Karnataka ESDM policy 2013 leverages national electronics initiative

Date: 24/10/2013
Karnataka, particularly Bangalore is the technology hotbed since the days it started housing big public enterprises such as BEL and ISRO in Electronics. Bangalore, the silicon valley for this part of the world has a leading role in design, production and use of electronics systems. The amount of electronics business in Bangalore is far higher than any other city in India. You ask any component distributor, most of them say 50 -60% of their business comes from Bangalore and the nearby areas which include cities such as Hosur and Mysore. There is also a hardware cluster come up near Hindupur, Andhra Pradesh, a town closer to Bangalore. With this amount of role, the Bangalore and Karnataka playing, there is high priority given to electronics business due to its potential to tilt trade imbalance in favour of India.

Karnataka has announced its own ESDM (Electronics System Design and Manufacturing) policy 2013 to support electronics manufacturing in Karnataka. Karnataka ESDM policy 2013 takes the full advantage of national electronics policy. Below are some of the highlights of the Karnataka ESDM policy:

1. Preferential Market Access (PMA) Policy In line with the Government of India policy, Preferential Market Access shall be given to “Karnataka ESDM companies” for the ESDM products procured by all Government Departments of Karnataka.

2. Karnataka will set up three ESDM innovation centers that will provide complete infrastructure to entrepreneurs and companies who want to take their product concept and implement a working prototype. Such innovation centers will have all the requisite design tools such as VLSI design tools, prototype development facilities, testing facilities, characterization labs, compliance and certifications labs along with requisite manpower and component stocks. The first such center shall be housed at IIIT-Bangalore and subsequent centers will be setup in other parts of the state.

3. Semiconductor IP and Fables Chip Design fund: To stimulate the creation of Fables Design companies and semiconductor IP, which will be needed in the ESDM sector, the Government will launch a Semiconductor IP and Fables Fund that will provide funding to Karnataka ESDM companies for their startup, growth and debt/working capital needs in the next seven years. This fund will work closely with the ICT Innovation Fund and shall be jointly funded by the Government of Karnataka, Government of India and other Public/Private Financial Institutions. The Government of Karnataka contribution shall be limited to 26% of the fund size.

4. Karnataka will promote the creation of high-class ESDM Manufacturing Clusters (EMC) to provide world-class infrastructure facilities necessary to attract investment into the ESDM sector including EMS and component manufacturing. The State will encourage participation of the private sector in a PPP mode, wherever practical, in developing such infrastructure.

5. Karnataka’s EMC policy shall provide additional incentives on top of those offered by Government of India’s Electronics Manufacturing Cluster scheme notified by Deity.

6. The policy will support the development of 7 (seven) ESDM Manufacturing Clusters (EMC) in the State by 2020. The EMCs shall provide internal and external infrastructure, inclusive of advanced logistics, shared testing and training facilities. Support of Government of Karnataka for infrastructure development in EMCs shall not exceed 20% of the total infrastructure cost.

7. Karnataka set a target to file 3000 domestic and 2000 international patents in ESDM by Karnataka ESDM Companies by 2020. The Government shall reimburse up to 50% of the actual costs (including filing fees, attorney fees, search fees, maintenance fees) with a maximum of Rs 100,000 for filing a domestic patent and up to Rs 500,000 for filing an international patent.

8. This reimbursement shall be payable 75% after the patent is filed and the balance 25% after the patent has been granted.

9. The patent filing incentives provided by Government of Karnataka shall be in addition to any existing scheme of Govt. of India.

10. For export promotion of ESDM products and building brand equity of Karnataka ESDM companies as credible players internationally, the Government shall provide reimbursements of 50% of the actual costs (including travel) incurred in international marketing, sales promotion, trade show participation, webinars, market research etc. by Karnataka ESDM companies. This reimbursement will be subject to a maximum of Rs 10 Lakhs per year per company.

11. To overcome the large disability faced by the ESDM industry against global competitors, the Karnataka State Government would formulate a ‘Duty Drawback Scheme’ in respect of the State Taxes that do not get refunded to the exporting units in the normal course of implementation of the State Tax Laws, and as a result get embedded in the exports. The guiding approach in formulation of such a scheme would be that the State Taxes do not get exported, as far as practical.

12. Deemed export incentives (for domestic sales):
For sales within Karnataka of ESDM products, the ESDM Units will be eligible for an incentive in the form of interest free loan against the eligible gross VAT under the Industrial Policy 2009 – 14. For domestic sales outside Karnataka (inter-state sales), the State will reimburse 95% of Central Sales Tax, till GST is implemented, paid by the eligible ESDM units during the first 5 years of their operations.

13. It is essential to encourage R&D investments in ESDM so as to create a culture of innovation and IPR creation in Karnataka. The Karnataka Government shall give R&D grants in the form of reimbursement equaling upto 20% of the actual R&D expenses (including manpower costs) incurred annually by Karnataka ESDM Companies, subject to a maximum of 2% of their annual turnover. The R&D grant shall be subject to a maximum of Rs. 1 Crore per company per year and shall be in addition to any similar benefits announced by the Government of India.

14. Incentive for Capital Investment in ESDM sector:
To attract investments in ESDM sector, Government will provide upto 10 % capital subsidy or Rs.5 Crores, whichever is lower to Karnataka ESDM companies (both for ESDM manufacturing as well as R&D units) and will be given to the first two Anchor Units in each Greenfield Cluster.

The full Karnataka ESDM policy 2013 document is available at:

Author: Srinivasa Reddy N
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