Electronics manufacturing clusters scheme is a game-changer

The electronics manufacturing clusters (EMC) scheme, approved by the Union Cabinet on Tuesday, is a major step forward in India?s search for import-substitution and a decent global share in electronics manufacture.

Though India?s IT services firms have earned fame and a name in the global market, in hardware manufacturing the global share of India is a measly 1.31%. Thanks to such manufacturing backwardness, the country imports 50% of its hardware. But rising demand would take that figure to 75% by the decade-end.

The country?s demand for electronic products, at $45 billion in 2008-09 by government estimates, is projected to reach $400 billion by 2020. Domestic production, in contrast, was just about $20 billion in 2008-09. Even in this, value addition was less than 10% in most products. This is a major handicap. At the current growth rate, domestic production would come to about $100 billion by the end of this decade, but that would still require imports of $300 billion by 2020, going by the $400-billion demand.

The $1.75-trillion electronics industry is the world?s largest and fastest growing manufacturing industry, and is projected to reach $2.4 trillion by 2020. The industry is being globally integrated with a few large global players catering to a large part of the world.

The government?s vision is to transform India into a global hub for electronics system design and manufacturing (ESDM), taking off from its proven strengths in chip design and embedded software.

The draft national policy on electronics (NPE) 2011 talks of setting up more than 200 EMCs with world-class logistics and infrastructure. The draft NPE also proposes to set up two semiconductor wafer manufacturing facilities and create a vibrant R&D, design & engineering and innovation eco-system in the ESDM sector. The EMCs would be an integral part of this strategy.

Though the idea is to eventually attract $100 billion investment in the ESDM sector by 2020 it will remain a wild guess in the absence of complementary policy initiatives, though there are reports that the draft NPE would also be taken up by the Cabinet shortly.

A salient feature of the electronics manufacturing clusters scheme is that it is sort of open-ended, with no ceiling on the number of clusters that can be promoted in a year. Nor is it restricted to any locality or organisation. Any company, industry body, financial institution, academic/research institution and state or local governments or their agencies can float a special purpose vehicle (SPV) to organise a cluster in any part of the country. The government will give this SPV 50% of the project cost for a greenfield and 75% of the cost for a brownfield project, as grant-in-aid, subject to a ceiling of R50 crore for every 100 acres of land. This means the grant amount can go up if the cluster is spread over more than 100 acres. Also, grant-in-aid means the funding will be subject to government approval, and is not an open financial commitment. More clarity on these issues will emerge when the scheme is notified. The scheme will run for five years.

EMCs will be the basic building blocks of a highly ambitious electronics manufacturing programme envisaged by the draft NPE. But the responsibility to carry this forward is primarily on the country?s entrepreneurs and their representative bodies.

?The proposed scheme is expected to help flow of investment for the development of world-class infrastructure specifically targeted towards attracting investment in the ESDM sector,? says a government statement.

Clusters can make various products like mobile phones, personal computers, semiconductors LCDs, etc., and they will form part of the country?s larger design to ?achieve global leadership in VLSI (very large-scale integration), chip design and other frontier technical areas?. The turnover from such segments alone is expected at $55 billion by 2020.

Exports from the ESDM sector is envisaged to go up from $5.5 billion in 2008-09 to $80 billion by 2020.

Another objective is to create long-term partnerships between the EDSM industry and strategic sectors like defence, space, atomic energy, etc. The government aims to develop core competencies in sectors like automotive, avionics, industrial, medical, solar, information & broadcasting and the like through use of ESDM in these sectors.

Universally, clusters offer 5-8% cost advantage to a unit because of reasons such as increased supply chain responsiveness, consolidation of suppliers, decreased time-to-market, superior access to talent and lower logistics costs.

The EMC scheme is yet another government initiative in recent years to promote the MSMEs after the public procurement policy, national manufacturing policy, revised defence offset policy, Factoring Regulation Act and retail reservation, besides budgetary support.