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Abolish Angel Tax for ESDM start ups for development of industry ecosystem
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Abolish Angel Tax for ESDM start ups for development of industry ecosystem

Agency News

New Delhi, Jan 30: With the Interim Budget coming up on February 1, the premier industry body for the development of a vibrant Indian Electronics System Design and Manufacturing (ESDM) ecosystem has suggested that the government abolish the Angel Tax for ESDM start ups and enable R&D through provisioning separate budget to fund projects of national interest in the Electronics & Semiconductor domain.

Startups in Electronics and Semiconductor space primarily depend on Angel and self funding as very few Venture Capitals in India are investing is ESDM companies. Angel tax and the current policy of getting the start up valuation done by a merchant banker is hitting the ESDM start ups very hard.

Electronics and Semiconductor Association (IESA), is the premier industry body committed to the development of a vibrant Indian Electronics System Design and Manufacturing (ESDM) ecosystem and evangelising the dream of establishing “Brand India” that is recognised worldwide as a go-to destination for electronic products.

IESA president Rajesh Ram Mishra has appealed that the government should address specific issues that will help promote a thriving ESDM ecosystem across all segments in the country.

''IESA believes there is a big opportunity of design led manufacturing to make India a global hub in intelligent electronics. We would like to appeal to the government to address specific issues that will help promote a thriving ESDM ecosystem across all segments in the country,'' he said.

The government should address industry concerns on disincentive for domestic manufacturing and products designed in India due to differential duty structure in multiple segments, he said.

Unlike software products, R&D for electronic products and semiconductors require higher investments. As rightly captured in the draft NEP, R&D for electronic products may need roughly USD 10-15 Million and R&D for Semiconductors (chips, ICs) requires USD 40-50 Million per product.

The draft electronics policy released by the Ministry of Electronics and IT sets an ambitious target of creating a USD 400 billion electronics manufacturing industry by 2025, primarily focusing on the consumer segment with mobile phone devices segment contributing to around 50 per cent of the production.

''We are excited that National Policy on Electronics (NPE) also aims at supporting “make for the world” initiative as over 54 per cent of the mobile phones manufactured in India would be exported by 2025,'' he said.

However, Consumer segment will constitute less than 20 percent of the total ESDM market in India.

The association recommended that the government abolish the Angel Tax for ESDM start ups.

''Government should create a seed fund of Rs1,000 crore which can be matched by industry and VCs to provide seed funding to build 1000 startups ESDM space.

''Additionally, we urge the government to - and enable collaborative R&D among PSUs, Indian SMEs and start-ups,'' he said.

Electronics is key enabler in creating an ‘intelligent’ economy – whether its smart homes, smart transportation, smart cities, smart manufacturing, smart governance, smart health care, smart communication and smart industry.

''We want the government to provide support to create 50 Intelligent Electronics Incubators collaborating with industry in various technology and industry verticals in Mission Mode, similar to Atal Innovation Mission.

For scaling small and mid size companies in ESDM space to become large MNCs like Huawei & ZTE government must ensure domestic market access through stricter implementation of PMA, global market access through linkage of Indian government grant to developing countries with export from Indian ESDM companies and reduction in half the cost of financing for both R&D and manufacturing,'' Mr Mishra said.

Building secured digital infrastructure in India is critical considering the vulnerabilities arising due to geo political uncertainties. Hence, government should insist on “all-in India” products for strategic needs where every component used is designed and manufactured in India, a practice being followed in China today, he said.

''Telecom Service Providers who are one of the biggest consumer of electronics products & systems and today provide the back bone of our voice and data networks, should be encouraged through policy to use “all-in India” products,'' Mr Mishra added.

Despite Modified Special Incentive Package Schemes, large manufacturing set up in semiconductor and electronics have still not come up.

The new incentive scheme could focus on guaranteed market for certain percentage of production from these large ESDM manufacturers instead of purely focussing on early subsidy, similar to BOT model that is working well in construction of road, airports among others in the country, he said. (UNI)