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Government plans to fund electronics startups to encourage local manufacturing

NEW DELHI: The government is finalising plans to fund and incubate technology startups that specialise in electronics as it seeks to encourage local manufacturing and limit import of electronic merchandise, country's second-biggest foreign exchange-drainer after oil. Select educational institutions such as Bangalore-based International Institute of Information Technology and Delhi University are being roped in for housing such incubators, a senior government official told ET.

"Promoting startup incubators is an important part of the policy," said Ajay Kumar, joint secretary, Department of Electronics and Information Technology.

"We are processing proposals from International Institute of Information Technology in Bangalore and Delhi University," added Kumar, according to whom at least four such incubators would be set up in the first phase.

The latest move comes in the wake of government's earlier initiatives such as the 
National Electronics Policy 2012 and the Rs 10,000-crore Electronic Development Fund announced earlier this year.

The idea, said 
PVG Menon, president, Indian Electronics and Semiconductor Association, is to give the entrepreneur a short runway to success and is in line with industry's vision to grow 200 successful product companies and 50 semiconductor companies in India over the next decade.

While the government has not decided on how much money will be earmarked for the startup incubators, Kumar said it will it likely to draw from the Rs 10,000-crore fund.

"We are expecting the approval to come in a few weeks," said S Sadagopan, director at the IIIT-B, which is expecting to support 10 electronic product startups in a year. "We will be putting in Rs 50 lakh on an average per company. This comes to Rs 5 crore per year for the incubator. We are expecting part-funding from Karnataka state government and the central government."

Sadagopan said that his institute will look for startups with "compelling ideas and a team which is competent". Commercial viability is not a criterion that 
IIIT-B will insist on as that is "something that cannot be gauged on day one". India imported electronic goods worth $32 billion (Rs 2 lakh crore) in 2012-13, and that amount is projected to cross $300 billion by 2020, when it would have overtaken crude oil as the biggest item on India's import bill.

"It is estimated that the minimum funding requirement for a design startup firm with 15 employees is approximately Rs 3 crore in the first year, going up to Rs 10 crore in three years," said Malay Shah, associate director in business advisory services practice at Ernst & Young "This is no doubt a good and a necessary step by the government to fire up the startup ecosystem in electronic sector."

Industry observers said that the incubator and funding assistance by government is a step in the right direction, especially as electronics-focused startups face high initial investment.

"For a sector where huge capital is required, it is the government which has to come forward and fund ideas as hardly any private company will fund a company in seeding stage in this sector," said R Raghunandan of 
Business Incubator Association, a body set up in 2004 to promote business incubation in India. However, there is a fear that the programme might be skewed towards government institutes. "For such a niche sector, it should be willing to fund incubators set up by private institutes as well because of the huge opportunity."