Electronics manufacturing and what needs to be done

A reality check on the implementation of Ajai Chowdhry committee recommendations made in 2010 on ESDM

shivangi-narayan

Shivangi Narayan | January 15, 2014




Robust development of the electronics manufacturing sector in India has been a priority ever since Rajiv Gandhi started the first phase of liberalisation in 1986. It still is. In 2009, a task force comprising various members from the industry and government headed by chairman and chief executive officer (CEO) of HCL Infosystems Limted Ajai Chowdhry was set up to provide suggestions to stimulate the growth of IT, ITeS and electronics hardware manufacturing Industry in India. The Ajai Chowdhry committee submitted its recommendations in 2010. Other reports, most notably the ones prepared by Sam Pitroda and V Krishnamurthy, chairman of the national manufacturing competitiveness council, and Frost and Sullivan, gave similar recommendations. Four years later, we look at how the government has fared with regard to the recommendations made by the Chowdhry committee.

Establishment of a National Electronics Mission (NEM)
Though it was set up in 2011, the NEM is still a work in progress. According to Ajay Kumar, joint secretary, electronics manufacturing, department of electronics and IT (DeitY), all committees and departments have been set up. “As the manufacturing industry grows in India, an empowered body to look after all the processes would become necessary and will be set up soon,” said Kumar. (See interview)

Promote Existing Clusters and Create New Ones
Eighteen new clusters are being set up. Out of these, eight will be brownfield clusters, on land that’s already been used for commercial or industrial activity earlier. Proposal for six greenfield clusters are also being approved. They will be set up in Hosur by GMR, Bhiwadi by ELCEA, two in Hyderabad by APISE and two more in Jabalpur by MPSESDC.

Made for India Goods and Services
The Ajai Chowdhry report recommended the government should come up with specifications for products and services that are suited to the Indian environment. Based on that recommendation a request for proposal (RFP) for an Indian conditional access system (CAS) has been floated. “A CAS allows for selection for channels in a set-top box and is its main component. With digitisation of television on the government’s agenda this is an important area for development,” said Kumar. “CAS should be designed such that it cannot be hacked by the user and allow only those channels which customers have paid for.” Kumar also said that specifications for Aakash IV have been finalised in a particular expectation of price. The director general of supplies and disposal (DGS&D) would float the tender for price discovery mechanism in about two months, he added. All interested vendors would set a price on Aakash specifications after which consumers would be able to buy the tablet directly from DGS&D,” he said. “The DGS&D would route the demand to the vendors and would be the nodal point for transactions.” Additionally, the biotechnology industry research assistance council (BIRAC) has been set up as a department of Biotechnology (DBT) interface agency for government and industry interface, Kumar said. He added that development of standards for 15 categories of products has been mandated.

Creation of R&D Fund
Though '10,000 crore has been earmarked as research and development fund for electronics manufacturing it has not been sanctioned by the government. Research and development will go hand in hand with the development of human resources and academic research in the industry. (For capacity building policy interventions see later.)

Creation of Manufacturing Value Additional Fund
An electronic development fund (EDF) is being set up with the funds provided by venture capitalists (VC). “Talks are on with leading venture capitalists in India for EDF. Once successful, other funds to improve other electronic projects would be set up,” said Kumar. He, however, refused to share the name of the VCs. He also said that discussions are on with banks to provide funding for electronic projects.

Rationalisation of Tax Structure
The tax structure in India is complicated with many sub-sections and exemptions. India follows an inverted duty structure and zero duty on imports policy for electronics. The impact of both of them is as follows:

Zero duty on imports: India allows for zero duty on import of electronic products, i.e., basic custom duty on imports is zero, under the international trade agreement (ITA), which has now been adopted by the world trade organisation (WTO). Almost 90 percent of imported products, including individual electronic components and finished products, are covered under ITA. Rest of the products are covered under free trade agreement (FTA). In effect taxes on electronic products like excise duty, value added tax (VAT), goods and services tax (GST) and central sales tax (CST) remain same for all domestic and imported products.

What has been done so far to mitigate the tax situation?
 According to Kumar, a joint working committee has been set up so that the government is able to take into account rapid changes in technology. Goods and Services Tax (GST), which will be introduced soon, is a must for manufacturing. It would be single tax to streamline the manufacturing tax mechanism in India. GST would also remove CST, which hampers domestic transactions in India. Kumar also said that better communication is needed between the industry and revenue ministry to improve the taxation regime.

Promote Skill Development
Two major schemes have been set up by the government for promotion of skill development in the electronics sector. The first scheme aims to produce 2,500 PhDs in a year in electronics and related areas by 2020. '400 crore has has been approved by the expenditure and finance committee (EFC) and it is ready to be sent to the cabinet. Under the scheme, students pursuing electronics to the PhD level will be given additional incentives. The government would also provide funds for development of infrastructure at universities and provision research and development grant to teachers. Talks are also on to set up a state-level academy for training of teachers in electronics. In this academy, professors from prestigious institutions like the IITs and IISc would train the faculty members from tier two and tier three technical colleges.

Another scheme for setting up vocational centres for school dropouts and unemployed youth, costing '114 crore, has also been floated. In this scheme, interested youth would be trained in skills needed by the industry. The government would provide for 75 percent of the funding for the students.

“The industry would intimate the sector skill council of the vocational skills they need for their units. Students would be trained in such industry specific skills in these vocational centres for immediate absorption by the companies,” said Kumar. “The government aims to train 90,000 people in six states.” Kumar also said that national institute for electronics and information technology (NIELIT) will be set up in every state for training in electronics and IT. 

This story appeared in January 1-15 issue of the magazine

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