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Government plans to invest in electronics manufacturers

NEW DELHI/ BANGALORE: Abulging import bill and the near absence of electronics manufacturing in the country has forced the government to seek help fromventure capital firms to identify companies where it can invest. 

The Department of Electronics and Information Technology, abbreviated as Deity, said it is in advanced talks with leading Indian venture capital firms and will
invest up to Rs 100 crore in a project expected to start next month. 

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. India now imports more than 90% of its electronics equipment. 

"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," said 
Ajay Kumar, who heads the electronics and hardware manufacturing division at Deity. 

He said the initiative is aimed at reducing 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. Kumar declined to divulge the names of venture capital firms the government is in talks with. 

Sateesh Andra, managing partner at Chennai-based venture capital firm Ventureast said it is a good initiative as government backing would bring more stability to domestic manufacturing segment. 

"Most of the electronics hardware startups in India are struggling due to absence of working capital," said Andra, whose firm has invested in local startups such as low-cost ATM maker Vortex. The government has been taking increasing interest in venture capital investing in recent months. In March, it said investors committed at least Rs 400 crore to a governmentbacked fund which will provide capital to new ventures that serve the needs of India's low-income communities. The fund's eventual size is envisaged at more than Rs 5,000 crore. 

In February, 
finance minister P Chidambaram announced during his budget speech that a Rs 200-crore fund would be created to scale scientific innovations. That is expected to be a venture fund for mature companies that have already proven their idea and need additional capital to scale up. 

Some experts are sceptical about whether the government's offer of money in hardware will entice others. "I doubt if anybody will commit money upfront," said Mahendra Swarup, president of the Indian Venture Capital Association. Others said the model may not work due to low margins in the sector and rising demand for cheap Chinese goods. Earlier this year, Deity said it would propose higher duties on imported electronic items to support local manufacturing. 

Swarup said the government must encourage innovation in the sector and not look only at manufacturing. "If an opportunity comes, they (venture capitalists) will probably have a good hard look at it. But I don't think it is such a hot sector."