ESC bats for incentives to promote R&D, innovation in electronics hardware sector

ESC has also sought additional income tax reduction for Indian corporates spending over 3 per cent of their turnover to advance R&D and filing patents/designs in India.

“In an exclusive interaction with Finance Minister Nirmala Sitharaman and other senior officials of the Ministry of Finance recently, the…export promotion council…said that a well-calibrated incentive system designed to empower industry players could motivate nascent industry units to move in the R&D value chain in cutting-edge technology domains like AI, IoT, telecom, and embedded technologies in sectors like semiconductors, consumer electronics, and defence equipment,” according to a release by ESC.

Implicit in ESC’s wish list is the demand for an additional 5 per cent Income Tax reduction for Indian corporates spending over three per cent of their turnover on R&D and filing patents/designs in India, it said adding this aligns with the national goal of fostering innovation, self-reliance, and global competitiveness.

“By introducing tax reduction, India can create a compelling incentive for companies to prioritise R&D, leading to technological advancements, the creation of intellectual property, and a reduction in dependence on imports,” Sandeep Narula, Chairman, Global Outreach, ESC said.

ESC has also pitched for further calibration of the Design Linked Incentive (DLI) Scheme to make it more broad-based and impact-oriented.

The suggestions include extending the scheme’s duration for an additional 10 years, until January 1, 2035.

“Given the long gestation period and complexity involved in electronics and semiconductor design, sustained support over the next decade is critical to fostering innovation, building intellectual property, and reducing reliance on imports,” it said.

ESC is of the view that a long-term commitment will offer necessary stability and confidence for companies to undertake high-risk, high-reward R&D projects.

“Coupled with this, there should be a provision for the rollover of unutilised funds from the current allocation to subsequent years under the extended scheme. This will ensure optimal utilisation of resources, facilitate continuous support for ongoing projects, and maximise the impact of the scheme without leaving allocated budgets underutilised,” the release said.

Gurmeet Singh, Executive Director, ESC called for additional funding to the tune of USD 20 billion under the DLI scheme to meet the rising demand for R&D in emerging quantum technologies like AI and internet products.

ESC has also sought a 10-year Tax Holiday on sales of products with Intellectual Property (IP) such as patents and designs, developed through in-house R&D efforts. This, it said, would incentivise companies, particularly those not utilising the Design Linked Incentive (DLI) Scheme, to invest in the creation of innovative products and technologies.

“By providing tax relief on revenues generated from these IP-driven products, the government can encourage the development of proprietary technologies, foster innovation, and reduce the reliance on foreign patents or designs,” according to ESC.

The industry body noted that the current level of R&D in India’s electronics sector “remains relatively modest” with “limited investments compared to global leaders”.

“While India’s electronics market is significant, valued at USD 155 billion in 2022 and expected to grow to USD 300 billion by 2025- 26, its R&D expenditure in the sector is far behind its competitors.

Although India’s investment in research and development has been continuously increasing over the years and more than doubled in the last 10 years … However, the country’s expenditure as a percentage of GDP remained between 0.6-0.7 per cent as against Chinaâs 2.4 per cent, USA 3.5 per cent and Israel 5.4 per cent,” ESC release said. PTI MBI MR MR