05202018Headline:

Long Awaited Electronics-Specific Venture Capital Funds For Manufacturing Likely To Get Rolling Soon

The government has hinted that the entry of Venture Capital firms into electronics manufacturing projects is finally on the anvil with DeitY already into advanced talks with some of the players who could invest in one of the government’s projects starting next month. While it is undoubtedly a welcome sign to boost local manufacturing for a sector that depends on imports for 90% of its consumption, the big question remains whether it will be as lucrative a business proposition for the Venture Capitalists?

Tuesday, August 27, 2013: An ESDM (Electronic System Design & Manufacturing) project with government’s investment of Rs 1 Billion approximately-expected to start from next month-may finally see major chunk of the investment for the rest of the project coming from venture capital firms, a sector that has generally ‘preferred’ big software companies for providing funds.

Dr. Ajay KumarJoint Secretary, DeitY

Dr. Ajay Kumar
Joint Secretary, DeitY

Dr Ajay Kumar, who heads the Department of Electronics and Information Technology (DeitY), said on Monday that it is in advanced talks with leading Indian venture capital firms and will invest up to Rs 1 Billion in a project expected to start next month.

“The government’s ability to take risk is very low. So, we are taking help of venture capital firms who will professionally manage and invest in these startups of the project,” said Ajay Kumar.

The government will invest for a 15% to 20% stake in each company that will be part of the project. The rest will come from venture capital firms that are currently shortlisting startups in the hardware segment.

However, Dr Kumar has declined to disclose any further details regarding the names of venture capital firms the government is in talks with.

The government has been working to set-up VC funds for supporting electronics sector in the country for quite some time as part its endeavor to reduce India’s dependence of electronic imports, which is expected to cross $300 billion (Rs 19 lakh crore) by 2020 and exceed that of crude oil. India now imports more than 90% of its electronics equipment.

An ever-increasing import bill coupled with lack of substantial electronics manufacturing set ups in the country seem to have further necessitated and expedited this move by the government to seek help from venture capital firms.

Dr Ajay Kumar had previously hinted in February this year that such a plan was on the anvil while speaking at the IESA (INDIA ELECTRONICS & SEMICONDUCTOR ASSOCIATION) Vision Summit, 2013, “It is expected that electronics-specific venture capital funds should be available in the next few months.”

Industry Circumspect

However, most of the leading VC firms in the country are tight lipped so far on the issue. (Have sent to mail to few including Intel, IDEA, Norwest etc for reaction…if they do not reply will write they have not). Those who have spoken have requested anonymity for now but the general sentiment appears to be thinly divided in this matter. A section believes that it is a good initiative as government backing would bring more stability to domestic manufacturing segment, as most of them do not have sufficient working capital. However, the other section is of the view that Electronics Hardware may not be the most lucrative business proposition for the VC firms because of ow margins in the sector and rising demand for cheap Chinese goods.

However, DeitY has already promised that it would propose higher duties on imported electronic items to support local manufacturing.

Also, the recent figures suggest that there has been a decline in the imports of Electronic goods in the recent past. For example, imports of Engineering products from China has seen a decline of 10.46% during 2012-13 and 22.16% in April and May, 2013 over corresponding period last year.

Imports from China of Pharmaceutical, Engineering and Footwear Products

Value in USD Million)

Sl. No.

DESCRIPTION

2010-11

2011-12

2012-13

2013-14

(Apr-May)

1.

Pharmaceutical Products

85.77

(65.06)

100.65

(17.35)

90.73

(-9.85)

15.56

(-5.25)

2.

Engineering Products

13,411.32

(47.94)

16,538.24

(23.32)

14,808.30

(-10.46)

2,116.72

(-22.16)

3.

Footwear

119.20

(91.71)

180.31

(51.26)

211.15

(17.11)

26.23

(1.70)

* Percentage growth over corresponding period is given in brackets(Source: DGCI&S)

In such circumstances, it can be safely inferred that VC firms will have to take a hard look at the proposal despite the reservations in certain quarters. Surely, the last has not been heard on this yet.

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