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Indian IT Ministry proposes fresh incentives for electronics manufacturers

The Ministry of Electronics and Information Technology (MeitY) has proposed fresh incentives to increase electronics manufacturing in India after three major schemes ended in 2018.

The schemes were designed to bolster electronics manufacturing. They were the Modified Special Incentive Package Scheme (MSIPS), the Electronic Manufacturing Cluster (EMC) Scheme, and the Electronic Development Fund. The initiatives have not been renewed yet.

According to reports, the Ministry’s proposals include 4-6% interest rate subsidy on loans for new investments, the renewal of the EMC Scheme, and a waiver of collateral for loans taken to set up machinery.

The fresh proposals have been sent to the Finance Ministry, officials told reporters.

Currently, an inter-ministerial panel set up by the Prime Minister’s Office (PMO) and headed by the country’s policy commission, the National Institute for Transforming India (NITI Aayog), is working on a roadmap to develop India as a global hub for electronics manufacturing.

The proposal to offer interest rate subsidy aims to make local manufacturing competitive and attract global companies to set up units in the country. In India, the industry gets loans at a higher rate than in rival manufacturing economies such as China and Vietnam.

The current (borrowing) rate is 9-12%, so the Ministry has decided on a 4% subvention on most products and strategically important products can get up to 6%.

The Ministry has also proposed to allow new entrepreneurs to set up manufacturing facilities without having to give personal collateral under the Credit Guarantee Scheme. The industry’s problem is a higher interest in finance costs and providing collateral to banks, which is what the Ministry has tried to address in the proposal to nurture the hardware ecosystem.

India’s Union Cabinet gave its approval to an extension of the Modified Special Incentive Package Scheme (M-SIPS) in 2015, which provided subsidies amounting to 20% for investments made in special economic zones (SEZs) and 25% for investments in non-SEZs.

The EMC Scheme was launched to provide support for the creation of infrastructure that would attract investments in the Electronics Systems Design and Manufacturing (ESDM) sector. Under the scheme in 2018, MeitY received 50 applications, out of which it had approved 20 greenfield EMCs and three common facility centres (CFCs).

The Electronics Development Fund was set up to provide risk capital for start-ups planning to develop new technology in electronics, nano-electronics, and other information technologies.

As a result of the government’s initiatives, India now has 120 units manufacturing mobile phones compared to 2 units in 2014. Around 225 million mobile handsets were manufactured in India in 2017-2018 compared to 60 million in 2014-2015. The industry has generated employment for over 450,000 people.

Earlier this year, the government released the National Policy on Electronics (NPE). Specific incentives are in the process of being finalised. The policy will provide incentives and support for the manufacturing of core electronic components.

It will offer special package incentives for mega-projects that are especially high-tech and entail huge investments, such as semiconductor facilities display fabrication, etc.

Additionally, the NPE will formulate suitable schemes and incentive mechanisms to encourage new units and the expansion of existing units.

It will promote industry-led research and development and innovation in all sub-sectors of electronics. These include grass-root level innovations and early-stage start-ups in emerging technology areas such as 5G, loT and sensors, Al, machine learning, virtual reality, drones, robotics, additive manufacturing, photonics, and nano-based devices, among others.

The government is targeting the promotion of domestic manufacturing and export in the entire value chain of ESDM for economic development to achieve a turnover of US $400 billion (approximately IN ₹26,00,000 crores) by 2025.

This will include targeted production of one billion mobile handsets by 2025, valued at US $190 billion (approximately IN ₹13,00,000 crores), including 600 million mobile handsets valued at US $110 billion (approximately IN ₹7,00,000 crores) for export.

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