The government is considering credit guarantee for term loans of up to Rs 100 crore as well as interest subsidy on loans up to Rs 1,000 crore for electronic manufacturing companies under the new policy in works.
According to official sources, the Ministry of Electronics and IT has proposed "credit guarantee fund" (CGF) scheme and "interest subvention scheme" (ISS) to boost electronics manufacturing ecosystem in the country under new National Policy on Electronics in works.
"There is a proposal to provide credit guarantee on term loans for projects up to Rs 100 crore per borrowing unit. This will not require any collateral security and third party guarantee, for setting up a new electronics manufacturing unit or considerable expansion of an existing electronics manufacturing pant. The cover will vary on case to case basis, depending upon investments...," an official source told PTI.
According to the proposal, the government will provide up to 50 percent guarantee cover of the sanctioned loan amount, the source said.
"It is proposed that Meity shall create a fund with the nodal agency for providing guarantees for the term loans. Meity shall provide funds in advance from its annual budgetary allocation to the nodal agency for utilisation under the scheme," the source added.
The CGF will be created with a corpus of Rs 1,000 crore to be contributed by the government and a review of the scheme will be undertaken after second year to assess the corpus size in relation to the response from the targeted sector, as per the proposal.
Besides this, the government is formulating interest subvention scheme (ISS) for electronics manufacturers.
Electronics Industry has been seeking that it should be able to get term loans on par with internationally acceptable rates. Currently, the industry pays around 11-12 percent interest on the term loans availed in India, which are available at around 5-7 percent in other countries.
The industry has been demanding an interest subvention of 4-6 percent from the government on the term loans.
"Under the proposal, ISS scheme will promote electronics manufacturing by partially reimbursing the interest of the term loan availed by the industry for plant and machinery. The scheme will include all stages of the value chain starting from raw-materials. It will also include assembly, testing and packaging. Electronics Manufacturing Services (EMS) companies like Foxconn, Flex etc will also be eligible under the scheme," the source said.
The scheme under consideration proposes to cover term loans for plant & machinery up to Rs 1,000 crore per borrowing unit with a tenure of up to 10 years, to set up new electronics manufacturing plant or for funding expansion of an existing electronics manufacturing unit.
"Term loans above Rs 1,000 crore will also be eligible, however, the interest reimbursement will be provided only for loan amount of Rs 1,000 crore. Interest subsidy will be made available only on the installments paid after start of commercial production if the proposal is approved by the cabinet," the source said.
When contacted, India Cellular and Electronics Association Chairman Pankaj Mohindroo said now is a golden opportunity for India to establish a globally competitive manufacturing ecosystem and achieve the goal set by the Prime Minister Narendra Modi of making India a leading electronic manufacturing hub."The interest subsidy or subvention will be extremely competent for setting up the mobile handsets, its components ecosystem and the entire electronics vertical. It will help the entire ecosystem to be more competitive in the global market. The credit default guarantee scheme will help startups, entrepreneurs, SMEs to set up their business without any collateral," Mohindroo said.