The Government of Tamil Nadu has on September 7, 2020, released its Electronic Hardware Manufacturing Policy, 2020 (the “EHM Policy“) setting out its objectives, priorities and mission as regards the electronic hardware manufacturing industry in the State. The EHM Policy appears to have blended the priorities under the Tamil Nadu Start-up and Innovation Policy 2018-20223 (Government of Tamil Nadu) and the National Policy of Electronics, 2019 (Government of India).

This note seeks to understand the objectives and offerings under the EHM Policy.

1. Objectives
2. Incentives
3. Facilitation Support
4. Research and Development Support
5. Skill Upgradation & Training
6. Exemptions from certain statutory mandates
7. Start-ups and Venture Capital

I. OBJECTIVES:

The EHM Policy seeks to:

1. increase Tamil Nadu’s electronics industry output to USD 100 billion by 2025;
2. contribute 25% of India’s total electronic exports to the world by 2025;
3. undertake skill training for more than 1,00,000 people (semi-skilled and skilled) by 2024;
4. increase the level of value addition that is done in Tamil Nadu, especially across focus sectors such as Mobile Handsets, LED Products, Fabless Chip Design, PCBs, Solar Photovoltaic Cells, Medical Electronics, and Automotive Electronics;
5. undertake a focused research and development program;
6. foster a conducive environment for ESDM Start-ups, especially promoting the rapid growth of innovation-led technology enterprises involved in the design, development and manufacturing of technologically advanced solutions;
7. attract at least two major-FAB (Semiconductor Fabrication) investments to Tamil Nadu in the next three years.

II. INCENTIVES:
The incentives under the EHM Policy can be split into three (3) sets of incentives, viz.: (i) infrastructure incentives; and (ii) administration incentives, with the enterprise in focus; and (iii) ecosystem incentives, to encourage healthy ecosystem to enable the establishment of more enterprises to avail the benefits under the EHM Policy. These incentives have been enumerated on the basis of the following classification of territories (of operation) and the scale of business.

As regards territories, the various key districts of commercial activity have been classified as herein under:

On the basis of scale of business (i.e., investment and employment ranges) the entities are classified as herein under:

The ecosystem incentives are incentives provided to either the existing clusters or other entities that are capacitated to enable the establishment of manufacturing units, viz., real estate developer.

Mode of sanction for incentives:

• Infrastructure/Capital incentives:

For MSME:

For Large / Mega:

• Administration incentives:

• Ecosystem incentives:

EM Clusters:

EMCs (or Electronic Manufacturing Clusters) shall be established in accordance to the Modified Electronics Manufacturing Clusters (EMC 2.0) scheme issued by Government of India dated April 1, 2020. Apart from the assistance provided under the EMC 2.0 scheme, the state Government shall extend the following additional incentives to the project implementation agency:

(i)Subsidy on Land lease cost; (ii)Stamp duty exemption; (iii)Interest subsidy; and (iv)Facilitation through the Single Window Portal of Guidance, on the terms as set out in this EHM Policy

Private ESDM Park Developers:

Private ESDM parks with common infrastructure, amenities and waste handling facilities. The developers shall be eligible to apply for the following incentives prior to commencement of the park and will be sanctioned by the state Government through the IDC. The financial incentives shall be reimbursed to the developer subject to occupancy of the park by ESDM units to a minimum extent of 75% of allottable area, no later than four years from date of sanction of the package by IDC: 1. Subsidy on Land lease cost; 2. Stamp duty exemption; 3. Interest subsidy; and 4. Facilitation through the Single Window Portal of Guidance, on the terms as set out in this EHM Policy

III. FACILITATION SUPPORT:

IV. RESEARCH AND DEVELOPMENT SUPPORT:

The Research & Development Support under the EHM Policy includes signing of Twin City Agreements (with countries such as Japan, Vietnam, etc) to promote collaboration; encouraging University and Industry Collaboration in R&D and creation of Common Facility Centres within greenfield/brownfield EMCs with attendant facilities, and also creation of state-of-the-art Electronics Testing Centre through ELCOT in an EMC, for the benefit of start-ups, industries, academia etc., involved in the ESDM sector.

V. SKILL UPGRADATION & TRAINING:

Aligned with the GoI’s Scheme for Financial Assistance for Skill Development in ESDM sector, the State of Tamil Nadu targets to skill over 1,00,000 persons each year for the next four years in five skilling levels. These measures also extend to availing collaboration with private sector; schemes such as training the trainer to increase capacity building measures. The training measures seek to lay greater focus on the semiconductor fabrication industry.

VI. EXEMPTIONS FROM AND SELF-CERTIFICATIONS UNDER CERTAIN STATUTORY MANDATES:

Under the EHM Policy, ESDM entities are exempted from:

• Provisions of Chapter II & III of the Tamil Nadu Shops and Establishment Acts, 1947;
• Sections 5(2)(a)(i) and (ii) of the Tamil Nadu Industrial Establishment (National and Festival Holidays) Act, 1958

The Policy also provides for self-certification, 3^rd Party certification for labour related clearances and approvals under the following acts of Labour department in Tamil Nadu:

• Tamil Nadu Shops and Establishment Rules, 1947
• Tamil Nadu Payment of Gratuity Rules, 1972
• Tamil Nadu Maternity Benefits Rules, 1964
• Tamil Nadu Contract Labour Rules, 1975
• Tamil Nadu Minimum Wages Rules, 1953 Contract Labour Act, 1970
• Payment of Gratuity Act, 1972
• Tamil Nadu Industrial Establishment (National and Festival) Holidays Act, 1958.
• Tamil Nadu Industrial Establishments (National and Festival)) Holidays Rules, 1959
• Tamil Nadu Payment of Wages Rules, 1937
• Employment Exchange Act, 1959
• Equal Remuneration Act, 1976
• The Workmen’s Compensation Act, 1923
• Employees’ Provident Fund & Miscellaneous Provisions Act, 1952

VII. START-UPS AND VENTURE CAPITAL:

To catalyse higher growth of the ESDM sector, the Government has recognised the need to provide the impetus to electronics start-ups under start-up policy of the MSME department. This includes setting up of a product innovation network (Mega Electropreneur Centre; Mini Electropreneur Centre), design and development facility (Rapid Product Prototyping Lab) and skill development centre (Skills Development Hub).

The State proposes to provide financial assistance in the form of complementary funds offered to mature Technology Business Incubators in TN, which shall avail financial assistance from the schemes such as TIDE 2.0 scheme launched by MeITY Start-up Hub, Govt of India, NIDHI TBI, NIDHI CoE, NIDHI Accelerator, NIDHI PRAYAS and/or NIDHI EIR schemes launched by Dept of Science and Technology, Govt. of India. The support from GoTN shall be used to augment the operating funds sourced by these incubators.

The State endeavours to adopt an Investment Portfolio approach covering Innovation Grants (grants for prototyping stage hardware product innovators), Start-up Grants (grants for advanced prototyping stage and market entry stage hardware products), and Seed Capital (financial support in the form of Convertible Debt implemented through the Convertible Note or CCPS instruments or in the form of Equity investments).

OUR COMMENT:

With the EHM Policy, the Government of Tamil Nadu has unambiguously communicated both its willingness to harness the potential of manufacturing industries in the State and its very clear understanding of the necessities at ground for these manufacturing enterprises. The financial benefits and the statutory exemptions, as proposed for ESDM enterprises, would definitely go a long way in adding to the ease of doing of business. All that now remains is to eagerly note the transition of these policies from vision statements to clear and operational system.