No design, no deal: Govt component incentives tied to in-house innovation teams

In a bid to pave way for India-owned intellectual property (IP) in electronics, the government has made the approval of companies under its ₹22,919 crore components manufacturing scheme contingent on setting up in-house design teams and meeting product quality standards.

This comes as an informal requirement for companies looking to participate in the electronics components manufacturing scheme, the guidelines of which were released on Saturday.

“We have not included that (design team) as a formal criteria of approval. It will be like an informal criteria of approval. If you don't have design team and even if you are fulfilling all your parameters, we will not approve,” minister of electronics and information technology (IT) Ashwini Vaishnaw told representatives of industry and electronics companies at an event in New Delhi.

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Similarly, companies that does not meet product quality standards will not be considered for incentives, Vaishnaw said, adding that companies will be required to meet a minimum Six Sigma quality, which is near-perfection product quality.

Notably, the criteria on design team and product quality standards are not part of the formal scheme guidelines.

The reason the government is pushing companies to have their design teams and ultimately focus on backward integration is to have a strategic autonomy. “Relying on foreign IP makes India vulnerable to supply chain shocks, licensing issues or geopolitical tensions. Owning IP gives more control over critical technologies,” a government official said.

Executives of electronics manufacturing companies, while welcoming the announcement, sought clarity from the government on the evaluation criteria pertaining to design and quality standards.

“This (criteria for design team) is a welcome move. But the government needs to have some contours and informally defined guidelines as well,” Atul Lall, vice chairman and managing director at Dixon Technologies, told Mint.

Dixon is looking to participate in the scheme and invest in four components category including camera and display modules.

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According to Lall, looking at the financial matrix for electronics manufacturing, the main value is in IP creation, which is crucial for any country.

The requirement from the government on the design team criteria assumes significance as there is also a $4 billion electronics component design incentive scheme is in the works, as reported by Mint on 16 April.

Industry executives said the government would want to lay the groundwork before coming up with the final design scheme.

“If the companies who are making the components, have no control and the design powerhouse, they will not be able to create some additional new products, new designs, and new devices,” said Ashok Chandak, president of the India Electronics and Semiconductor Association (IESA).

According to Chandak, without investing in design teams, the companies will not be able to sustain. Globally, companies that are strong in components have their own design teams, he said.

Echoing Chandak’s views, Rahul Sharma, co-founder of Micromax, said, “along with getting the components, if design also comes in the country that is where we will become self reliant.”

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Under electronics manufacturing arm Bhagwati Products, Micromax is looking to apply for the electronics components manufacturing scheme.

Currently, India holds a 3% share in global electronics manufacturing. Over the next six years, the government is looking to increase it to 8%.

The ministry of electronics and information technology (Meity) on Saturday launched a portal for companies to submit applications for the ₹22,919 crore components scheme. The government will offer incentives of up to 10% of turnover and up to 25% of capital expenditure in setting up electronics components manufacturing in the country. The incentives will become applicable from this fiscal year itself.

Applications will open on 1 May, and remain open for three months for all components, and two years for component manufacturing equipment and machinery.

“This is not a scheme where it is first come, first served on who applies. It is a scheme where it is first come, first serve on who completes (the manufacturing) and is able to claim the incentives,” said MeitY secretary S. Krishnan.

The scheme is open to foreign companies subject to the foreign direct investment (FDI) policy circular of 2020, where the investments from entities or citizens of countries sharing a land border with India, will depend on the government approval.

As part of the incentives outlay, Meity seeks to generate over 90,000 direct jobs in six years through applicants of the scheme. Up to 5% of the incentives will depend on the applicants meeting this job criteria.

Incentives on offer include up to 4% on ₹250 crore investment over six years in display modules; 5% for the first year on ₹250 crore investment over six years in camera modules; up to 10% on ₹50 crore investment over six years in printed circuit board (PCB) manufacturing; up to 6% on ₹500 crore investment over six years in battery cells for smartphones; hybrid subsidies of 8% of turnover and 25% of capital expenditure in flexible PCBs; up to 25% on ₹10 crore investment in equipment for component manufacturing, and more.