MC EXCLUSIVE India may allow up to 26% Chinese equity in certain Indian electronic components JVs: Sources

India may allow up to 26% Chinese equity in certain Indian electronics components JVs: Sources

India is considering allowing Chinese companies to own up to 26% in joint ventures for specific, critical electronics components, while keeping a tighter 10% equity cap in place for most other categories, senior government officials and industry executives told Moneycontrol.

During meetings last week, the government informed domestic electronics manufacturers that Chinese investment proposals will be evaluated on a case-by-case basis. For more clarity on potential joint ventures, Indian players are continuously in talks with MeitY to firm up their investment plans.

“While the government is of the view to allow a minority stake by Chinese companies in upcoming joint ventures, they may allow up to a 26% stake in certain component categories. However, they said that a blanket approval is off the table and proposals will be evaluated on a case-by-case basis,” a top executive familiar with the matter told Moneycontrol.

The person stated that the government also seeks technology transfers through these electronics component joint ventures, as the necessary know-how isn't available in the country and the local ecosystem is still in its early stages.

Sources said Chinese companies are increasingly willing to accept conditions for investing in India, viewing it as a critical growth market amid fears that the tariff war with the US could make their products too expensive there.

Queries sent to MeitY didn’t elicit any response at the time of publishing.

Chinese electronics supplier Lianchuang Electronics — which counts Oppo, Vivo, and Samsung among its LCD display module clients in India — is in talks with Amber Electronics and Optiemus Electronics to enter India’s display, camera modules, and integrated circuit (IC) chipset manufacturing space, the company’s Director and General Manager Zhan Xianan told Moneycontrol exclusively.

Lianchuang is the first Chinese company to express formal interest in participating in the Indian government’s newly announced Rs 22,919-crore Electronics Components Manufacturing Scheme (ECMS).

Meanwhile, Indian companies are firming up their plans to apply for the scheme, for which a portal along with necessary guidelines were launched on April 26.

Indian companies have started discussions with electronics component players from China, Japan, South Korea, and Taiwan.

“Last week, we met with government officials to seek clarity on Chinese investment. While the government is open to it, their response about case-by-case evaluation has caused some confusion. We have a plan to approach Chinese companies that are already validated by global brands that produce the final product. Getting any new vendor validated by electronics brands would take two to three years,” another top executive who met MeitY officials last week said on condition of anonymity.

Indian electronics companies, including Dixon, Tata Electronics, Kaynes Technology, Micromax, Amber Enterprises, Optiemus Electronics, Syrma SGS, Munoth Industries, and the Murugappa Group, have expressed interest in participating in ECMS.

Global majors such as Japan's TDK Corporation, China’s Lianchuang Electronics, Taiwan's Hon Hai Technology Group (Foxconn), Austria's AT&S Austria Technologie & Systemtechnik AG (AT&S AG), and Japan's Murata Manufacturing Co, among others, are also eyeing the new scheme.

Union Minister Ashwini Vaishnaw stated on Saturday that any Foreign Direct Investment (FDI) will be approved in accordance with the FDI Policy Circular 2020, without commenting on investments from any particular country.

The government, he said, will consider only those companies for the scheme that have established design houses and maintain “Six Sigma” processes to achieve high-quality products. Industry executives welcomed the minister’s directive on quality and design focus.

Dixon CEO Atul Lall, who is also the President of the electronics components makers' body ELCINA, said the directive to the industry to maintain Six Sigma quality levels and set up design teams is most welcome. “It’s a good step to focus on design in India to create local IPs. We are going to be internally discussing this.”

India Electronics and Semiconductor Association and Semi India President Ashok Chandak said the design directive will create a sustainable competitive advantage.

“If companies making components here don't have control and a design powerhouse, they won’t be able to create new products. Local design teams will help in catering to local needs. Successful companies globally have a strong focus and IP portfolio around design. We should aim for the same,” Chandak said.

He, however, cautioned that the requirement of Six Sigma quality will be a bit challenging for micro, small, and medium enterprises in the electronics space.