervailing duty (CVD) Reimbursement of Indirect taxes for fab(s)
Applications to be submitted within 3 years of notification Incentive is available on investment made for 10 years from the date of approval of eligibility for the incentive.

Proposed Electronics Manufacturing Cluster Scheme

Both Greenfield and Brownfield Clusters supported Illustrative list of eligible activities under the scheme: Internal Roads, Water Treatment Plant, Electricity Sub-Station/Distribution, Educational Facilities, IT Infrastructure / Telecom etc.. Clusters to be managed by SPV (company or society) of units from the cluster NIMZ policy would apply EMC Financial Assistance Greenfield EMCs - 50% of project cost as subsidy (Up to: Rs. 50 Crore per 100 acres of land) Brownfiled EMCs - 75% of project cost as subsidy (Up to: Rs. 50 Crore)

Proposed National Electronics Mission (NEM)

Vision : To establish India as a leading global destination for the manufacturing of electronics system design and manufacturing Mission : To achieve a domestic production equal to $400 Bn by 2020 by creating an industry friendly policy framework and ecosystem for the ESDM sector. Institutional Mechanism : Implementation of NEM will be through autonomous National Electronics Commission (NEC) within DIT and steered by a National Electronics Advisory Board (NEAB) NEAB embodies industry vision in policy formulation NEC will approve various schemes, projects and the related financial norms for all schemes covered under the NEM and within the policies approved by the Government for the NEM

Proposed Electronic Development Fund

Electronic Development Fund (EDF) is for promoting innovations, R&D, IPR and product development and electronics equipment manufacturing . Types of funding envisaged are : R&D/Innovation Fund/Govt Equities : will manage the Govt. Grants for research and innovation, incentives under SIPS policy etc. Seed-fund : to provide financial assistance at the early stage to create Products by India for India Growth Fund : provide funds needed by companies who have successfully passed the prototyping stage and are seeking commercial success and scale Debt Fund: address the working capital challenges of the Industry

Other Initiatives for Promoting ESDM Sector

Institutional Mechanism in DIT for Standards Implementation in Electronics To mandate quality standards for safety in respect of Electronic items, in close coordination with Bureau of Indian Standards (BIS) and Standardisation Testing and Quality Certification (STQC). To overcome the problem of sub-standard goods being supplied to the market To meet specific Indian conditions including climatic, power supply and handling conditions etc. Technical Standards being evolved for Indian electronics products Created an institutional mechanism for developing and mandating standards A Programme Management Unit (PMU) being setup to coordinate Communication & Brand Building Campaign State level Workshops, National Level Seminars, Workshops in Universities Communication Needs Assessment Study being done Development of Made in India as a global brand in ESDM

Role of State Governments

Create a specific focused policy for attracting investment in ESDM sector Provide incentives for specific electronics/verticals

Indentify land for electronic manufacturing clusters

Developing of capacity in colleges and universities for ESDM related graduate/ post graduate courses Setting up of incubation centres Effective single- window clearances

Thank You