Designing in India an Informal Rider to Avail Electronics Component PLI: Vaishnaw

Along with fulfilling the formal criteria of turnover and capex, electronics components manufacturers must set up design teams and achieve six sigma quality level in products to avail incentives under the new scheme, Union Minister Ashwini Vaishnaw said on Saturday.

He was speaking at the launch of the guidelines of the production linked incentive scheme for electronics component manufacturing. The electronics and IT minister also launched the online portal for the scheme.

Vaishnaw said the government will not approve projects under the scheme if companies do not setup design teams.

“I want to make a request to the industry. Some of you have done very well in setting up your design (teams), but not all of you. I request each and every one of the participants in this scheme (that they) must set up a design team. We have not included that as formal criteria for approval but I'm saying in front of you that 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,” he said.

The minister emphasized the need for backward integration and asked the participants in the scheme to also strive for six-sigma quality in their products to compete at the global level.

“Nothing less than six sigma will be tolerated. We will be evaluating your progress not just on the manufacturing volume, but also on the quality that you produce. It's not there in the formal scheme but in the informal evaluation, those who do not perform on quality will be cut short in between. Please take that as a very clear method of evaluation for you. We must achieve minimum six sigma quality as a team. Without that the world will not respect us,” he said.

Such informal criteria may raise the capex requirements for companies seeking incentives under the scheme. However, industry experts said that it will only encourage the industry to make globally competitive products, increase the overall value addition and enhance profitability for companies.

“Economic value and profitability depends on if you have your own design. How much margin one will make if they just copy these (foreign) companies’ designs and manufacture? Profitability is always limited (in that case),” said Ashok Chandak, President of the India Electronics and Semiconductor Association.

Pankaj Mohindroo, Chairman of India Cellular & Electronics Association highlighted the importance of capital expenditure and asked company analysts not to fear about increased capex. He said that capex is crucial for India to become a hub of electronics manufacturing.

“You (analysts) have to change your mind set. The entrepreneurs cannot just chase valuations. In a meeting we had with 40 analysts, I was absolutely furious when one of them said that increased value addition will mean lower return on investment. Please change your mind set. This Wall Street kind of thing is not setting the right example for the entrepreneurs. What we are here for today requires capital investment, it requires technology, and it requires patience,” he said while addressing the gathering at the guidelines launch event.

Under the PLI scheme for electronics component manufacturing, the government has earmarked Rs 22,919 crore as incentives for participants. The scheme aims to attract investment of Rs 59,350 crore, resulting in production of Rs 4,56,500 crore worth of products. The scheme may create an additional direct employment of 91,600.

This is the first such scheme for promoting manufacturing of passive components in the country. The tenure of the scheme is six years with one year of gestation period.