Home national-policy-for-electronics National Policy for Electronic Component Manufacturing

National Policy for Electronic Component Manufacturing

By Spotlight - 30-03-2019

s follows:
⦁    Large Capital investments required for setting up PCB manufacturing unit, inhibiting manufacturers to set up new units, especially for multilayered PCBs, which are expected to grow at a significant rate. 
⦁    Inverted duty structure, as inputs for manufacture of PCB’s are subject to 5 to 10% Customs Duty while PCBs attract Nil duty under the ITA-1.
⦁    Lack of availability of skilled labor
⦁    Lack of availability of raw materials like, pure grade silicon, Copper laminates, required for fabrication of the printed circuit boards. 
⦁    Lack of availability of raw materials at competitive prices. 
⦁    Lack of access to new technology and state of the art capital equipment 

Fiscal Support
The main reason for lack of large investments in PCB manufacturing is that PCB’s are subject to zero BCD under ITA-1 and most PCBA’s are also imported at zero duty. Cost of imports from China and other leading countries such as Taiwan and Korea are attractive and there is abundant availability of all types of PCB’s, specially the multilayer and high end ones.
Thus local equipment manufacturers prefer to import PCB’s as well as PCBA’s where costs are lower and lead times are short. Designing and prototyping of PCB’s is done quickly in China, Taiwan etc and this is another factor favouring imports.
Large Investments in PCB manufacturing will happen only if local manufacturing is incentivised. The following recommendations will go a long way in boosting local manufacturing of PCB’s :
I.    Capex Subsidy under MSIPS or similar Scheme must be provided and threshold should be reduced to Rs 2 Crores so that MSME’s too can benefit and expand. The present threshold of Rs 5 Crores is high for Small Units. MSIPS should be extended to manufacturers of inputs for PCB’s as these are not manufactured locally.
II.    Opex Subsidy either by way of 10% Production Subsidy on value addition or refund of IGST paid on inputs for a period of 5 years to the extent of Capital Investment.
III.    As BCD cannot be imposed on PCB’s, an alternative is to disallow credit of CGST portion (9%) of GST imposed on imported PCB’s
IV.    Impose 10% BCD on all imported PCBA’s for non-ITA-1 electronic equipment. This will encourage local PCB assembly/population and boost demand for local PCB’s.
V.    MEIS benefit of 7% for locally manufactured PCB exports (the present 2% is too low)
VI.    Phased Manufacturing Programs are being prepared for a number of high volume Electronic Equipment and this will drive demand for local components. PCB’s and PCB Assembly should be given special focus and eligibility benefits in these programs so that PCB’s are sourced locally and PCB assembly is done locally under these programs.
(Note: Recommendations made above in Section [B] are relevant for PCB also].

Eco-System Support through PCB Manufacturing Zones/Clusters
There is a need to set up at least one large PCB Cluster in India to establish the eco-system for this critical component:

I.    Sustainable PCB manufacturing requires good quality water & power in abundant quantity. It is necessary for the government (whether state or central) to provide infrastructure at subsidized cost to the industry and the following key facilities should be provided:
II.    Good quality and quantity of water. PCB requires plenty of water during manufacturing. 
III.    Generates pollutants which need to be treated through a high cost effluent treatment plant before it is discharged in the common drains. The manufacturing cluster should therefore have a centralised incoming water treatment unit as well as ETP at the discharge side. 
IV.    PCB manufacturing also generates significant solid waste needs to be transported to approve land fill site. The land fill site needs to be provided by the State Government.
V.    PCB manufacturing is a semi-continuous power intensive industry. Continuous, adequate & good quality power is necessary for successful operations.
VI.    The PCB Cluster must have a centralised warehousing facility for imported inputs like laminates, prepregs, copper foil, photopolymer films & photo-tools, solder mask inks & drill bits etc. Some of these items will require air-conditioned and deep freeze environment due to shelf life issues.
VII.    Skilled manpower is required for PCB manufacturing and the industry is labour intensive hence provides large scale opportunity for employment at post school, ITI & diploma level educated workforce. 
VIII.    Capital Equipment for PCB Manufacturing is largely imported and maintenance is a major challenge and cost due to dependence on foreign suppliers and technicians. Local technicians need to be trained for maintaining high precision PCB manufacturing equipment to avoid excessive downtime and cost and ensure good quality sustainable manufacturing. Support for skilling of manpower is important and a key part of the PCB eco-system.

Policy Recommendations for EMS Industry

Introduction & Background

Electronic Manufacturing Services (EMS) or Electronic Contract Manufacturing is a well-established business model for the Electronics Industry worldwide. 

The expanding functions which EMS is delivering in the electronics value chain include component assembly, engineering & design of printed circuit boards, sub-assembly manufacturing, and functional testing offered by contract manufacturers, are subsequently expected to drive the contract manufacturing services market growth.

The EMS model is driven by a contract manufacturer’s ability to specialize in economies of scale in production, industrial design expertise, raw materials procurement, and pooling resources along with offering value-added services such as warranty and repairs. These allow OEMs to avoid having tedious or complex large-scale industrial operations.

The global electronic contract manufacturing and design services market size was valued at USD 348.2 billion in 2016. 

By working with EMS companies, customers can vary their cost structure, reduce working capital requirements, and lessen the time to market. On account of these factors, the electronic contract manufacturing services market is expected to gain traction and also increase its share in the ESDM value chain.

Varying estimates regarding size of the EMS industry in India have been presented by different research agencies. These range from as low as US$ 4Bn to US$ 15Bn during the period 2016 to 2017. As per industry assessments, a realistic estimate of the current size of EMS industry in India would be ~US$ 9-10 Billion. This is about 20% of the total ESDM manufacturing in the country and highlights the importance of EMS segment. For India, EMS has a special role to play as a driver of demand for components, support design of equipment, increase value addition and generate employment as we move up from the SKD to CKD model of equipment manufacturing.

In view of the above, EMS needs special attention in our ESDM policies and eco-system. It has the highest and imminent potential for growth well in excess of 20-25% per annum and an EMS industry of about US$ 30 Billion in next 5 years.

Make in India can be a reality only if the investor is reasonably assured of profitability. At present this is not the case and it is much safer and easier to import or at best follow the SKD assembly model.  This needs to change urgently if we want to reduce our dependence on imports and also reduce the insecurity and uncertainty which accompanies it. 
The electronics manufacturing sector can be broadly classified into three tiers:
⦁    Components, Parts & Raw Materials
⦁    PCB Assembly / EMS
⦁    Finished Products
Each segment of the value chain above is characterized by different levels of Value Addition and requirement of Capital and Technology. India needs to pay heed to these factors and make its policies accordingly. EMS has a key role in enabling Make in India in the ESDM sector and its growth would galvanise the entire value chain including components, raw materials and design.


1.    Import Duty on Populated PCB’s (Assembled Boards): Zero duty import of PCBA’s discourages value addition in ESDM sector in India. This also inhibits the manufacturing of Components in the country. ELCINA recommends that 10% BCD should be imposed on all PCBA’s (other than ITA-1 items) to encourage value addition in the country and growth of EMS sector. 
PCBA’s used for the manufacture of Set Top Boxes, Inverter AC’s, Solar, Wind energy equipment and other electronic finished goods should be identified and protected from any further FTA’s. 

2.    Threshold Limit for EMS vertical in MSIPS Policy: MSIPS has been an important and attractive policy for inviting investments is ESDM sector. However it has faced some challenges in implementation and needs tweaking of the Scheme to make it more effective and achieve its objectives.
Presently, the threshold investment limit for availing MSIPS benefits for EMS vertical is INR 10 cr. This is high in comparison to average stand-alone investments in the sector. ELCINA recommends that this threshold limit for EMS vertical for MSIPS benefits should be reduced to a reasonable limit of INR 5 Cr. This will help in encouraging the investments in the sector, enable MSME’s to participate and expansion of existing EMS companies. 

3.    Phased manufacturing program:
PMP has yielded satisfactory results in the mobile phones manufacturing sector and has promoted SKD level manufacturing. 
ELCINA recommends that similar PMP programs should be announced for LED Lights, Set Top Boxes, Inverter AC’s, Security Equipment along with various other electronics equipment as identified by stakeholders of ESDM Industry. To qualify as a domestic product, VA norms need to be defined realistically and increased within a time frame of 3-5 years to reach minimum 50%.
Encouraging EMS through PMP programs is vital as been proposed under the PMA Policy where the entire value of locally populated PCB’s are taken as domestic value. This will go a long way in promoting EMS. 

4.    Provision of Interest Equalisation to compensate the high cost of finance in the country: 
Reserve Bank of India vide Cir. No. 1/13.05.000/2015-16 dt 11th February 2016 has announced “Interest Equalisation Scheme on Pre and Post Shipment Rupee Export Credit”. Similar scheme has also been announced by DoT (Department of Telecommunication) vide Circular No.18-34/2013-IP. Dt. 28th October 2016, these schemes are offered to the exporters of selected items. Domestic manufacturing also saves/earns forex by means of import substitution. 
Interest equalization should also be offered to the domestic manufacturers of all ITA-1 items (including PCBA’s) on deemed export basis.

5.    Credit Default Guarantee for Electronics Manufacturing
A.    For Capital Goods: (For Purchase of Capital Equipment)
⦁    Electronic Manufacturing industry is facing challenges to set-up electronics manufacturing facilities in India because of high cost of investment involved and lack of adequate credit facilities. 
⦁    Most of these machinery is required to be imported. Considering the significant amount of investment involved, procurement has to be done on credit basis; either by availing bank loans / bank guarantee. 
⦁    The banks in India require at least 100% of the loan / guarantee amount as collateral for extending credit facilities. Such collateral requirement poses challenges for growth and hence, there is a need for the government to enable banks / financial institutions to extend credit default guarantee for facilitating import of capital goods.
⦁    Electronics equipment funded through a loan from banks / FI's for a tenor of 4 - 5 years for which the Investor shall pay an upfront amount of 20% of the total value. The Government of India shall extend Credit Default Guarantee for 50% of the total value covering the entire tenor of the loan. 
⦁    This credit default guarantee shall be extended to the financial institutions / banks who provide the lease.
⦁    Credit Default Guarantee for Domestic Sale of Electronic Products and Components. This will go a long way in boosting investments in Electronics Manufacturing.

A.    For Components, PCBA’s and Electronic Products: (For Export)
⦁    Similarly as there is inadequate ecosystem in India for components, hence 70-80% of all components and even final electronic goods are imported. Currently, the importers of components enjoy 3 - 6 months credit from Chinese exporters. Such facility has been enabled by Sinosure, the China government owned insurance company to promote exports. 
⦁    This helps the importers as a working capital bridge to realize cash and effect payments for the imports over the 3 - 6 month credit period. 
⦁    Hence, the Indian industry prefers to import components and equipment rather than buying from the domestic manufacturers. 
⦁    Once the manufacturing facilities are set-up as stated above, the components can be procured locally and substantially reduce import dependence. 
ELCINA recommends that Central Government should extend Credit Default Guarantee covering 25% of the value of the sale of domestically manufactured components and electronic products for a tenor of 3 - 6 month period and support local manufacturers by incentivizing purchase of their components/products.

6.    Production Subsidy: Provision for a 10% Production Opex Subsidy on the value addition by the manufacturing unit has been introduced under the MSIPS Scheme on 3rd August 2015 including high value added items. Urgent implementation of this is recommended. 
ELCINA further recommends that this Production Subsidy is extended to include all components and raw materials which are covered under ITA-1. EMS companies are playing a vital role in the ESDM Value chain. They encourage local manufacturing, value addition and demand for local components and raw materials/parts. It is recommended that output from EMS companies is included in this Production Subsidy. 

NOTE: ELCINA recommends that OPEX based incentives should be considered in addition to CAPEX based incentive offered under MSIPS. The OPEX based incentive may be available year after year for up to 10 years and ensure sustained competitiveness of the industry and this incentive should be value addition based. The subsidy may be tapered off thereafter. 

7.    Recommendations on GST to support domestic manufacturing vis-a vis Imports: ELCINA has been recommending that in order to discourage import of complete products and PCBA’s, the credit on CGST content charged on their import should not be allowed. This will encourage manufacturing of indigenously manufactured electronic equipments by making the imported items costlier. However, it is not clear as to whether this is permissible under the GST Act and process.
An equally effective way to use GST to promote domestic manufacturing would be to refund the CGST paid on domestically manufactured inputs (Raw Material, Intermediate goods, PCBA’s.) used in the domestic manufacturing of electronic equipment.  

8.    Export of electronics Items: Government is all set to encourage exports of electronics item. ELCINA recommends some steps to encourage export of electronics items/components:
a.    Increase in MEIS benefits from existing 2% to 5%.
b.    Allow use of MEIS scrips to pay CGST/IGST as the same were utilized to pay CVD/Excise in the Pre-GST tax regime. 
c.    Benefit of Direct Tax for the profit made by exporting electronics items/components. 

9.    Deemed export status to domestic manufacturing of ITA-1 items: ITA-1 has caused severe harm to the domestic manufacturing of electronics items in the country. Zero duty imports of these items from the countries which have various advantages such as Economy of scale, Low cost of Finance, Better technology and significant support from their governments have become a major challenge for local manufacturers discouraging investment in the sector. ELCINA recommends that deemed export status should be given to the domestic manufacturing of ITA-1 items in the country.  

Prev Next