Bhiwadi cluster: Boon for manufacturers

Electronics manufacturers can save up to 40 per cent by setting up a manufacturing unit in the ELCINA cluster

The Electronic System Design & Manufacturing (ESDM) sector offers investors a wealth of opportunities for growth and is among the top five sectors in India attracting highest Foreign Direct Investment (FDI). Recently, Ravi Shankar Prasad, Union Minister of Electronics and IT, Government of India highlighted that the government has received proposals worth Rs. 1.23 lakh crore in electronics manufacturing.

 

In FY2014-15, approximately 1.9 lakh crore of electronics products were manufactured indigenously. As per industry research, demand for electronics hardware in India is already approaching $140 billion and is projected to grow to $400 billion by 2022.

With a target of ‘Net Zero Imports’ by 2020, the government has embarked on several initiatives to promote electronics manufacturing in the country. One of these is Electronics Manufacturing Cluster Scheme 2012. The government is supporting Electronics Manufacturing Clusters in different parts of the country under the EMC Scheme by providing financial incentives for infrastructure development.

Taking the lead is one of the country’s oldest industry bodies, Electronic Industries Association of India (ELCINA) which is also the first industry association supporting electronics hardware manufacturing since 1967. Finding potential in this scheme, the ELCINA Cluster in Bhiwadi was conceived by the association members with a view to overcome cost disabilities and provide an eco-system which would enable manufacturers in India to compete with global suppliers.

Located just 71 km from IGI Airport in Delhi, the ELCINA Electronics Manufacturing Cluster is coming up in Bhiwadi, Rajasthan. It is the first cluster being developed as a cooperative project by ELCINA members. ELCINA created a SPV (Special Purpose Vehicle) – ELCINA Electronics Manufacturing Cluster Pvt Ltd; a company formed solely with the purpose to develop and maintain the infrastructure in the cluster as per guidelines laid by Ministry of Electronics & IT, Government of India under Electronics Manufacturing Cluster Scheme.

Spread across 100 acres, this cluster project is to be implemented in 2 phases of 50 acres each. The proposed Dedicated Freight Corridor (DFC) runs along side the cluster plot. 16 founder ELCINA members have reserved 22.50 acres land out of 28.72 acres saleable industrial plots in Phase-I. On 28 January 2017, SPV has handed over the “Plot Allotment” letters to all 16 members. Now, only 6.3 acres land is available for sale in Phase-I in sizes of 1 acre, 1/2 acre and 1/4 acre respectively.

Members in the Cluster are offered shareholding in the SPV to become co-owners of the project with a long term interest. They are eligible for Incentives under M-SIPS Scheme which includes capital subsidy upto 25% of capital expenditure for each individual unit. In addition, there is provision for refund of indirect taxes paid on capital equipment which can take the total benefit upto 40% of cost of capital equipment.The cluster members can also avail benefits from Rajasthan government under RIPS 2014 Policy which includes investment subsidy in the form of VAT & CST refund and Employment Generation Subsidy for 10 years.

To encourage investment in ESDM sector, Rajasthan government is also offering 50% exemption from payment of Entry Tax on capital goods for setting up of new plants in the state. Apart from the above, these are a plethora of inherent financial benefits available to all investors in the Cluster.

Example of a typical electronics manufacturing unit in one acre of land and its key operating elements:

Total investment including working capital – Rs. 50 crores

Builtup area – 70,000 square feet (50,000 square feet working area)

Employment generation – 400

Sales turnover – Rs. 125 crore (3rd year of operation)

Value addition – 25% to 30% of turnover

A manufacturing unit with the above salient features/structure will have the following direct savings by virtue of its working in this cluster as against working in any typical industrial area.

Capital & Recurring Investment Savings: One can do saving with respect to reduction in land requirement, construction& equipment cost of essential services and power installation & Consumption from 32 KV station up to factory meter board.

Reduction In Land Requirement: Setting up of essential services such as back-up power plant, water treatment and storage, sewage treatment, fire protection etc. covers at least 15% area of the plot. Since, the manufacturing unit is based in the cluster, approximately 4,000 sq. mts x 15% = 600 square meters land is now additionally available for manufacturing activity. Considering developed Industrial land price as Rs. 6,000 per square meter, the company saves 600 square meters x Rs. 6,000 = Rs. 36 lakhs in land investment alone.

Construction & Equipment Cost of Essential Service: The cluster will be drawing power through a dedicated feeder from the nearest substation. So, there is 100% and continuous availability of power supply. Assuming a 500 KW generator is required as backup, the cost saving is in the range of Rs. 20-25 lakhs for the company. Additionally, drinking water and sewage water tanks and treatment equipments will cost Rs. 10 lakhs and fire protection tank & equipments will require additional investment of Rs. 5 lakhs. Since, the SPV is setting up the common facility, the cumulative savings for a manufacturing unit would be approximately Rs. 35-40 lakhs.

Power Installation & Consumption from 32 KV sub-station upto Factory Meter Board (500 KW Capacity): The SPV will install the electricity distribution network inside the cluster which will be connected to the internal 33/11 KV Grid Sub-Station (GSS). This will reduce the electricity connection cost substantially and result in a savings of approximately Rs. 20-25 lakhs for 500 kW power connections from the Discom. Apart from the savings in connectivity cost, there would be substantial savings in monthly energy bill as well. For example, the said company which is connected with 500 kW load from Jaipur Discom operates for 10 hours per day. The company will consume 5,000 units per day and assuming 300 working days, the total consumption cost would be 5,000 units x 300 days x Rs. 8 per unit = Rs. 1.20 crore per year.

Now, let’s consider a unit operating in a regular industrial area where there is a breakdown of power supply to the tune of 13.33% of total consumption (assumed at 200,000 units out of 15,00,000 units), which is augmented by backup diesel generator. The cost of producing 2 lakh units by the genset would be Rs. 32 lakhs. The total electricity bill would be Rs. 1.36 crore. The units based in the cluster are supported by dedicated feeder, so it is anticipated that there would be zero redundancy from power breakdown.

Apart from the above savings which is in the range of Rs. 34-39 lakhs, there could be substantial savings in monthly energy bill from sourcing power through open access, which will save at least Rs. 3 per unit for the companies. A unit connected with 500 kW load operating for 10 hours per day for 300 days will consume electricity worth Rs. 1.20 crore per year. Now, let’s consider power consumption via open access for the same consumption pattern. The total out go would be 5,000 units x 300 days x Rs. 5 per unit = Rs. 75 lakhs. So, there is an upfront savings of Rs. 45 lakhs per year in electricity expenditure when a unit based in the cluster sources power from open access.

Geothermal Air Cooling Supply: The use of naturally controlled fresh air supply via earth air tunnels in the factory buildings and shop floor is planned to be installed as a common facility in the cluster. This would eliminate extremes of heat and cold in the factory buildings and a positive air pressure can be maintained to restrict entry of dust. The proposed expenditure in this new project component is Rs. 2.5 crore. When the geothermally cooled air is pumped into the building, the ambient temperature inside the factory building will fall. Considering 20% working area needs air-conditioning, this will result in an upfront capital expenditure reduction of approximately. Rs. 10 lakhs on air conditioning equipment. Apart from the up-front saving in capital expenditure, the estimated savings from running reduced air conditioning load for one acre plot is approximately Rs. 8 – 9 lakhs per year (assuming cost per unit of Rs. 8 and savings of 13-14,000 units per month for 9 months a year due to reduced ambient temperature).

Roof Top Solar: SPV is exploring the feasibility of installing rooftop solar PV plants on all administrative buildings as well as manufacturing units as a common facility. The feasibility of the same shall largely depend upon MeitY’s approval for utilising the common infrastructure grant for this purpose. If implemented successfully solar power generation can have massive savings in energy costs for the manufacturing units. Assuming 75 kW rooftop PV plant is installed on a one acre plot. The yearly solar power generation would be approx. 1.13 Lakh units. If 100% of the units generated are directly consumed by the manufacturing unit, it will result in reduction of electricity bill to the tune of Rs. 9 lakhs per year. Since, it is proposed to be a common facility; the manufacturing unit would have to contribute 10% value of units generated per year to SPV as “Electricity Levy” for O&M of the plant.

Miscellaneous such as Boundary Wall cost: A manufacturing unit may construct low height boundary wall due to adequate project wide security arrangements. The boundary perimeter of one acre plot is about 250 meters (820 Feet). Reduction in boundary wall height by 2 feet means reduced wall area construction of 1,640 sq ft. This works out to a saving in construction cost of Rs. 250,000 for two common walls (125 meter running length of 5 feet height wall @ Rs 4,000 = Rs 500,000)

Manufacturing Support Services: Various manufacturing support services are:

  1. Cluster infrastructure includes a centre of excellence with training, conference and incubation facilities.
  2. Access to QMS services including TPM, ISO, personality development & holistic health etc.
  3. Security, ERP/supply chain management, and a tax consultancy desk for complying with GST, auditing, company law etc.
  4. Hostel and mess/canteen services for workers

The above services would be available on lower costs negotiated for the cluster members and due to benefits of scale. Conservative estimates show that above services would result in annual savings of Rs 15-20 lakhs per annum.

The above workings demonstrate saving in capital cost of Rs 1.27-1.32 crore and recurring savings of Rs. 0.73 crore every year. So, there is upto 40% upfront savings in capex for a company and effectively, the entire investment would be recovered within 2-3 years once the manufacturing unit is fully operational in the cluster. Thus, it is evident that the total savings out-way the capital investment in Bhiwadi cluster compared to investment in a regular industrial area.

Author: B.S. Sethia, Chairman, ELCINA Bhiwadi Cluster SPV and Debasish Choudhury, General Manager, ELCINA Bhiwadi Cluster SPV

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