Karnataka ESDM Industry
Karnataka is known to be a center of the hi-tech industry, contributing significantly to the country’s revenues from information technology, biotechnology, ESDM, aerospace, and other technology sectors. Karnataka’s GDP stands at USD 120 billion and is growing at a healthy 7 percent per annum. It has an industrial output of USD 61.5 billion and a cumulative FDI of USD 18.30 billion from April 2000 to September 2015. Karnataka contributes to more than a third of IT, ITeS and electronics exports in the country. The value of total exports of the state is USD 52 billion which contributes to 13 percent of India’s exports to the world.
Karnataka is the fourth largest contributor to electronic industrial output in the country and contributes to 10% of the country’s electronic industrial output with a recorded growth rate of 18% CAGR during 2008-2013. It has the second-fastest-growing start-up ecosystem in the world and is home to billion-dollar Indian start-ups.
The best and the largest global companies across sectors have their R&D and innovation centers here. Karnataka is the second largest chip design hub in the country with a presence of 85 chip designing companies and was the first state to roll out initiatives for innovation centers, skilling centers, and dedicated ESDM clusters. Around 3000 personnel are trained annually in the KESDM sector.
Karnataka ESDM Policy
Vision: Develop Karnataka into a global ESDM hub and a hotbed of innovation through focused interventions and encouragement to local companies in the sector.
Goals: The policy aims to foster high growth for the ESDM industry, which can be achieved by attaining the following goals:
- Stimulate the growth of 2000 ESDM startups during the policy period.
- Enhance value addition done in Karnataka by 50%.
- Create 20 Lacs new jobs in the ESDM industry by 2025, both direct and indirect, thereby increasing the total workforce in the sector to ten times the present number.
- Effect a quantum jump in the overall revenues of Karnataka’s ESDM companies to USD 40 billion by 2025.
- Skill Development: Continue the focus on skill development and nurturing of the talent pool by refining and strengthening the existing initiatives; introduce new, strategic interventions for focus sectors.
- Quality Infrastructure: Create common infrastructure facilities and center of excellences (CoEs) in specific areas, to provide an impetus to local industry; encourage new investments and growth in tier-2 cities across the state.
- Ecosystem Support: Operationalise PMA policy to encourage domestic procurement; accelerate next generation technologies through pilot projects and encouragement to grass-roots entrepreneurship and IP creation.
- Encouragement to Start-ups and MSMEs: Strengthen the existing Semiconductor venture fund for accelerated investments; promote expansion and growth of KESDM industry through market development activities and support to local companies.
- Enhancing Ease-of-doing Business: Simplify and streamline policies and procedures to enhance overall experience of doing business in the state; put in place mechanisms for faster facilitation of incentives and other policy benefits to attract investments from global companies in the sector.
To ensure that the state develops as a hub for innovation and R&D, the Government will lay a special focus on some of the emerging sectors. Through this prioritization, the Government believes there will be more innovation and multiple world-class companies will come out of Karnataka. In order to incubate and scale up these sectors, the Government would focus on setting up Centers of Excellence with specialized facilities for training and skilling, research and development, and product development and validation. Also, required Common Instrumentation Facilities will be set up to supplement the ecosystem.
Medical devices have gained a lot of prominence over the years owing to the emphasis on healthcare delivery across the country. India is amongst the top-20 markets that have been growing significantly over the past few years. The industry is currently importing most of its requirements, which if encouraged, could be reduced over the years. Also, as a country, India requires medical devices that are developed at lower costs with the same or higher quality as their global counterparts. Karnataka Government will promote this fledgling sector and ensure companies in the state benefit from the focus.
Industrial Automation / Robotics
With the advent of technologies such as Artificial Intelligence and Machine Learning, industrial automation and robotics are taking off in the world. There are multiple companies exploring and researching, and converting their ideas to concepts. Also, with the Internet of Things (IoT) ecosystem exploding, many of its uses will be geared towards the automation of machines and industrial tools and the use of robotics to improve productivity and quality. Local companies working on such products will be promoted by the Government to boost exports in this sector and to future-proof the domestic market from over-reliance on imported products and technologies.
Karnataka is already a hub for automotive with some of the major automobile and automotive parts manufacturers present in the state. This sector is now increasingly adopting technology – be it within the vehicle for passenger comfort and facilities, or under the hood to improve efficiency and performance like micro-controller units (MCUs). State Government will have a specific focus on automotive electronics and boost the sector by emphasizing innovation and use of technology that is driving changes in the automobile sector.
As electronics become more complex and scientists and researchers discover new ways to take advantage of materials and apply them to the field of ESDM, Nano Electronics is bound to become an important area for research and invention/creation of new products. Karnataka is home to one of the few Nano Sciences and Engineering centers around the world, with the Center for Nano Science and Engineering (CeNSE) operating out of the Indian Institute of Science since 2010. This would be leveraged to encourage new research in the fields of medical diagnostics, computing devices, displays, optoelectronics, etc., and create a focused approach towards building new products that use these technologies.
Consumer Electronics is a huge field with devices ranging from those used for entertainment to communication to office/personal computing devices. India is already one of the biggest consumers of such devices and it is only prudent that local companies develop the required capabilities to manufacture these devices and their components locally than import them. Also, under the Digital India mission of achieving net-zero imports, this sector is of special focus to the Government to ensure Indian companies manufacturing/designing consumer electronics products scale up and achieve world-class capabilities in the next few years.
Focused Working Groups
Apart from the mentioned focus areas, the Government will set up Focused Working Groups in association with the industry for other products/technology areas. These groups will evangelize and promote product lines/technologies such as Defense Systems, Energy Meters, LED and Solar, etc. These groups will also be tasked with assisting the Govt. on specific policy formulation and promotion for the technology/product line. It will assist the Govt. in being agile to come up with timely policies, standards for such new growth areas and encourage industry participation and assistance for promoting indigenous design and manufacturing of such products.
Bengaluru has been a hub for the IT industry and has therefore attracted multiple companies in the ESDM sector from across the globe. The Govt. of Karnataka is committed to the continued success of Bengaluru but at the same time wishes to accelerate the development of tier-2 cities in the state. To ensure this inclusive growth, the focus of this policy will be to provide facilities and infrastructure as per the requirements of the industry.
Common Instrumentation Facilities
The Government of Karnataka has initiated the setting up of a network of Common Instrumentation Facilities (CIF) across the state, for the benefit of companies in the ESDM sector. Three such facilities have already been identified at Jalahalli (Bengaluru), Mangaluru, and Shivamogga and are in the process of being operationalized. Other such facilities will be identified and set up during the policy period.
These centers will offer entrepreneurs and companies space to work on their product concept and implement a working prototype. The CIF will have all the requisite tools as well as prototype development facilities, testing facilities, characterization labs, compliance and certifications labs along with requisite manpower and component stocks.
To emphasize the high quality of products and to develop facilities for high-end manufacturing, the Govt. will also set up a Common Facility with a focus on Product Engineering. This facility will house molds, 3D printers, etc. to help local companies to improve the quality and build of their products and make them appeal to the international market.
All these facilities will be set up in partnership with the industry/organizations in a hub-and-spoke fashion. They will be available to the industry on a pay-per-use basis to ensure they become sustainable.
Centers of Excellence
The Govt. of Karnataka, in association with industry bodies, has initiated the setting up of various Innovation / Incubation Centres / Centres of Excellence across the state. In partnership with NASSCOM, a Centre of Excellence for the Internet of Things (IoT) was established in 2016, which is focused on IoT technologies. Similarly, the Government has proposed to set up CoEs for Medical Electronics and Robotics in the state.
This program will be expanded to establish Centres of Excellence (CoE) for specific focus areas like Automotive Electronics, Industrial Electronics / Robotics, etc. These upcoming CoEs will be mandated with research and development, evangelization and promotion of the industry, capacity building for required skillsets within the industry, and incubation of startups/projects. They will also house specific facilities required for the sector.
Electronics Manufacturing Clusters
Govt. of Karnataka will accelerate the process of setting up greenfield and brownfield clusters, in line with the policy of the Govt. of India. These clusters will be developed to provide world-class manufacturing facilities to ESDM companies, alongside dedicated corridors for connectivity and transportation and uninterrupted access to power, water, and other utilities.
Development of Local Ecosystem
Karnataka has been at the forefront of enabling sector-specific policies through an investor-friendly climate. The Govt. of Karnataka released the first state policy on semiconductors in 2010 and the state’s ESDM sector has seen a quantum jump over the past decade. To remain in the lead and take progressive steps towards a bigger local ecosystem in the state, this policy proposes the following initiatives.
Preferential Market Access
In line with the Govt. of India’s Preferential Market Access (PMA) policy, the Govt. of Karnataka envisages benefiting companies and entrepreneurs that are based out of the state. To this end, the government would bring in the required changes to its procurement policy to mandate all its departments and PSUs to procure locally from Karnataka-based ESDM companies by making suitable changes in the state procurement policy, in line with the Govt. of India policy. Additionally, all procurement done by state departments and PSUs would incorporate relaxed norms, such that MSMEs and startups would be able to participate in them.
The PMA policy will be applicable to all departments and their agencies for electronic products purchased for Government’s purposes. All ESDM companies that are engaged in the manufacture of electronic products in Karnataka will be eligible for consideration under this initiative.
A suitable self-certification system will be devised to declare domestic value addition by the company. The system will also provide for checks by Standardization, Testing and Quality Certification (STQC) and other testing laboratories accredited by the Department of Information Technology. In cases of incorrect declarations, suitable penalties will be imposed by the STQC.
Pilots for Next Generation Technologies
To leverage the presence of high-tech companies in the region, the Govt. of Karnataka will encourage pilot projects for next-generation technologies in the ESDM sector, such as the Internet of Things (IoT), Medical Electronics, etc.
These pilot projects would be undertaken in the form of testbeds developed in association with the industry. This will be done in specifically demarcated areas. The Govt. of Karnataka will enable collaboration between the ongoing urban development missions, such as the Smart City projects being executed in different cities of the state.
Startups and MSMEs will be given opportunities to executed projects in the fields of Smart Parking, Smart Lighting, Citizen Safety, Waste and Water Management, etc. by demonstrating their technology platform/solution/service. Based on the outcome of these pilots, these technologies/solutions/services would be adopted for large-scale projects. Procurement from domestic companies would be encouraged for these projects through pre-defined clauses and norms.
Specific tier-2 cities would be identified and local companies would be roped in to train students in these next-generation technologies. The pilot project would then be replicated across the state providing further opportunities in these tier-2 cities. This would inherently provide multiple opportunities to startups/MSMEs to do R&D, sell domestically and build their business.
Young professionals across the state will be incentivized to solve local problems and build successful ESDM product companies under the Karnataka Startup Policy 2015-2020. Govt. of Karnataka-funded programs, such as Grand Challenges, will be initiated specifically to solve problems using ESDM technologies. This will provide the state’s startups and MSMEs with a domestic market and an initial impetus.
5.3 Encouragement to Commercialization of R&D
R&D at universities and colleges is an important aspect of creating a thriving ecosystem. To encourage R&D, the Govt. of Karnataka will support selective R&D projects and provide funding to develop products as an outcome. The Govt. will also encourage academic and research institutes to offer the resources and technologies developed in their campuses to the Industry at a very nominal cost.
Alongside, the Government will also encourage R&D in multi-disciplinary fields such as Medical Electronics, Robotics, etc. This will be initiated at the higher education level through inter-disciplinary R&D centers and CoEs for identified focus areas. Through its linkages and MoUs with other cities and associations/organizations, the Government will also invite talent from the top-most technical universities in the world to guide and mentor such student projects and help them commercialize their products. This will automatically feed into the industry and ecosystem.
Enhancing Ease-of-doing Business
The ESDM industry has been declared as an essential service under The Karnataka Essential Services Maintenance Act, to be treated at par with public utilities to exempt them from the disruptive effects of general strikes and bandhs. To further make it easy for companies to set up and run their business, the Government of Karnataka proposes the following initiatives/measures.
KESDM companies will be exempt from inspections barring inspections made for verification of specific complaints and will be permitted to file self-certification, in the prescribed formats under the Acts and Rules as under:
Procedural reforms will be undertaken with an aim to provide approvals to the industry/investors within 3 (three) calendar months of filing requests acceptable to the government. Red flagging and escalation of delayed issues at various levels and regular monitoring of the same will be made.
Within the first year of the policy, a portal will be commissioned to serve as a single point for incentive/subsidy/grant applications for all KESDM companies. It will have provisions for uploading documents as well as tracking the application process within defined timelines.
Enablement through ESDM Cell
To further improve ease-of-doing-business, a dedicated ESDM Cell will be provisioned to be housed within KBITS for promoting and facilitating the Karnataka ESDM policy initiatives and to act as a one-stop shop that enables easy flow of information and assistance to KESDM companies.
Govt. of Karnataka aims to foster the ESDM industry to innovate and build scale. To facilitate the various objectives of the policy, a host of incentives and concessions will be applicable for the industry throughout the policy period.
Eligibility for Availing Financial Support
To avail of these incentives and concessions, an ESDM company must be registered with KBITS as a KESDM company, details of which will be published as operational guidelines to this policy.
Nature of Business:
The company or entity should be engaged in one of the following businesses – • Manufacturing and or design of electronics products such as telecom systems / mobiles / IT systems and hardware / consumer electronics / medical electronics / avionics / industrial electronics / defence and strategic electronics / automotive electronics / information and broadcasting equipment / etc. • Manufacturing of intermediates such as PCBs / semiconductors / chip components / ICs / components / parts etc. • Electronics Manufacturing Services (EMS) • Design / IP / Software services for electronics products • Any other electronics verticals/products covered by the National Policy on Electronics (NPE) / National Manufacturing Policy (NPM) and related notifications, as issued by the Govt. of India from time to time.
Patent Registration Incentive
Registered KESDM companies will be reimbursed the actual costs, up to a maximum of INR 2 Lac for filing a domestic patent; and up to a maximum of INR 10 Lacs for filing an international patent, provided such patent is filed or granted within the policy period.
Eligible expenses for a patent filing include filing fees paid to the patent office, attorney fees, search fees, and maintenance fees. Up to 75% of the eligible expense amount or 75% of the upper limit (INR 2 Lacs for domestic patent; INR 10 Lacs for international patent), will be reimbursed once the patent is filed. The balance of 25% will be paid after the patent has been granted. However, the full reimbursement can also be claimed after the grant of the patent, in which case 100% of the eligible costs will be reimbursed post the application, subject to the maximum grant amount.
A single company will be eligible for a maximum of five reimbursements (inclusive of domestic or international patents) during the policy period. These patent filing incentives provided by the Govt. of Karnataka will be in addition to any existing scheme of the Government of India.
8.4 International Marketing Incentive
For the export promotion of ESDM products and building brand equity of KESDM companies as credible players internationally, Govt. of Karnataka will provide reimbursements of 50% of the actual cost incurred in –
- Registration, travel, boarding and lodging expenses for international marketing, events, and conferences
- Trade show participation and exhibition stall rentals
A single KESDM company will be eligible to claim the reimbursement for up to a maximum of INR 5 Lacs per year. They can apply for the same on a half-yearly basis, within six months of the expense incurred.
8.5 R&D Grant
The Karnataka Government will give R&D grants in the form of reimbursement to registered KESDM companies for the expenses incurred on R&D for products (and not services) as per the following classification.
The R&D grant will be available to only those companies that are less than 7 years old (from the date of incorporation). This grant is subject to a maximum of INR 2 Crores per company per year and will be in addition to any similar benefits announced by the Government of India. A single company will be able to claim this incentive only twice during the entire policy period.
The Govt. of Karnataka will provide up to 10% capital subsidy, up to a maximum of INR 10 Crores to registered KESDM companies, which will be applicable to the first two anchor units in each greenfield cluster.
Interest subsidy of up to 6% per annum on term loans will be provided to registered KESDM Startups and MSMEs for a period of five years for loans of up to INR 50 Lacs. The term loan must have been taken from a scheduled bank or a state-level financial institution such as KSFC. This interest subsidy will be payable to financial institutions on behalf of the enterprise only if the enterprise has not defaulted in payment of either principal or interest installments. The amount of interest subsidy will be the effective rate of interest (after deducting interest subsidy receivable by any institution(s) under any Government of India scheme) or 6% per annum whichever is lesser.