BACKGROUND
1. Addressing the Global investors conference on 5th Nov 2020, the Hon’ble Prime Minister of India said that “Aatma Nirbhar Bharat Abhiyan or Self Reliant India movement rests on five pillars of Economy, Infrastructure, Systems. A Vibrant Democracy & Demand. Our scriptures “Eshad Upanishad” talk about Self-Reliance. When India speaks of Selfreliance, it does not advocate a self centered system, it seeks to support localization as a part of a Global Supply Chain.
2. India’s quest to become Aatma Nirbhar is just not a vision but a well planned economic strategy that aims to use capabilities of our businesses and skills of our workers to make India into a Global Manufacturing power house.
3. India has shown remarkable resilience in the pandemic be it fighting the virus or ensuring ecostability. India offers democracy demand and diversity. India’s reforms in agriculture open up new exciting possibilities to partner with the farmers.
(a) Policy and Support
(b) Electronic Sector / Other Electronic Sectors
(c) Mobile Manufacture through Production Linked Incentives (PLI).
(d) Telecom Sector
(e) Renewable Energy
(f) Advanced Chemical Cell Battery Technology
(g) Pharma Sector
(h) Chemicals, Special Chemicals and Petro Chemicals.
(i) Textiles and other Labour Intensive Leather/Footwear, Furniture, Toys Sector.
(j) Indigenization in Defence Acquisitions & Procurement.
(k) Aatma Nirbhar Research & Development.
ISSUES & RECOMMENDATIONS
5. Policy Support.Department of Industrial Promotion & Internal Trade (DPIIT) through PLI schemes is giving thrust to indigenous manufacture in specific sectors to include manufacturing programmes, liberalizing FDI, improving Ease of Doing Business (EoDB) and setting up monitoring systems. Recent policy supports include raising automatic approval limits for FDI from 49 to 74 percent in Defence Procurement, encourage Commercial Mining, Coal Bed Methane Projects, combined auction of Bauxite and Coal Blocks to boost Aluminium production with a Single Window System for investors also planned. PLI has extended incentive of 4 to 6 percent incremental sales over base year of goods manufactured in India to eligible companies for 5 years subsequent to base year.
Electronic Sector
7. Production Linked Incentive (PLI) and Other Special Schemes
(a) To build a robust manufacturing ecosystem in Electronics and to integrate it with Global Value Chains, PLI for large scale electronics manufacturing, scheme for promotion of manufacturing of electronic components and semiconductors (SPECS) and modified electronics manufacturing clusters (EMC 2.0) scheme are being progressed.
(b) SPECS financial incentive of 25% is on capital expenditure for identified electronic goods i.e. electronic components, semiconductors, display fabrication units, specialized sub assemblies & capital goods for manufacture of above mentioned goods. From 2016-17, SPECS has commenced covering accessories and is adding headsets, microphones, cameras, Printed Circuit Boards (PCB) and display assembly. Electronic manufacturing cluster (EMC) shall provide support for creation of world class infrastructure and amenities including Ready Built Factory (RBF) sheds for attracting major global electronics manufacturers along with their supply chains.
8. Boost to Mobile Manufacture. Govt be complimented on approving 16 players under PLI for mobile manufacture in the country. Samsung, Rising star, contract manufacturers for Apple and indigenous players are among the mobile firms that have won approval to do business under PLI. 60% of total production of goods is to be exported & foreign players can only make phones having invoice value of Rs 15, 000/- and above for local players. For electronic components 6 eligible applicants will be allotted 900 crores as an incentive.
9. Other Electronic Sectors. Considering the thrust on priority to indigenous manufacture of computers and peripherals, digitization, rural connectivity, digital education, telemedicine and financial inclusiveness it will need to be followed up with incentivizing of consumer, medical and strategic electronics. Thrust on computer hardware, consumer electronics, high volume products like TVs and set top boxes in consumer electronics and also in the high value global market for desktops, servers and datacom products demand having increased due to work from home/online teaching. Creation of an ecosystem will entail:-
(a) Acquiring second hand Fab for India’s requirement & persuade Samsung or a similar company to move its existing Fabs to India and updgrading existing 28 nm strategic facility to 90/65nm.
(b) Motivate an NRI with experience in semiconductor technology and establish a Nano/Microelectronic R&D center on lines of Interuniversity Mircroelectronics Center (IMEC) Belgium. These be considered under SPECS, PLI or under Government procurement for large requirement of tablets for our education systems & support to these schemes under ‘Design in India’ concept and also for MSMEs who shall be actual backbone of future growth.
(c) Strategy be worked to ensure maximum indigenous software value addition in electronics consumed or manufacturers in India which will also ensure our National Security objectives. India is less than prolific in creating Intellectual Property Rights (IPR) vis our known strengths in software products. Incentivizing IPR, whether by Indian or foreign companies is key to creating a pool of manpower capable of creating innovative products in India.
10. There is a need to look at high volume products like TVs and set-top boxes in consumer electronics, and also the $360-billion global market for desktops, laptops, servers and datacom products. The demand for such products has dramatically increased due to ‘work from home’and online teaching, post Covid. Setting up of Fabs-manufacture of chips, of different ranges needs to be progressed on priority considering threat from Chinese designed chips. Creation of the eco system will entail :
(a) Acquire second hand Fab for 28nm for large part of India’s requirement. A modern Fab may cost upto 500 to 700 mn.
(b) Persuade Samsung or a similar Company to move its existing Fab to India
(c) Upgrading Strategic Fab facility to 90/65 nm
(d) Motivate an NRI with deep experience in Semi conductor technology as Taiwan did with Morris Chang. (e) Establish a Nano / Microelectronic R&D Centre on lines of Interuniversity Microelectronics Centre (IMEC) Belgium.
11. Above issues should be considered under SPECS, PLI or under Govt procurement especially for large requirements of tablets for Indian education system, requirements of Laptops/Servers, Data Storage banks etc for Govt / PSU schemes. Support in these schemes should be given to “Design in India” concept and also for MSMEs who will be the actual backbone of growth in the future.
12. Initiatives taken for mobile production component initiatives through SPECS, will result in a broad base for Electronics manufacturing which will facilitate development in other areas like Medicine, Industrial & Strategic Electronics along with complimentary investments in some specifications.
13. A large part of Electronic Hardware value is in the embedded software (IoT, Telecom, etc.). A strategy therefore needs to be worked to ensure maximum indigenous software value addition in electronics consumed and / or manufactured in India leveraging India’s strengths in IT and its huge demand.This would also enhance our national security objectives. India has known strengths in Software (SW) products but has been less than prolific in creating Intellectual Property Rights (IPRs). Incentivizing IPR, whether by Indian or foreign companies is key to creating a pool of manpower capable of creating innovative products for India.
Telecom Sector
14. 5G transmission equipment assumes significance. It is significant that Reliance Jio is planning building an indigenous version in partnership with US / Israel firms and with Airtel announcing collaboration with US-Japan industry and plans for hardware manufacture in India in collaboration with contract manufacturers the manufacture of this equipment is bright. Govt has signed an agreement with Japan recently for joint development on 5G.There is a huge domestic demand for telecom hardware. Electronic products in the domestic digital economy need to be leveraged to increase manufacturing capacity within the country. In areas considered critical from a national security perspective such as core telecom networks, stipulations need to be introduced requiring software to be developed locally. We have several R&D groups in the country working on 5G technologies and ORAN, etc. Maintenance work to be carried out locally either by an Indian or a foreign company.
15. Renewable Energy
(a) Issue regarding setting up Solar cell manufacturing from wafer stage in the country has to be progressed at priority. India has an ambitious programme of reaching 300,000MW Solar energy capacity level by 2030 with an annual rate of 25,000MW. Presently, India is heavily dependent on Chinese imports (80%). In the 2nd round of PLI announcements, the Govt has approved an outlay of Rs 4,500 crore for “High Efficiency Solar Modules”. Considering the high cost of land, coupled with high Capital Costs (0.5% in China), Electricity, Water & other utility service costs etc, the Govt should offer to build the infrastructure with environmental protection measures” on a “Plug & Play” model and offer to the investor on a nominal rental or lease basis with utility services being made available at reasonable rates. China has successfully adopted this model to attract high Tech FDI.
(b) Considering requirement of a large scale indigenous capacity addition, Govt should progress International joint venture (JV) tie ups with a consortium of PSU’s like BHEL which has a strong Power Electronic base with a background in successfully absorbing new technologies. SECI as the Project Developing Agency & NTPC as the utility buying Solar Power through “Govt procurement route” will be a guaranteed annual off-take model. To de-risk the JV from fall in prices due to advent of disruptive new technologies Govt can offer a subsidy protection to the Indian arm of the JV.
(c) The capacity need may justify a Private Sector tie up also on the above basis since India’s projected annual demand for the decade is high and this is likely to attract leading Solar Cell Manufacturers. Majority stake in such cases of JV be given to the foreign partner, the minor partner being an Indian firm or Consortium.With regard to augmenting Solar Module capacity, there are players with small capacities, who should be encouraged. In the initial stages of indigenous manufacture, especially with regard to Solar cells, some price rise may have to be tolerated till economy of scale in operations is reached. Similarly some import tariff protection for indigenous solar cell manufactures for some period should be considered till a satisfactory scale of operations is reached. Inverted duty structures must be avoided. Govt should have an open mind for capacity additions to permit offers of mid life plant transfers also as this may provide a quick start & economic solution and advantage of a “proven technology”. It will be prudent for the Govt not to over emphasize “Efficiency considerations” in all capacity additions. Regarding “Economy of Scale”, plant sizes of atleast 5GW should be considered.
16. Advanced Chemical Cell Battery Technology. In the 2nd round, PLI initiatives approval has been given to Advance Chemical Cell (ACC) Battery with an outlay of Rs 18,100 Crore. Lithium -ion battery technology allows highest level of energy density. Lithium Sulphur / Lithium Solid State configuration, under development is showing promise. NITI Aayog has invited bids for setting up an Advance Chemistry Cell manufacturing facilities under Public Private Partnerships under the National Programme on Advance Chemistry Cell Battery Storage. According to the draft bid document, Govt intends to develop Giga-scale advance cell manufacturing for domestic application and promotion of diverse energy sources to ensure overall energy security. A bidder selected through this Request for Proposal (RFP), to be eligible will have to commit to set-up an Advance Chemistry Cell manufacturing facility of minimum 5 GWh capacity and establish an Advance Chemistry Cell manufacturing facility with value-addition of minimum 25 per cent at the mother unit level and minimum 60 per cent overall. For, Battery storage requirements at the National Grid level, CEA has estimated a capacity requirement of 32,000MW for 2030 with Solar/Wind share expected at around 52% of total Power Generating capacity of 835,000MW. Simultaneous support from pumped Storage Hydel plants are also being planned. Planning for development of Lithium –Ion batteries in India will have to take care of these larger requirements. These will require considerable import with Lithium not being available in India. Some firms in USA are in an advanced stage of development of non-lithium batteries. India should explore a tie up with them.
17. Presently around 20,000 MW Gas based power plants are stranded due to shortage in Gas supplies. With Gas grids being planned now for LNG, as and when additional gas supplies materialize, priority be given for these stranded plants. Gas based plants, with quick ramp up characteristics are ideally suited for balancing power requirements. Similarly accelerating Hydro projects will not only produce Green Power but help in a quick ramping of power capacity. Due to intermittent and variable nature of solar/wind power, integrating these base load thermal power/storage systems will call for progressive introduction of “Smart Grids” at different levels of the National system. Planning for System/ hardware / software requirements, indigenously for this should commence.
Pharma Sector
18. In the first tranche of PLI announcements, support of Rs 6,940 Cr for manufacture of “Key Starting” material, Bulk Drug formulation, Active Pharma Ingredients (API) to reduce import / Chinese dependence as well as medical devices was included. Dept of Pharmaceuticals has issued guidelines for these and response to drug ingredients has been encouraging. Govt is also establishing 3 mega-pharma parks. In the 2nd tranche of FM’s Aatma Nirbhar stimulus 3.0 support of Rs 15,000 Cr is being extended to development of patented drugs/drugs not produced in India, Gene/cell based products, Bio pharmaceuticals etc.
19. Govt should consider development of focused Pharma Research institutions, high level Institutes of Pharma Science & Technology, setting up Skill Development Centres in Pharma clusters, increasing grants to Universities for Pharma research. Industry will also have to step up R&D support which may qualify for tax rebate.
20. In the case of fermentation based PLI Scheme, response has been poor because of non availability of technology, strain and viability. Foreign investors should bring in technology strain in JV partnership with local firms.
21. A part of PLI corpus may be reserved for R&D particularly for complex molecules and advanced drug delivery systems. Substantial support should be given to high value Super Generics. A National level authority be constituted for Advanced Research Development in chemical drugs. Contract Manufacturing Organization (CMO) be developed in association with an Academic lab for API, KSM and Drug Intermediates. Public funded Pilot plants with GMP compliance be made available for Start Ups.
22. Recently, US FDA India office in a paper has expressed concern on Indian firms for their inadequate control on sterile drug manufacturing, lack of data integrity, poor cross contamination control.There is need for the Industry to tighten up processes and for the Indian Drug Regulatory authority to tighten standards to USFDA levels.
Chemicals, Special Chemicals & Petro Chemicals
23. Trade deficit in sector was around 1.12 lakh Cr in 2018-19. Petrochemicals-Polymers, Fibre intermediates, Synthetic Rubber and Detergent intermediaries are in trade deficit. Synthetic Fibre, Performance plastics, Aromates are in surplus. In Chemicals, at group level, Alkali-chemicals, organic and inorganic chemicals are in trade deficit. Pesticides, Dyes & Pigments are in surplus. The decision in Textile sector to shift focus to Man Made Fibres supported by recent PLI scheme will mean extra demand in future on petro chemical for inputs.
24. Investments will need to be planned for these sectors for growth, as also for items of large import. New FDI entering India for setting up Refineries (e.g. Saudi Arabia Amco) be encouraged to set up Petro Chemical complexes to address gaps. Special chemical segment which accounts for 50% of chemicals export earnings will need nurturing.
25. Agro Chemicals. The present per capita consumption of Agro chemicals in India is around 0.68 Kg compared to 4.58 Kg in USA leading to lower yields of 20% to 25% of India’s agricultural production which gets destroyed by pests. In the interest of India’s Food security there is need to step up production of benign agro chemicals.
26. PLI schemes for sectors yet to be announced should focus on including Petro Chemical intermediaries like building blocks like ethylene/ propylene, intermediaries for Special ethylene / propylene oxides, polyols, phenol, acrylic acid, styrene etc. Some funds from PLI may be allotted to developing emerging products/ processes/technologies, besides current gaps.
27. R&D expenditure by Indian companies is around 2 to 3% of turnover, against 10% by MNC’s. This will need to be stepped up. Regulatory approvals for new molecules will need to be hastened. It is also important that chemicals which can be produced from coal, the feed stock shift from Petro must be progressively attempted.Renewable Energy chemicals will require PLI support for renewable energy.
Textiles and other Labor Intensive Leather/Footwear, Furniture, Toys Sectors
29. In the second set of approvals, PLI scheme has been extended to Textile sector in MMF & Technical Medical, Agro, Geo textiles imports with an outlay of Rs 10,653 Cr for a 5 year period. India has also concluded an agreement with Japan in Technical textiles.
Liberal support will have to be extended for modernization of small scale sector in textile & other labor intensive industries like Leather/Footwear, Furniture, Toys etc.
30. Reducing dependence on oil and other fuel imports.This needs to be focused by augmenting coal production, increasing use of coal with “clean coal technologies”, Coal gasification, increasing fertilizer production (as in Talcher) and feasible chemicals production with coal as feedstock, encouraging ethanol/methanol production and biofuels, and electric mobility not only in urban areas but also on highways.
Indigenization in Defence Acquisitions and Procurement
31. Besides allowing FDI upto 100% in 2016, approval limit under automatic route has been raised to 74% from 49% in May 2020.This has been followed by a negative list of 101 items, banned for imports by Ministry of Defence in August 2020. Defence aircraft under different stages of development/production are :–
(a) Besides an earlier order for 40 light combat aircraft (LCA), Tejas, there are plans to buy additional 83 jets from HAL for 6 billion dollars. Orders have been placed for manufacture of 40 transport aircraft in partnership with Tata Advanced systems, procurement of 6 Apache Helicopters for the Army has been finalized on Tata Boeing Air space.
(b) HAL is developing a 38 weapon system integrated (WSI) helicopter HAL Rudra, 35 Light Combat Helicopter (LCH) and 73 Advanced Light helicopter (ALHDhruv).HAL also has a JV with Russia for manufacture of 200 Kamov-226 Helicopters.
32. Negative list of 101 items banned for import in Defence procurement.The list includes, 200 wheeled Armoured Fighting Vehicles (AFVs) with indicative import embargo date of December 2021, at an approximate cost of over Rs 5,000 crore. Similarly, Navy is likely to place demands for submarines with an indicative import embargo date of December 2021 of which it expects to contract about six at an approximate cost of almost Rs 42,000 crore. For the Air Force, it is decided to enlist the LCA MK 1A with an indicative embargo date of December 2020. Of these, 123 are anticipated at an approximate cost of over Rs 85,000 crore.
33. New Defence Acquisition Procedure (DAP). The new policy intends to turn India into a Global manufacturing hub of military platforms. The offset guidelines aim to manufacture products in India, rather than meeting the obligations through other routes and increases indigenous content by 10%.The issue in Defence development, besides complexities in Technical side, is the limited size of orders. If on some of these platforms, civilian requirements can be built, it will give economy of scale especially to the Supply chain. Govt can consider offering some PLI initiatives for the conversion production. Where, order size is small, it may be pragmatic not to insist on a strict offset, so long it helps us.
Aatma Nirbhar in Indian R&D
34. Indian Industry and our PSU’s still depend largely on JV’s, foreign technical collaborations with large no. of R&D institutions, in Govt, in PSU’s & in Industry also functioning. This could be due to a “Risk Averseness” culture prevailing in the management. On the contrary Atomic Energy Commission, ISRO, DRDO (Missile Technology) have made India proud by their achievements, when foreign technologies were denied to India.While R&D institutions may excel-publish findings, take patents, the responsibility for commercialization, however, rests with PSUs/Industry for prototype trials, improvements, scaling etc.
35. It will be beneficial if Govt appoints a high level task force to delve in-depth on this issue, examine successful practices and models abroad and suggest interventions. Even small countries like S. Korea appear to be very successful e.g. in 5G.There is also need for periodic expert review of R&D activities, Govt Research Institutions for effecting improvements / changing directions. Some NRI eminent researchers abroad and even foreign researchers can be co-opted.
36. India should revive the old practice of inviting researchers, scientists, technologists of Indian origin, even after their retirement, to contribute to Science/ Technology / R&D in India. Similarly younger, promising scientists, in greater numbers from different fields in India be sent to leading Universities / Research institutions, abroad, etc like China. In PLI budget allocation should be made for R&D.
Policy Recommendations
37. R & D spends as a percentage of revenue, even by leading Indian Industries, is far below MNC’s abroad. It is important that India aspires for Global leadership in Research & Knowledge initiatives and becomes a global hub for these. It is suggested that Govt may consider some tax relief for these R&D spends subject to these being linked to specified outcomes. MNC’s must be encouraged with an enabling environment to set up research bases in India. There is a case for giving a role & support to MSMEs and Startups in Aatma Nirbhar initiatives & PLI funding. Considering the importance of Aatma Nirbhar initiatives, the Govt could consider a close monitoring set up with a task force of Secretaries and a coordinating body with industries, State Govts.
38. DST has set up around 25 verticals, with Technology Incubators around the country to contribute to Futuristic / Frontier Technologies in fields like Artificial intelligence, Quantum Technology, Agriculture etc. These verticals are also assisting in current technology gaps. However, it will help if a special vertical is created in DST to coordinate technology support issues in Govt’s Aatma Nirbhar initiatives in manufacturing and R&D. It may be useful in case of a JV or technology transfer agreement, for the Indian partner (PSU or private) to co-opt a research unit in the network as a knowledge partner in its group.
CONCLUSION
39. Govt must consider levying an Aatma Nirbhar cess on imports and royalty payments to enable creation of a dedicated R&D and innovation fund to support activities recommended. It may consider setting up a PSU type structure under DST to spot promising Global start ups and invest in them more from knowledge acquisition angle. PSU’s in Ministries should also adopt this approach in addition to physical acquisitions of strategic assets as at present.Govt support may also be necessary for Indian Corporates to attain Global leadership similar to the levels extended by Japan in the post war period to nurture promising companies as also by South Korea and China in the past few decades.
40. Considering high land costs coupled with cost of capital, high logistic and fuel / electrical costs, etc., there have been suggestions that a “Border Adjustment Tax” be additionally levied on imports in Aatma Nirbhar initiatives to provide a level playing field for local manufacture.
41. Appreciation of the Indian Rupee reduces extent of import duty protection. In the present juncture, with large foreign inflows due to large economic stimulus in USA, Europe etc. and the value of the Rupee rising, opportunity should be taken to incentivize Indian industries, especially labour intensive, to go for modernization & technology upgradation by import of capital equipment.
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