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| Make in Karnataka


MAKE IN KARNATAKA 2017 Anchored by: Prof. MV Rajeev Gowda, MP 100 95 75

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Editor-in-Chief Sandhya Mendonca Editorial Bureau: Subhalakshmi Roy, Saswati Chakravarty Capt Seshadri Sreenivasan, Aditya Mendonca, Rachel George Resurgent India Trust team Design Jayaprakasha Acharya MAKE IN KARNATAKA 2017 First published 2017 Š 2017: Raintree Media Pvt Ltd ISBN No. 978-81-930248-9-8 Published by Raintree Media Pvt Ltd CIN: U51396KA2004PTC033191 TF 9, Business Point, Brigade Road, Bengaluru 560025 T: +91 80 4094 7873 E: mail@raintreemedia.com / raintreemedia@gmail.com www.raintreemedia.com www.facebook.com/raintreemedia @RaintreeMediaHQ with RESURGENT INDIA TRUST 1361, 9th Cross, JP Nagar I Phase, Bengaluru 560078 Printed at: Grafiprint (P) Ltd (division of WQ Judge Press) Bengaluru Every effort has been made to ensure the accuracy of the information in this publication. Raintree Media does not take any responsibility for inadvertent errors or omissions. All brands, products and trademarks are the property of their respective owners. All opinions expressed in the book belong to the persons cited. All rights reserved: No part of this publication shall be reproduced, copied, transmitted, adapted or modified in any form or by any means (except as quotes in reviews/articles, with due credit). This publication shall not be stored in whole or in part in any form in any retrieval system except via legal purchase/downloads.

Make in Karnataka


Contents Focus on sustainable growth: Mr. Siddaramaiah, Chief Minister of Karnataka

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Karnataka is the future: Mr. RV Deshpande, Minister for Large & Medium Industries, Govt of Karnataka

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Karnataka overview: Professor MV Rajeev Gowda, MP

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Upbeat on investment: Mr. DV Prasad, IAS, Additional Chief Secretary to Government, Commerce & Industries Department, Govt of Karnataka

Aerospace & Defence

Agro & Food Processing

Page 17

Apparel & Leather Industry

Page 27

Chemicals & Plastics

Page 55

Automobile & Auto Components

Page 35

Electronics Hardware

Page 61

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Biotech & Pharma

Page 41

Heavy Engineering & Precision Tools

Page 67

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Manufacturing & Startups

Page 73

Make in Karnataka


From the Editor’s desk With its legacy of talent and hard work, Karnataka is an active participant in the Make in India movement. Indeed, industry has found a conducive environment here from the pre-Independence era. We are privileged to present to you the country’s strengths and, specifically, the advantages of this state in this book, ‘Make in Karnataka’. We present here in-depth overviews of the sectors that are the focus of the ‘Make in India – Karnataka’ conference. Source materials for data used in the book are drawn from, among others: IBEF, www.makeinindia.com, data.gov.in, McKinsey India, Ernst and Young, PWC, Grant Thornton, Economic Survey of Karnataka 2015-16, Directorate of Economics and Statistics, Government of Karnataka. To bring in uniformity, we have standardised the currency conversion rate in the book to US$1= ₹66.52, rounded off. Much has been made over the years of Bengaluru’s climate and knowledge pool. Apart from these desirable attributes, the fortuitous decisions by technology companies to set up shop in this city created an ecosystem that, having grown in leaps and bounds, shows no sign of stopping. With the government giving a booster shot to entrepreneurs across industry sectors, and in hubs across the state, Karnataka’s invitation to ‘Make in India’ in Karnataka appears to be a ‘must-accept’.

Sandhya Mendonca Editor-in-Chief

Make in Karnataka


Karnataka’s focus is on sustainable growth Karnataka is a significant contributor to India’s growth story, which has grown dramatically over the last two decades. India has the 10th largest economy in the world, with the third largest GDP. Karnataka is at the forefront here, being the fastest growing market in the country, growing at about 7 percent. Karnataka stands first in investment attractiveness; we also have the highest exports among states co-related to GSDP. Our state is a preferred destination for investment attracting fourth largest foreign direct investment (FDI) in the country, according to the Department of Industrial Policy and Promotion. Karnataka is ranked first in The World Bank’s Investment Climate Index for its healthy business climate and for attracting investments. The state capital Bengaluru is the ‘Best Indian City to Live in’ according to Quality of Living Survey Worldwide Rankings-2011. We now have the coveted tag of being one of the World’s Top Four Innovation Hubs, identified by the World Economic Forum. Our state is the Knowledge Hub of Asia with 201 engineering colleges, 114 medical colleges and institutions, 50 universities and 13 international schools. A reservoir of human talent and potential, Karnataka has attracted 400 multi-national companies and their high-end R&D centres. We are committed to the equitable, inclusive and sustainable growth of our people and our Government has initiatives to speed up industry-led growth in the state. Our Government has

Mr. Siddaramaiah, Chief Minister of Karnataka

approved close to 800 Projects, worth `2.29 lakh crore ($34.4 billion approximately), and with potential to create 5.79 lakh jobs. Projects worth `80,000 crore ($12.03 billion approximately), are in the pipeline. We have rail, road and air connectivity, logistics support, infrastructure, excellent telecommunication network and peaceful industrial climate. All these make Karnataka a great place to do business. We invite the world to “Make in India, Make in Karnataka”.

Make in Karnataka |

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India’s future is in Karnataka

Manufacturing & Startups

Karnataka is a pioneer of Make in India, and promotes a startup ecosystem to facilitate manufacturing. The wealth of talent here has led to a considerable increase in the number of startups and their areas of operation. Our startup ecosystem is amongst the top three in the world. Mahatma Gandhi held that “Great work begins with small steps”. Karnataka has taken many such steps that today place it at the threshold of a new revolution for ‘Startup India’ and ‘Digital India’. • The State Government has formulated a ‘Startup Policy’ – the first of its kind in India. This Policy emphasises the improvement of the startup ecosystem in Karnataka and in particular, Bengaluru and other knowledge centres. • We have established a ‘Startup Council’ to advise the Government, under the chairmanship of the Honourable Chief Minister, with members drawn from the industry. • We also intend to set up a venture fund of about `10 crore ($1.5 million approximately). We invite industry leaders and entrepreneurs to ‘invent in Karnataka, innovate in Karnataka and invest in Karnataka’ because India’s future will be made in Karnataka.

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Mr. RV Deshpande, Minister for Large & Medium Scale Industries and Infrastructure Development, Government of Karnataka


Karnataka: An overview As 2017 begins, leaving behind a tumultuous 2016, India remains the one bright spot in a dull global economy. A variety of forces are helping India grow at a brisk rate, even in the midst of a prolonged economic downturn worldwide. These include a substantial internal market, a youthful aspiring population, financial outreach to the unbanked and the emergence of widespread mobile telephony and e-commerce. Consequently, India continues to attract significant foreign direct investment (FDI), outpacing even China and the United States in 2015. FDI is a vote of confidence in Make in India and lays the foundation for sustained growth. Once investors decide to come into India with FDI, where do they focus within the country? The factors that influence them include: 1) a facilitative, supportive state government; 2) infrastructure; 3) natural resources; 4) talent and high quality human resources and 5) a culture that supports enterprise and innovation. This chapter explores how Karnataka performs on these factors, given that it has been among the top four destinations for FDI.

Facilitative Government A century ago, Mysore State (which was renamed Karnataka) was renowned as a model kingdom, led by an enlightened ruler and supported by outstanding Diwans like Sir M Visvesvaraya and Sir Mirza Ismail. This tradition has continued in modern times and the state government has a solid track record of being supportive and facilitative through a range of proactive policies. The Siddaramaiah-led Congress government’s social sector schemes have created a crucial safety net for the poor and vulnerable. A pioneer of e-governance, Karnataka’s ‘Mobile-One’ app provides access to 600+ government services and 3,000+ private services. Industries Minister RV Deshpande, a veteran in the field, has proactively created a productive environment for

Prof. MV Rajeev Gowda, Member of Parliament, former Chairperson of the Centre for Public Policy at the Indian Institute of Management Bangalore, and former Director, Central Board, Reserve Bank of India.

industry. The state’s solar energy policies are bringing in farmers and homeowners as partners in efforts to reach self-sufficiency in power. Other recent governance innovations include the ‘Sakala’ programme, which guarantees that citizens receive a range of public services in a timely manner. Karnataka has also set up Karnataka Udyog Mitra (KUM), a ‘single point of contact’ to ease the process for investors in the state. KUM helps investors understand the salient features of Karnataka and its unique advantages, discusses project identification, suitable locations, human resources, approvals required, procedures involved etc. Working on a Single Window Clearance mechanism, KUM has cleared projects worth over `3,000 crore ($451 million approximately) in the last year, in sectors like Information Make in Karnataka |

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Karnataka: An overview Technology (IT), tourism and manufacturing.

Infrastructure and Industrial Clusters A farsighted Karnataka government set up Electronic City in 1978, laying the foundation for the nascent IT industry to emerge as a global force. The government also opened up professional education to non-governmental bodies, enabling the state to produce large numbers of engineers and doctors. Public-private partnerships have resulted in world-class infrastructure such as the Kempegowda International Airport serving the state capital Bengaluru. The state government has established industrial areas and promoted clusters across the state, and provides valuable incentives to locate there. Together with the Government of India, it is establishing National Investment Manufacturing Zones in Tumakuru and Kalaburagi. The national ‘Smart Cities’

programme will include Belagavi, Davanagere, Hubballi-Dharwad, Mangaluru, Shivamogga and Tumakuru in the state. A helicopter manufacturing plant is coming up at Gubbi, close to Tumakuru. A new Indian Institute of Technology will soon come up at Dharwad. Britain and Japan are investing in two mega industrial corridors, Mumbai-Bengaluru and Bengaluru-Chennai respectively, enhancing infrastructure and connectivity. In addition to its renowned service sector strengths, Bengaluru has a thriving manufacturing ecosystem, including the pioneering Peenya industrial area and Bidadi, which hosts Toyota. The garment sector thrives across the city. The highway between Bengaluru and Hosur in Tamil Nadu hosts a range of world-class service and manufacturing plants. On the Bengaluru-Chennai highway, the latest industrial park to take off is in Narasapura in Kolar district. Automotive giants like Honda and Scania, and British

International automotive giants like Honda, Toyota, Volvo and Scania have set up world class facilities in the state.

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Karnataka: An overview pharmaceutical giant Abbott have set up world-class facilities there. At the diametrically opposite northwestern end of the state, another education-focused city, Belagavi, now has a flourishing aerospace Special Economic Zone promoted by Aequs and Magellan. In the southern heartland, Hassan is emerging as a major textile hub, triggered by Himatsingka Seide’s `1,000 crore ($150.3 million approximately) plant. Reaffirming its commitment to Karnataka, this vertically-integrated home textile firm is now adding another `1,300 crore ($195.4 million approximately) investment that will backward integrate into spinning and diversify its high class product range that it sells worldwide. On the southwestern coast, the districts of Udupi and Dakshina Kannada have their own economic drivers. The birthplace of multiple banks more than a century ago, they also host a thriving educational ecosystem. Infosys and other IT majors have tapped into this talent pool by setting up development centres in Mangaluru, while mobile game development startups like Robosoft have emerged in Udupi, adjoining the privately promoted Manipal University.

Resources: Natural and Heritage Karnataka has a diverse range of natural resources and strengths. Fisheries flourish on the coast. Wineries are emerging around Bengaluru and Vijayapura, boosted by the proactive government wine policy. Horticulture, dairy and sericulture thrive across the state. Wind and solar energy have tremendous potential, while hydropower is abundant in the state’s numerous rivers. Mining is reviving in the iron ore-rich Ballari region. Karnataka’s commitment to preserving the ecological hotspot of the Western Ghats led it to close the Kudremukh mines. Such conservation efforts have been rewarded with Karnataka hosting more than 400 tigers, the highest number of this majestic endangered species nationally.

Britain and Japan are investing in two mega industrial corridors, MumbaiBengaluru and Bengaluru-Chennai respectively.

The hills of Kodagu and Chikkamagaluru are famous for coffee estates. Their picturesque settings have led to a boom in homestays and resorts for tourists. Mysuru, famous for its Dasara festival and palaces, continues to be among India’s top tourist destinations. The awe-inspiring ruins of Hampi and the temples of Pattadakal are already UNESCO heritage sites, along with the Western Ghats. In line for this global recognition are the temples of Belur-Halebid, the monuments of Srirangapatna, and the Deccan sultanate in Bidar, Kalaburagi and Vijayapura. Overall, when it comes to tourism, the state is blessed with immense possibilities. Make in Karnataka |

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Karnataka: An overview Reverence for Professionalism Many citizens of Karnataka have been awarded India’s highest civilian honour, the Bharat Ratna, uniquely for their contributions in fields apart from politics. Legendary engineer and administrator, Sir M Visvesvaraya was the Diwan of Mysore and industrialised and modernised the state while establishing dams, universities and banks. Nobel laureate Dr CV Raman established centres for scientific research in Bengaluru. Recently, the Bharat Ratna went to Prof CNR Rao, a leading scientist and institution builder. The legendary Hindustani classical singer, Bhimsen Joshi, whose music took us to sublime heights, is another Bharat Ratna. Such people with outstanding accomplishments are Karnataka’s role models. Karnataka’s citizens revere outstanding professionals across fields. One of the Indian Army’s two Field Marshals, KM Cariappa, hailed from Karnataka’s Kodagu region. Kannada literary giants, including the eight Jnanpith award-winning writers, are household names. Sportsmen, e.g., badminton world champion Prakash Padukone and Indian cricket captains Anil Kumble and Rahul Dravid, are highly regarded for their discipline and sportsmanship. Karnataka has been home to outstanding musicians, and is a confluence of both Hindustani and Carnatic classical traditions. The Kannada theatre scene is vibrant and the film industry has a history of critically acclaimed cinema as well as breakthrough popular hits like Mungaaru Male. Overall, the state has a reputation as a haven for merit, where talent can flower and people have a quiet self-confidence, untouched by arrogance.

Knowledge Economy and Entrepreneurship Starting with the Indian Institute of Science, established more than a century ago by Jamsetji Tata and the Maharaja of Mysuru, Karnataka has built a strong knowledge economy. Public sector institutions like the Indian Space Research Organisation, Hindustan Aeronautics, Bharat Electronics, etc., helped Bengaluru emerge as a hub for intellectual talent. Today, 10

| Make in Karnataka

Bengaluru has been recognised as Asia’s leading knowledge hub, with 201 engineering colleges, 114 medical colleges and institutions, 50 universities and 13 international schools, apart from more than 400 multi-national companies having their worldclass high-end research and development centres. The numerous engineering graduates have enabled Indian and multinational companies to scale up rapidly. Infosys, Wipro and other IT companies provided employment to millions, attracted talent from across India and became worldwide brands for high-quality outsourcing. Cisco has even established its second global headquarters here. Software exports from the state have crossed more than `50,000 crores ($7.5 billion approximately). The IT sector’s success has unleashed growth in IT-Enabled Services ranging from call centres to design outsourcing to animation. Technicolor’s Bengaluru centre has creative artists whose VFX (visual effects) for Prometheus and Life of Pi led to an Oscar nomination and an Oscar award respectively. Research and development is another domain which has led to companies flocking to Karnataka. Aerospace majors like EADS and Airbus, automotive giants like Daimler Chrysler and GM, pharmaceutical companies like AstraZeneca, and the innovationfocused 3M have all tapped the state’s brainpower with their research centres in Bengaluru. GE’s Jack Welch research centre in Whitefield is one of three worldwide. It has produced numerous patents by connecting its research team to product lines. In the public sector, the National Centre for Biological Sciences and the Jawaharlal Nehru Centre for Advanced Scientific Research are at the forefront of scientific discovery. The success of IT pioneers at home and of Indians in Silicon Valley has unleashed the spirit of entrepreneurship among India’s professionals. Infosys represents the iconic inspirational story of a bunch of engineers who started with practically nothing but used their brains to build a billion dollar enterprise. By pioneering


Karnataka: An overview multicultural ethos of Bengaluru, have made the city a magnet for talent. The JLL City Momentum Index ranked Bengaluru ‘the most dynamic city in the world’ ahead of Silicon Valley and Shanghai. The Quality of Living Survey Worldwide Rankings-2011 adjudged Bengaluru as the best Indian city to live in. Renowned as India’s startup capital, Bengaluru has gained global recognition for being the ‘world’s second fastest growing startup ecosystem,’ featuring active incubators, angel and venture funders, intellectual property experts, conferences and events. In terms of technology professionals, Bengaluru’s critical mass attracts even more of the creative class. All these factors have contributed to investors flying in to fund potential unicorns, with venture capital giants like Japan’s Softbank in the lead. Karnataka has been a preferred destination for investors, attracting the fourth largest FDI in the country.

Karnataka is a leader in the technology space.

employee stock ownership, they spread the wealth they created and seeded other entrepreneurs. Dr Kiran Mazumdar Shaw’s is another inspiring story of a woman who started a biotech firm in her garage, which became the billion-dollar Biocon. These stories have helped Bengaluru become India’s startup capital. The café chain, Coffee Day, the healthcare giant, Narayana Health, and Manipal University are all products of Kannadiga entrepreneurship that are establishing a global footprint.

Bengaluru: India’s Dynamic Startup Hub Karnataka has been ranked first for its healthy business climate and attracting investments by the World Bank’s Investment Climate Index. The World Economic Forum has identified Karnataka among the top four innovation hubs in the world. The cosmopolitan nature of Karnataka’s people, combined with the vibrant, open,

Chief Minister Siddaramaiah has reiterated that by nurturing innovation, Karnataka intends to create a tsunami of beneficial impact. Priyank Kharge, Minister for Information Technology and Biotechnology, has launched various schemes to support startups and intends to set up technology incubators in areas such as Internet of Things, robotics, 3D printing, and medical devices. The government has also approved a proposal to set up six common instrumentation centres across Karnataka that will allow electronic hardware startups and small enterprises to fine-tune their products. The government has also planned to set up centres of excellence in aerospace, cyber security and big data. In January 2017, the Karnataka State Road Transport Corporation won the gold award from the Government of India for the ‘Innovative use of ICT by State Government PSUs Cooperatives Federations Societies’ category. This was the first time a state transport corporation has bagged the gold medal for excellence in e-governance. Make in Karnataka |

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Karnataka: An overview Unique in Giving Back Karnataka’s IT billionaires have set an exemplary trend in giving back to society. Foremost has been Azim Premji of Wipro. He became India’s leading philanthropist when he donated more than `50,000 crore ($7.5 billion approximately) of his wealth to the Azim Premji Foundation that is doing significant work in education and development. He has also established the Azim Premji University in Bengaluru. The founders of Infosys, including Narayana Murthy, Nandan Nilekani, K Dinesh and Gopalakrishnan, have all been active philanthropists. Nilekani piloted the rollout of India’s Unique Identification system, Aadhaar, and the Nilekanis have contributed to think tanks, NGOs and institutes focused on urban governance and public policy. At the same time, they have invested in a range of startups, including those with an ambition to transform primary education through the innovative use of technology. Many other successful entrepreneurs now contribute to Karnataka’s thriving NGO sector and participate in active citizen engagement with governance.

Hidden Gem: Karnataka as Capital of Social Enterprise Karnataka has also become a global hub for impact-focused businesses. These aim to improve the conditions of people at the bottom of the economic pyramid in sectors like financial inclusion, healthcare, education, clean energy, agriculture and women empowerment. Since 2005, 30 percent of all impact businesses in India that have received venture capital are based in Karnataka. In 2007, Eric Savage, an American, moved to Bengaluru to set up, with others, Unitus Capital as an investment bank for social enterprises. It has already raised over `9,978 crores ($1.5 billion approximately) for companies that provide essential services at a low cost, organise fragmented markets, enhance livelihoods, or innovate in clean technology. Unitus Capital has proven this 12

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sector’s business viability as over `4,656.4 crores ($700 million approximately) of debt has already been paid back at market interest rates, and over 30 investor exits have taken place profitably. The social enterprise ecosystem in Karnataka includes organisations such Villgro, SELCO, the Gates Foundation, Ashoka and the Deshpande Foundation. These support social entrepreneurs with advice, mentoring, funding and access to networks. The Deshpande Center for Social Entrepreneurship at Karnataka University, Hubballi has even launched a pioneering Master’s Degree in Social Entrepreneurship. Social enterprises like Janalakshmi and Ujjivan, that provide microfinance services to the poor, have now been awarded Small Finance Bank licenses by the Reserve Bank of India, enabling them to scale and increase their impact.

In Conclusion Overall, Karnataka has a unique, unparalleled appeal. It is a state that has heralded the technology boom in India, enabled by a facilitative government and a track record of good governance. The transparency of the system has empowered citizen activism and their participation in the public domain. Together, the government and citizenry have created an environment of achievement and entrepreneurship, enabled by resources, compassion and talent. The state thus possesses a youthful energy; hopeful, ambitious and eager to soar. With a culture of talent and hard work, there is no doubt that this state will soon exceed its global aspirations. Karnataka is truly where the future will be made. Come, Make in Karnataka!


Manufacturing & Startups

Upbeat on investment

The vision of the Government of Karnataka is to boost industrial growth in the state, especially in the manufacturing sector. In keeping with this mandate, the Department of Industries & Commerce is committed to the implementation of the proactive measures of the State Government, as outlined in the Karnataka Industrial Policy 2014-19. The thrust of the Karnataka Industrial Policy is on increasing the share of the manufacturing vertical in the GSDP of the state. The incentives for doing business in Karnataka, in specially selected growth hubs, have already yielded results that are evident in the substantial investments that the state has attracted. The State Government is also addressing the issues faced by industrialists and entrepreneurs to ensure that their proposed investments are converted to actual functioning manufacturing enterprises at the field level by providing all facilitation services. The Department is proactively working to ensure that the ‘Ease of Doing Business reforms’ in Karnataka not only compares with the best practices in other states of India but also other leading industrialised countries in the world.

Mr. DV Prasad, IAS, Additional Chief Secretary Commerce & Industries Department Government of Karnataka

The ‘Make in India – Karnataka’ Conference in Bengaluru is a focused attempt to assist global and domestic industries to invest in Karnataka and become a part of the industrial landscape of the ‘most dynamic state in India’.

Make in Karnataka |

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Aerospace & Defence

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Aerospace & Defence Cleared for take off

It’s a clear sky for Karnataka in India’s buoyant aerospace market. Karnataka has two international and five domestic airports, apart from three for defence and one for a flying school. The state plans to develop airstrips and helipads at all district headquarters and important industrial destinations that lack air connectivity. Additionally, with India planning to increase the number of operational airports to 250 by 2020,  some of Karnataka’s 15 unserved airports/airstrips could soon be part of the Ministry of Civil Aviation’s Regional Connectivity Scheme, also known as UDAN (Ude Desh Ka Aam Nagrik), that will boost flight connections to small towns.


Aerospace & Defence India’s aerospace market is one of the five fastest growing in the world with 275 million new passengers – it had a collective operating profit of `8,100 crore ($1.22 billion approximately) in 2016 – and is expected to become the third largest aviation market in the world by 2020. This year, domestic traffic is expected to cross 100 million passengers. The country is also seen as a one-stop source for all required services from design and development to manufacturing, maintenance and repair operations. Two major factors contribute to the surge in manufacturing and related activities in this industry. The domestic demand for aircraft has shot up sharply over the last 20 years, due to an upsurge in the country’s economic growth. Additionally, the Government of India’s decision to allow 100 percent FDI in the defence sector, along with policy measures such as the National Civil Aviation Policy 2016, has opened the market to further expansion. Low-cost carriers and new carriers cater to a growing middle class that travels by air, and there is a rise in both business and leisure travel. With passenger traffic growing at 20 percent per annum in the last two years, Indian carriers plan to increase their fleet size to reach 800 aircraft by 2020. India has large scale collaborations/M&A deals such as Etihad Airways & Jet Airways, Tata Group & Singapore Airlines and Tata Group & AirAsia. Parallely, the Aerospace & Defence sector has been growing too, and India’s expenditure on aircraft acquisitions is estimated to be `5 lakh crore ($75.2 billion approximately) over the next 10 years. The growth in aviation is impacting India’s Maintenance, Repair and Overhaul (MRO) segment, which is estimated to reach `1,300 crore ($195.4 million approximately) by 2020. The robust growth potential of the industry is attracting global aerospace giants to set up shop in India, providing tremendous opportunities 18

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for industry participation. Given the labour-intensive nature of the MRO segment, several leading MRO companies, Original Equipment Manufacturers (OEMs) and international airlines have outsourced heavy-maintenance work to India, adding to India’s growth potential and generating employment. All this is good news for Karnataka, which is set to soar high with the growing demand from both defence and commercial aerospace sectors. Most of India’s strong domestic manufacturing base is housed in Karnataka. It offers the other cost advantages that the country has to offer, such as liberal Special Economic Zones (SEZ) laws that provide attractive fiscal benefits for developers and manufacturers, and a well-educated and skilled labour force. These factors make India and Karnataka a highgrowth player in the aerospace and aviation market. Karnataka’s aviation story began in 1940 with the establishment of Hindustan Aeronautics Limited (HAL) in Bengaluru. This led to the setting up of several defence public-sector undertakings and R&D institutions in the state like Bharat Earth Movers Limited (BEML), Bharat Heavy Electricals Limited (BHEL), Gas Turbine Research Establishment (GRTE), National Aerospace Laboratories (NAL), Defence Research and Development Organisation (DRDO), Aeronautical Development Agency (ADA), Aeronautical Development Establishment (ADE), and Indian Space Research Organisation (ISRO), among others. Apart from these large public-sector enterprises, several international private players have also invested in the state’s aerospace sector, such as Rolls Royce, Boeing, Airbus Group, GE Aviation, BAE Systems, Safran, Honeywell and UTC Aerospace. New companies are also establishing operations on the city’s outskirts, in key industrial belts surrounding Bengaluru and in North Karnataka. One such company is Aequs (formerly QuEST Global) which established a manufacturing and precision engineering SEZ in Belagavi on 300 acres of land in 2009.


Aerospace & Defence

The legacy of public sector companies in aviation manufacture and defence research and development, has given Karnataka a great advantage. Seen here is the assembly line at HAL, established in 1940.

The focus is on aerospace components and sub-systems, and building a precision engineering and manufacturing end-to-end ecosystem (supply chain cluster). There are also numerous joint ventures between domestic and foreign companies, providing opportunities for knowledge sharing and technological benchmarking. HAL has signed three joint venture agreements: first, with Snecma, a global manufacturer

of jet engines for commercial aircraft, to produce jet engine components; second, with Rolls Royce, which resulted in a stateof-the-art facility producing compressor shroud rings for aeroengines, and third, with Airbus, to manufacture passenger doors for Airbus A320 and A321. Well-developed ecosystem The state offers a number of advantages that make it the Make in Karnataka |

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Aerospace & Defence preferred destination for most investors in this sector. Some of the broad benefits are: §§ Competitive edge for Karnataka deriving from relatively lowcost aerospace manufacturing and MRO activities vis-à-vis Asia and the Middle East §§ Presence of large defence PSUs, including the Defence Avionics Research Establishment (an arm of DRDO), which was established in 1986 in Bengaluru, aimed at enhancing the operational capabilities of the Indian Air Force through modern technologies §§ Expertise in aerospace with over 2,000 small and medium-sized enterprises (SMEs), which execute niche subcontracting work like component manufacturing, tooling and testing equipment, and assembling for the defence PSUs §§ Presence of a number of top companies in IT/IT-Enabled Services and electronics hardware, many of which are a part of the supply chain for the aerospace sector §§ Bengaluru’s leadership in heavy manufacturing due to the presence of innumerable PSUs, software, aerospace and telecommunications companies, machine tools and heavy equipment manufacturers and defence establishments – all of these can serve as crucial linkages in the aerospace industry’s production process. §§ Maximum number of engineering graduates in the country, with a large number of them being employed in IT, design and engineering – this provides an advantageous position to the state with reference to labour skill sets. §§ Presence of scientific and academic institutions, such as the IISc, enable the development of qualified technical experts who can be absorbed into aerospace operations §§ Convenient location, far away from potential conflict-prone neighbouring countries, strategically connected through 20

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airports, rail and roads. §§ The state also offers easy connectivity to industrial hubs like Pune, Hyderabad and Chennai. §§ Work ambience is conducive with a non-unionised working atmosphere. And, of course, the state’s fabled weather and cosmopolitan lifestyle. All the above factors have enabled Karnataka to consolidate its pioneer status and continue as a natural choice for investors and stakeholders. The state intends to take advantage of the promising scenario and is projecting itself as the aerospace hub for Asia in the next five years, and as one of the top global aerospace and MRO destinations by 2023.

Aerospace Policy To channel and provide a direction to the state’s efforts to capitalise on its dominance in the aerospace sector further, the government introduced the Karnataka Aerospace Policy 2013 – 2023 (KAP), which was amended in 2016 to include the new location-based incentives offered by the Karnataka Industrial Policy 2014-19. Karnataka is the first state in India to introduce a dedicated policy for aerospace. KAP 2013 – 2023 is divided into two five-year phases. Phase 1 (2013-18) aims to attract investments worth `24,000 crore ($3.6 billion approximately), create 40,000 employment opportunities and increase the contribution to the Gross State Domestic Product (GSDP) from 28 to 30 percent. Phase 2 (2018-23) aims to improve upon Phase 1 by attracting investment worth `36,000 crore ($5.4 billion approximately), creating 60,000 employment opportunities and increasing the contribution to GSDP to 32 percent. About 33 project proposals have been approved under the KAP during the Invest Karnataka Meet, 2017, with a proposed


Aerospace & Defence

investment of `14,720 crore ($2.2 billion approximately), which will create almost 10,500 new jobs. The overall policy objectives as outlined by KAP 2013–2023 are: §§ Make Karnataka a preferred global destination for manufacturing of aircraft, aircraft systems and subsystems, assemblies and components §§ Create an ecosystem comprising infrastructure, education and R&D to make the state a conducive hotspot for the aerospace industry §§ Develop Karnataka as a magnet for global tier-1 suppliers within the aerospace industry by:

§§ Make Karnataka one of the leading MRO hubs in Asia §§ Build a ready-to-employ human resources pool for the industry §§ Strengthen R&D for achieving innovative and cuttingedge technologies §§ Create enhanced facilitation mechanisms for ease of doing business through an industry-friendly policy framework

Growth Drivers In this regard, the state has identified the following sections and segments of the industry that could be potential and key growth drivers, if nurtured properly. Make in Karnataka |

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Aerospace & Defence

Leader in Indian Aerospace & Defence

The Hindustan Turboprop Trainer-40 (HTT-40) is an initiative under “Make in India” by HAL with an internal funding support. The aircraft took to skies for the maiden sortie at HAL airport, Bengaluru, on June 17, 2016. The indigenous content on HTT-40 is close to 80% and almost 50% of the components on HTT-40 are manufactured by private players of the Indian aerospace ecosystem.

Maintenance and Repair Operations (MRO): India’s MRO segment is estimated to reach `1,330 crore ($200 million approximately) by 2020, especially as aerospace majors prefer to have their aircraft serviced locally to reduce costs and on-ground time, thus achieving faster turnaround time and large savings in operating costs. Karnataka offers tremendous potential for MRO activities and ground-handling, and the manufacture of ground support equipment, with major MRO players like Jupiter Aerospace and Taneja Aerospace being based out of the state. Currently, the overhaul of some of the defence aircraft in India is almost wholly carried out by HAL. HCL’s acquisition of Axon Consulting, which has strengths in aviation MRO, is further bound to reflect in the development of MRO capabilities within Karnataka.

www.hal-india.com

There are future proposals


Aerospace & Defence to create world-class MRO facilities in Bengaluru near the current international airport and Mysuru on the public-private partnership (PPP) model.

NAL and ADA are the major Indian players who manufacture for the defence sector. Boeing, GE Aviation, Airbus and BAE Systems are the major foreign manufacturers which operate out of Bengaluru.

The potential of MRO holds much promise, as the state is a natural choice for locating relevant capabilities.

There are also numerous joint ventures between domestic companies and foreign companies that provide opportunities for knowledge sharing and technological benchmarking. Such enterprises go on to show the expertise held by the state in the manufacturing segment.

IT, Design and Engineering Services: Bengaluru is the technological capital of India and the fourth largest technological cluster in the world, with a huge set of institutions of higher research and talented, skilled labour. Many global aerospace majors have already set up their research bases in Karnataka. Since 2007, Boeing has been working together with the Indian Institute of Science, Wipro and HCL, as part of the Aerospace Network Research Consortium, India’s first industry-academia alliance. Airbus Group (formerly European Aeronautic Defence and Space Company or EADS) started research operations in Bengaluru in December 2009. Indian players have also made strides within the IT segment of the aerospace sector. Infosys Technologies helps build aircraft components and systems for customers like Boeing and Airbus; Wipro helps build electronic warfare systems, radars, aviation electronics and flight simulators for US defence contractors such as Lockheed Martin and Northrop Grumman, and has tied up with Britain’s largest defence manufacturer, BAE Systems, to build sub-systems for aircraft engines that power business jets; HCL Technologies is a strategic partner for Boeing’s Dreamliner programme. Aircraft Manufacturing: The state is home to some of the aerospace heavyweights – both national and international. HAL,

The state government allotted HAL 610 acres at Gubbi in Tumakuru to establish a Light Utility Helicopter Facility. This facility will act as an anchor to attract other SMEs to the area and help develop Tumakuru as an aerospace hub. With the state Aerospace Policy also providing for manufacturing clusters at Mangaluru and Belagavi, Karnataka is poised to grow exponentially as a global aerospace and defence manufacturing hub over the next decade. Enhancing Human Resource Capability: KAP (2013 – 2023) provides for the establishment of specialised training and finishing institutions by the private sector. It provides for setting up of universities, training institutes and finishing schools which would churn out 5,000 industry-ready personnel annually. An Aerospace Common Finishing Facility (ACFF) will be set up in Bengaluru to facilitate MSMEs in the Aerospace Sector and an Aerospace University has been planned by HAL in Davanagere and Chitradurga. Along with training institutes and research centres, the University will have a flying training school on campus. The University and the flying school will be set up as a joint venture between the state and interested investors. The Karnataka Aerospace Research & Innovation Centre, to Make in Karnataka |

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Aerospace & Defence be constructed on the PPP model, is envisaged as a state-ofthe-art laboratory with an incubation centre for future aerospace engineers and entrepreneurs. The state government will give the necessary support to make it a world-class aerospace research hub. Under this, the necessary funds will be made available to colleges, as one-time assistance of up to `5 crore ($750 thousand approximately) each, so that infrastructure can be upgraded in a time-bound manner. The government will also encourage institutes to set up world-class laboratories in partnership with the industry. The Government of Karnataka plans to establish an Aerospace & Aviation Sector Skill Council in Bengaluru, along with the Government of India, the National Skill Development Corporation and the Bangalore Chamber of Industry and Commerce. The Council will be headed by the Chairman of HAL, along with 18 other sector specialists as governing council members with a mandate to define around 90 job roles, certify 5,20,000 trainees and 6,000 qualified instructors over the next 10 years. The government’s determination towards enhancing the human resource potential of the state is also evident in its proposed scholarships for outstanding students to encourage them to take up doctoral and post-doctoral research in aerospace engineering and aircraft design. The Reliance Group plans to set up the Dhirubhai Ambani Centre for Innovation & Research in Aerospace, which aims to generate more than 1,500 highly skilled jobs.

Industry-friendly Government Karnataka has a Single Window Clearance Committee and a State High Level Clearance Committee for investments greater than `50 crore ($7.5 million approximately) with the objective of clearing proposals speedily. Given below are some further provisions in the Aerospace Policy 24

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aimed at emboldening the state’s investor-friendly image: §§ 100 percent exemption from electricity duty for aerospace enterprises for a certain number of years, depending on the nature of the enterprise §§ 100 percent Entry Tax exemption for new industries in the aerospace sector. In case of Bengaluru Urban, Bengaluru Rural and Ramanagara districts, this incentive is to be offered for enterprises coming up in the designated Aerospace Parks. §§ Exemption from stamp duty and concessional registration charges §§ Anchor Unit Subsidy of `5 crore ($750 thousand approximately) shall be offered to the first 10 aerospace OEM enterprises with a minimum investment of `50 crore ($7.5 million approximately) and direct employment of 100 persons during the policy period. §§ Reimbursement of up to 75 percent of the Central Sales Tax (CST) paid by enterprises in the first five years of functioning §§ Establishment of an Aerospace Venture Capital Fund (KARAVEN), with a corpus of `200 crore ($30 million approximately) and with the participation of the government to the extent of `50 crore ($7.5 million approximately), financial institutions and other investors, is expected to foster further innovation in the aerospace sector. The fund will enable SMEs to bring in required equity, thus enabling ease of borrowings for various new projects and for scaling up existing projects. §§ Establishment of three clusters: South Cluster (Bengaluru, Mysuru and Mangaluru), Central Cluster (Davanagere and Chitradurga), and North Cluster (Belagavi and Bidar). This cluster approach is expected to promote knowledge sharing while also assisting in reducing


Aerospace & Defence costs by allowing for economies of scale. It envisages inclusion of enterprises, financial providers, suppliers, service providers and common facilities such as testing laboratories at potential locations of the state.

Bangalore Aerospace Park (BAP) and Bangalore Aerospace SEZ (BASEZ) These are being developed in Devanahalli through a Special Purpose Vehicle (SPV) that will be constituted with members from government, industry and professional bodies. The SPV will be in charge of managing and maintaining these parks, which will have facilities like manufacturing area and SEZ, MRO centres with direct access to the BIAL runway, testing centre, hardware/embedded technology centre, technology innovation centre including a certification/calibration centre, common facility centre and housing facilities.

PPP The government will focus on the creation of world-class infrastructure for the aerospace sector. It proposes to establish more aerospace parks at Mysuru, Hubbali, Mangaluru and Belagavi in phases, depending on the demand from the industry.

which do not have air connectivity. Airstrips are proposed to be built at Davanagere, Chikkamagaluru, Udupi, Madikeri, Gokarna, Chitradurga, Bagalkot, Haveri, Gadag and Kollegal.

SME Focus Enhanced incentives will be offered to SMEs to provide them with a level playing field and make them competitive. SMEs in the aerospace sector are to get preference in allotment of land in designated aerospace parks, with a minimum of 30 to 40 percent of the land reserved for them.

VISION GROUP The Karnataka Aerospace Policy has recommended the constitution of a Vision Group on Aerospace, Defence & MRO sector which will be headed by a sector expert with the Commissioner for Industrial Development and the Director of Industries & Commerce as the member secretary. The Vision Group will make specific recommendations to the Government on the suitable course of action to be taken to implement the Aerospace Policy, promote investments in the sector and organise annual/biennial trade shows and conferences.

These parks will have comprehensive infrastructure like roads, captive power generation, water supply, facilities for R&D, finishing schools, housing and healthcare for employees – enabling the units to operate on a ‘plug and play’ basis. Development of such parks would be encouraged through the PPP model. There are plans to persuade the Union Ministry of Civil Aviation and Defence to open up the defence airports at Bidar and Karwar for civil aircraft. Additionally, the state plans to develop airstrips and helipads at all district headquarters and important industrial destinations Make in Karnataka |

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Agro & Food Processing

Aerospace & Defence

Increasing appetite

Karnataka grows 70 percent of India’s coffee. 316,700 MT is the forecast for 2016-17. Make in Karnataka |

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Agro & Food Processing Thirty one percent of India’s consumption comprises food and groceries, making the country the sixth largest food and grocery market in the world. This substantial shopping basket has given impetus to the processed food industry in the country and has attracted several major global players. Currently `2.64 lakh crore ($39.69 billion approximately), this industry is expected to grow at a compounded annual growth rate (CAGR) of 11 percent by 2018 fuelled by the growing youthful population. India’s population is also increasingly urban, and the changing tastes have made the country both a consumer and producer of processed and packaged foods. India’s emergence as a sourcing hub of processed foods is due to its vast agricultural produce and livestock, with low costs of production and labour. With 127 agro-climatic zones across 195 million hectares of Gross Cropped Area, India is the largest producer, consumer and exporter of spices, and is the second largest producer of the world’s major food staples, wheat and rice. Agriculture and allied sectors (livestock, forestry and fishery) contributed 17.4 percent to India’s GDP in 2015-16, and agricultural products and produce constitute 10 percent of the country’s exports. The country was ranked 12th in the world in exports of food and food products in 2015. The sector is expected to grow by 6 percent in 2016-17, assuming weather conditions remain favourable, according to a report by National Institution for Transforming India (NITI Aayog). Karnataka is the fourth largest state in the country in terms of geographical area and is one of the leading states in the development of agriculture and allied sectors. The rich biodiversity and 10 agro-climatic zones of the state are conducive to the cultivation of various food and horticultural crops. Karnataka contributes 7 percent of the agricultural production of the country. The state ranks first in the production of coffee and raw silk, second in the production of spices, and is a leading producer of 28

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sugarcane, cocoa, coarse cereals and millets. Its 320 km long coastline has nurtured a thriving fisheries sector. There has been a significant increase in productivity and quality in food production over the last decade, due to the focus on dryland productivity in the state, which was heavily dependent on groundwater for irrigation. Alongside a boom in crops, the government has set about supporting infrastructure such as supply chain management, offering transportation, warehousing and cold storage. Karnataka processes about 3 percent of the total produce, and aims to process 10 percent of its total produce by 2020, and 25 percent by 2025. The state government has taken many proactive measures, from creating a policy which integrates agribusiness and food processing to establishing food parks in six districts - Bengaluru Rural, Tumakuru, Shivamogga, Davanagere, Vijayapura and Belagavi - and a mega food park in Hassan.

Agribusiness in Karnataka Agriculture is big business in Karnataka, with agro-based industries spread across all 30 districts. The state has 54,905 processing units, with a total investment of `4,428 crore ($665.6 million approximately). The export of agriculture and processed food in the state grew at a CAGR of 11.8 percent between 201011 and 2014-15. The export value increased from `982 crore ($147.6 million approximately) in 2010-11 to `1,534 crore ($230.5 million approximately) in 2014-15. Some of the big players in this sector are ITC, Nestle, Britannia, Parle, Nissin, Pepsico, MTR and Gujarat Ambuja.

Horticulture Around 16 percent of the total cultivable area in the state is devoted to horticulture, out of which 45 percent is used for plantation crops, 23 percent for vegetables, 20 percent for fruits, 10 percent for spices, and 2 percent for flowers, medicinal and aromatic plants.


Agro & Food Processing

Karnataka produces 65 percent of India’s raw silk. Karnataka has the highest number of Geographical Index tags, and the crops that boast of the GI tag include the Bangalore Blue Grapes, Appemidi Mango, Devanahalli Pomelo, Kamalapur Red Banana, Mysore Betal Leaf, Bangalore Rose Onion, Coorg Orange, Coorg Green Cardamom, Monsooned Malabar Arabica Coffee, Monsooned Malabar Robusta Coffee, Udupi Mattu Gulla Brinjal and Byadgi chilli, Mysore Silk, and three Photo: Asha Thadani varieties of jasmine: Mysore Jasmine, Udupi Jasmine and Hadagali Jasmine.

Karnataka, the largest producer of coffee in the country, is a leader in other plantation and horticultural crops, too. The state is one of the major producers of arecanut, coconut, chillies and tamarind, among other spices. Flowers such as jasmine, roses and carnations are cultivated. Karnataka is also rich in fruits, standing second in production of grapes, and third in mango and jackfruit. The state has 98 cold storage units, of which 90 are in the private

sector, six in the public sector and two are co-operatives, but these process only about 1 percent of the total production of fruits and vegetables. Thus, there is an urgent need to improve cold storage and transportation facilities.

Coffee Coffee is the largest plantation crop in the state, in terms of production, and is grown in Kodagu, Chikkamagaluru and Hassan. The state grows both Arabica and Robusta varieties Make in Karnataka |

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Agro & Food Processing and is the leading producer in the country, contributing over 70 percent of the national total. According to the post-monsoon forecast for the year 2016-17, released by the Coffee Board of India, headquartered in Bengaluru, the state will have a total production of 226,300 MT, which is more than the production of Kerala and Tamil Nadu combined. Karnataka accounted for 91 percent of the total coffee exports of the country in 2014-15. Apart from the traditional export market, the domestic consumption of coffee has increased steadily, according to the India Brand Equity Foundation (IBEF). Several international and Indian coffee retail chains have come up in the country, like Lavazza, Café Coffee Day, Costa, Gloria Jean’s Coffee, Coffee Bean & Tea Leaf,

and Starbucks, which is a 50:50 JV with Tata Global Beverages.

Wine Karnataka stands second, after Maharashtra, in the production of grapes in the country; its winemaking got a boost in 2007 with the establishment of the Karnataka Wine Board under the Karnataka Grape and Wine Policy. Apart from a few vineyards that were extant, 17 new vineyards came up around Nandi Hills near Bengaluru, and in Bidar and Belagavi in North Karnataka, producing popular brands like Grover, Rico Wines, Hampi Heritage, Soma and KRSMA. With more Indians developing a taste for wines, wine tourism and vineyard tastings have also gained popularity.

Sugarcane Karnataka is one of the largest growers of sugarcane in the country and is the highest producer of sugar in India, after Maharashtra and Uttar Pradesh. There are around 60 active sugar mills spread across the state, which churn out about 13 percent of the total national production. The cane, which is crushed for molasses and sugar, is grown on 4.15 lakh hectares of land, especially in Mandya and the districts of North Karnataka. In 2015-16, the state’s sugarcane farmers produced around 32.2 lakh tonnes of sugarcane.

Sericulture Karnataka produces 65 percent of India’s total raw silk. Sericulture is mostly concentrated in Mysuru, Kolar, Ramanagaram, Bengaluru Rural, Chikballapur and Kolar districts. The Results-Framework document for the Department of Sericulture aims to achieve a growth rate of 5 percent in production by extending sericulture to new clusters for the benefit of the rural poor. The Central Silk Board is now seeking to extend and popularise regions in North Karnataka which are traditionally non-sericulture areas. Bangalore Blue Grapes are typically used to make juice, jams and jellies, and to a lesser extent, wine.

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Fisheries & animal husbandry There are eight fishing harbours and 88 fish landing centres


Agro & Food Processing along the 320 km Karnataka coastline. The brackish water area of 8,000 hectares is a rich source of shrimp, and 5.65 lakh hectares of inland water provides ample freshwater fish. Fish production in the state increased by 16.5 percent during 20102014. Animal husbandry had a share of 20.27 percent in the GSDP of agriculture and allied activities in 2014-15.

Supporting infrastructure Transportation: Karnataka is wellconnected through water, road, rail and air. The state has two major ports, at Mangaluru and Karwar, and 10 minor ports. The government is planning to develop another port at Tadadi. About 4,990 km of National Highways and 2,077 km of State Highways run through the state, apart from other road networks, with a total distance of 49,905 km. Railways have a wide reach too; the state currently has 3,250 km of railway lines.

An increasingly urban population’s appetite for packaged and ready-to-eat foods is fuelling the market.

The Government of Karnataka has proposed to the Centre to help establish more railway lines on a cost-sharing basis. There are two international airports, in Bengaluru and Mangaluru, and three domestic airports. The state proposes to develop minor airports at Kalaburagi, Shivamogga, Ballari and Hassan. Make in Karnataka |

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Agro & Food Processing Shivamogga; a University for Horticultural Sciences at Bagalkot; and a University for Animal Husbandry & Veterinary Sciences at Bidar. The government has also established a Biotechnology Centre, which focusses on horticulture development, in Hulimavu in Bengaluru. The research topics cover the gamut from food science, post-harvest management, transportation, preservation and processing to new varieties of seeds and cropping techniques.

Flower auction

Source: Annual Report 2015-16, Ministry of Food Processing Industries

Established in 2002, the International Flower Auction Bangalore (IFAB) is a public-private joint venture with the primary objective of auctioning high-quality cut-flowers of various crops in both domestic and international markets. The daily average volume of flowers auctioned in IFAB is about 1,00,000 stems.

Human resource & skill development Warehousing & logistics: Karnataka has a total storage capacity of 30.38 lakh MT of warehouse and 3 lakh MT of cold storage. The State Warehousing Corporation has leased 663 acres from the departments of Agriculture, Horticulture and Sericulture to construct warehouses with a total capacity of 12.5 lakh MT at a cost of `650 crore ($97.7 million approximately) with grants received from the Rashtriya Krishi Vikas Yojana (RKVY) and National Bank for Agriculture and Rural Development (NABARD). The government plans to delegate the operations and maintenance of these warehouses to the private sector on the PPP model. Research & Development: Karnataka has a strong base in R&D with the presence of leading research institutions like the Central Food Technological Research Institute (CFTRI) and Defence Food Research Laboratory (DFRL) in Mysuru, and the National Dairy Research Institute (NDRI) and Indian Institute of Horticulture Research (IIHR) in Bengaluru. The state government has set up four units of the University of Agricultural Sciences in Bengaluru, Dharwad, Raichur and 32

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To support the training and skill requirement of the agribusiness and food processing industry, the Department of Agriculture has 23 district agriculture training centres (DATCs), and the Department of Horticulture has 10 training centres across the state to train farmers and other stakeholders in enhancing production and improving the productivity and quality of agriculture, horticulture and allied produces.

NATIONAL NEW MANUFACTURING POLICY, 2011 Food processing in the country got a major boost after being recognised as a priority sector in the National New Manufacturing Policy in 2011. Some of the enabling initiatives that have come about are: §§ 100 percent FDI has been allowed under the automatic route in food processing industries §§ 100 percent FDI has been allowed through the government approval route for trading, including through e-commerce in respect of food products manufactured or produced in India


Agro & Food Processing §§ Food Processing Fund of `1,995.6 crore ($300 million approximately) by NABARD extends affordable credit to designated food parks and the individual food processing units in such parks. §§ Reserve Bank of India has encouraged easier flow of credit to the sector by classifying loans to food & agro-based processing units and cold chain under agriculture activities for Priority Sector Lending (PSL), up to an aggregate sanctioned limit of `100 crore ($15 million approximately). India offers investment opportunities in the following areas of food processing: §§ Fruits and vegetables: preserved, candied, glazed and crystallised fruits and vegetables, juices, jams, jellies, purees, soups, powders, dehydrated vegetables, flakes, shreds and ready-to-eat curries. §§ Food preservation by fermentation: wine, beer, vinegar, yeast preparation, alcoholic beverages. §§ Beverages: fruit-based, cereal-based. §§ Dairy: liquid milk, curd, flavoured yoghurt, processed cheese, cottage cheese, Swiss cheese, blue cheese, ice cream, milk-based sweets. §§ Food additives and nutraceuticals. §§ Confectionery and bakery: cookies and crackers, biscuits, breads, cakes and frozen dough. §§ Meat and poultry: eggs, egg powder, cut meats, sausages and other value-added products. §§ Fish, seafood and fish processing: processing and freezing units. §§ Grain processing: oil milling sector, rice, pulse milling and flour milling sectors.

§§ Food preservation and packaging: metal cans, aseptic packs. §§ Food processing equipment: canning, dairy and food processing, specialty processing, packaging, frozen food/ refrigeration and thermo-processing. §§ Consumer food: packaged food, aerated soft drinks and packaged drinking water. §§ Spice pastes. §§ Supply chain infrastructure: cold storage, abattoirs and food parks.

karnataka Agribusiness & Food Processing Policy 2015 Created out of a need to integrate the agriculture, horticulture, animal husbandry, fisheries, food processing, agribusiness, warehousing and logistics sectors under a unified policy, this aims to simultaneously develop all these sectors, create employment opportunities, reduce post-harvest wastage and increase agricultural productivity and revenue. The policy is being implemented through the Departments of Agriculture, Horticulture, Fisheries, Animal Husbandry, Cooperation, Commerce, and Industries. The policy lists out the following broad strategies to achieve its goals: §§ Encouraging investments in the supply chain infrastructure to reduce post-harvest loss §§ Strengthening linkage between processing enterprises and R&D institutes §§ Fiscal incentives to set up focused industrial clusters and food processing parks in potential food clusters §§ Encouraging adoption of quality certifications, green and clean practices, energy efficient measures §§ Declaring the entire state as a single zone for availing Make in Karnataka |

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Agro & Food Processing incentives and concessions §§ Provide integrated and cost-effective warehousing and cold storage and other related logistics services to encourage more investment §§ Increase the marketability of farm produce by providing value-added services like assaying, grading, cleaning, labelling, trading platform and packing at warehouses/cold storages §§ Design-specific training programmes to develop skills in the food processing sector with focus on plucking, grading and sorting, packaging, storing and processing. It also proposes to establish the following: Farmer-Producer Organisation (FPO): A conglomerate of small farmers to leverage collective strength and build bargaining power to access financial and non-financial inputs and services and appropriate technologies, reduce transaction costs, tap highvalue markets and enter into partnerships with private entities on more equitable terms. Currently, there are 14 registered FPOs in the state and 68 FPOs are under the process of registration. Seafood park: To better utilise the rich marine reserves of the state, the policy aims to establish seafood parks under the PPP model to help fishermen access technology such as preprocessing units of international standards, cold storage and packaging units. Spice park: A spice park will be set up in Haveri to develop Byadagi chilli. The park will function as an integrated operation for cultivation, post-harvesting processing, packaging and distribution. Private entrepreneurs can develop their own processing plants and the grower community can utilise these facilities to sell their produce at competitive prices. 34

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Facilitation cell: To introduce the concept of ease of doing business in this sector, an exclusive facilitation cell will be set up to assist entrepreneurs in the agricultural and food processing sectors by getting them requisite clearances and documents from the offices and agencies concerned. Group crop insurance scheme: A special insurance scheme will be introduced to safeguard the interests of farmers engaged in contract farming. The Karnataka Agribusiness and Food Processing Policy 2015 has shored up the growth potential of this sector, which forms the backbone of the state’s economy. The policy has enabling innovative tools to generate higher returns to farming communities along with facilitating world class infrastructure and technologies.


Electronics Hardware

Apparel & Leather

Plastics & Chemicals

Booming retail

Karnataka makes 20 percent of the country’s clothes by value and accounts for 8 percent of garments exported from India. Make in Karnataka |

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Apparel & Leather The apparel and textiles industry in India appears all set for exciting times ahead. Buoyed by the expansion of the domestic retail market and changing consumer preferences, as well as the rising demand from the export market, the organised apparel sector is expected to grow at a CAGR of around 13 percent over a period of 10 years. India is the second largest exporter of textiles and clothing in the world, with a 5 percent share in the global textiles and apparel trade. The sector contributes 15 percent to the country’s total export earnings. Textile and apparel exports from India are expected to double to `5.45 lakh crore ($82 billion approximately) by 2021 from `2.66 lakh crore ($40 billion approximately) in 2015-16. Readymade garments remain the largest contributor with a share of 40 percent in the total textile and apparel exports from India. Cotton and man-made textiles are the other major contributors with shares of 31 percent and 16 percent respectively, last fiscal. At home, the retail sector has seen significant growth in recent times with several international players entering the Indian market. Additionally, e-commerce transactions are seeing steady growth, cashing in on the changing preferences of young consumers. According to an analysis by consulting company Technopak, the retail market in India is expected to turn out a year-on-year growth of 6 percent to reach `57.53 lakh crore ($864.8 billion approximately) by 2023, from the current `32.6 lakh crore ($490 billion approximately). Of this, the apparel sector has a share of 8 percent or `2.66 lakh crore ($40 billion approximately) in absolute value terms. The domestic textile and apparel industry is estimated to double to `9.4 lakh crore ($141.3 billion approximately) by 2021 from `4.45 lakh crore ($66.9 billion approximately) in 2014. Increased penetration of organised retail, favourable demographics and rising income levels are likely to drive demand for textiles. Increasing fashion consciousness among the country’s youth and rising 36

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disposable incomes are pushing up demand for both apparels and accessories. The textile and apparel sector contributes 14 percent to industrial production and 4 percent to India’s GDP. This sector is the second largest employment provider in the country employing nearly 51 million people directly and 68 million people indirectly in 2015-16. Rising government focus and favourable policies like the Technology Upgradation Fund Scheme (TUFS) are expected to be growth enablers. Besides this, the country’s budget of 2015-16 rationalised duties levied on the sector and provided some tax incentives. The government has also allowed 100 percent FDI under the automatic route in the textile sector, subject to applicable regulations. The government’s decision to allow FDI in multi-brand retail is expected to provide a further impetus to the sector with consumers being able to fulfil aspirational purchases. To promote apparel exports, 12 locations have been identified and approved by the government for setting up apparel parks. The central government has extended the duty drawback facility on all textile products and increased rates for one year, in some cases, to boost exports. The government is also planning to conduct roadshows to promote the country’s textiles in non-traditional markets like South America, Russia and select countries in West Asia. Free trade with ASEAN countries and a proposed agreement with the European Union will also help boost exports. India’s strength lies in the fact that the country produces 14 percent of the world’s textile fibres and yarns (largest producer of jute, second largest producer of silk and cotton, and third largest producer of cellulosic fibre). India has the highest loom capacity (including handlooms) with 63 percent of the world’s market share. In 2015-16, the country produced 9 million tonnes of fibre. Karnataka is one of the country’s largest sourcing points for readymade garments. The state accounts for 20 percent of the


Apparel & Leather the estimated mulberry silk production in India was about 21,280 metric tonnes of which Karnataka’s share was 9,645 metric tonnes. The sector saw relatively high growth between 2014 and 2015 producing 53 metric tonnes of cocoons and 7.4 metric tonnes of raw silk. It employs close to 12 lakh people. Karnataka also produces 11 percent of the country’s wool and 6 percent of India’s cotton. It is among the top 10 cotton-growing states. In 2014, the state had produced around 21 lakh bales of cotton.

Nuthana Javali Neethi 2013-2018 Source: Sector Profile - Textile & Apparels, Karnataka Udyog Mitra

national garment production valued at `10,377 crore ($1.56 billion approximately) and 8 percent of the country’s total garment exports. In value terms, the state is ranked second in the country. There are 3.8 lakh garment manufacturing units in the organised and unorganised sectors employing close to 10 lakh people, almost 90 percent of whom are women. Apart from manufacturing for the domestic market, these units service orders from large global brands. Additionally, there are handloom and power loom textile production units which employ close to 4 lakh workers and another 2.5 lakh weavers who operate small looms out of their homes. The number of power looms is estimated to be in the region of a million. That textiles and garments is critical to the state’s economy can be gauged from the fact that 35 percent of the country’s raw silk production happens here. Sericulture lies at the heart of rural Karnataka. The area under mulberry cultivation was about 87930 thousand hectares at the end of December 2015. During 2014-15,

Recognising the potential of this sector as a producer of valueadded goods for the international market as well as a generator of large scale employment, the Government of Karnataka announced a new textile policy in October 2013. The Nuthana Javali Neethi 2013-2018 envisaged an investment of `10,000 crore ($1.5 billion approximately) to generate an additional 5 lakh jobs. This policy is being implemented after completion of the Suvarna Vastra Neethi 2008-13. The planned investment is to be spread throughout the textile value chain, including handloom, power loom, spinning, processing, garments and technical textiles. The objectives of the new policy are: §§ To achieve sustainable growth with emphasis on balanced regional development §§ To facilitate emerging technical textiles in critical areas such as production, technology and R&D §§ To support industry with skilled human resource and to create at least 5 lakh new jobs As on date, the state has 144 skill development centres and 168 private training centres supported by the Department of Handlooms. Under the new policy initiatives, the state will support Make in Karnataka |

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Apparel & Leather programmes for skilling the unemployed youth and upgrading skills for people employed in the textile sector. It is estimated that over 1 lakh people have so far been trained under the new initiatives. The state government is also looking to map the growth of the textile industry in a way that will address the challenge of regional imbalances. Essentially, textile and garment units are concentrated in and around Bengaluru and Ballari. In the last couple of years, mega projects and cluster-based parks have been developed in interior areas like Shivamogga, Mandya, Vijayapura, Hassan, Gulbarga, Doddaballapura and Ballari. An SEZ for textiles has become operational in Hassan. In February 2015, the government announced plans for a new textile park at Yadgir in North Karnataka. To incentivise investments in the sector, the new textile policy is offering credit-linked capital subsidy, entry tax reimbursement and power subsidy.

Leather Allied to textiles is the leather industry in India which is a significant exporter of fashion accessories like jackets, wallets and footwear, among others. It is the second largest producer of footwear and leather garments in the world. The sector is on a high growth trajectory and is expected to grow further in the next five years. Currently, its size stands at `1.19 lakh crore ($17.9 billion approximately), broken into `38,914 crore ($5.85 billion approximately) in exports and a `79,824 crore ($12 billion approximately) domestic market. Exports are projected to reach `59,868 crore ($9 billion approximately) by 2020 and the domestic market is expected to touch `1.2 lakh crore ($18 billion approximately) in the next five years. The primary driver of growth for this sector is the abundance of essential raw materials. The country accounts for almost 13 percent of the world’s production of hides/skins with a total output of 2.5 billion sq ft of leather. India is endowed with 20 percent of 38

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India’s youth are fashion-conscious and have disposable incomes, spiking sales of apparels and accessories. The per capita consumption of footwear in India is projected to increase to four pairs and total domestic consumption is expected to Photo: Hidesign reach 5 billion pairs by 2020.

the world’s cattle and buffalo and 11 percent of the world’s goat and sheep population. The industry for leather products is delicensed, which means that units are free to expand using modern machinery and equipment. In fact, companies in this sector have been making rapid strides in building capacity while paying adequate attention to effluents treatment and managing environmental implications.

Youth Power The leather industry has a young workforce; with 55 percent of the workforce below the age of 35, the Indian leather industry has one


Apparel & Leather of the youngest and most productive workforces. This has also necessitated a concerted attempt at skill development. This, coupled with favourable government policies, including 100 percent FDI, has made the industry a lucrative investment proposition. The industry comprises multiple major segments, namely footwear, finished leather, leather goods, garments like jackets, footwear components like uppers and soles, and saddlery and harnesses. The domestic market for fashion accessories is seeing an upsurge in demand for handbags, wallets, purses, etc. The per capita consumption of footwear in India is projected to increase to four pairs and total domestic consumption is expected to reach 5 billion pairs by 2020. Karnataka appears well placed to ride this wave. The story of the leather sector in the state started when Sir M Visvesvaraya set up South India’s first Tannery Production Centre, called the Mysore Chrome Tanning Industry, way back in 1940. Today, the state boasts of around 90 manufacturing units that produce footwear, bags and other leather products. Most of these units are concentrated around Bengaluru. However, the sector is fairly scattered with some presence in North Karnataka as well.

LIDKAR One of the most significant players in the state’s leather sector is the Karnataka Leather Industries Development Corporation (LIDKAR), renamed Dr Babu Jagjivan Ram Leather Industries Development Corporation. LIDKAR was established in 1976 with the twin objectives of developing the leather industry and improving the socio-economic conditions of the leather artisans. One of LIDKAR’s most critical contributions to the sector in the state has been training programmes for skill development and income enhancement. The corporation is also involved in establishing R&D centres and mini leather parks. It acts as a nodal agency for marketing leather products which are made predominantly in small scale units.

Export thrust Other than meeting increasing domestic demand, exports from the leather manufacturing units have been rising. At a value of `543 crore ($81.63 million approximately), exports in 2014-15 grew by 20 percent over `450 crore ($67.65 million approximately) in 2013-14. Exports in 2012-13 stood at `452 crore ($67.95 million approximately).

Apart from footwear and bags, Karnataka produces high end leather products like furniture and upholstery for automobiles.

Photo: Stanley

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Apparel & Leather Recognising the growth potential, the Karnataka government put in place a slew of measures to promote exports from the state, which apply to the leather sector as well as other exportdriven industries. The measures are given below: §§ Creation of export infrastructure §§ Thrust to SEZs in the state §§ Encouragement for the development of Inland Container Depots and Container Freight Stations on PPP mode §§ Export Oriented Units (EOUs) are to be declared as Public Utility Services to create conducive environment for exports §§ Exporters with a good track record will be issued a Green Card to enable smooth movement of goods

§§ Banks to issue Gold Cards to exporters with a proven transaction record

Area of strength

Karnataka’s main strength in leather is the availability of trained manpower. The state has consistently focused on skill development. In its endeavour to have better forward and backward linkages in terms of manpower for increased production, the government has been supporting training institutes, both in the private and public spaces. It has allotted prime land close to Bengaluru for creating infrastructure for training a predominantly young workforce. These include institutions acknowledged as Premier Advanced Leather Institutes. Certified by the Central Leather Research Institute (CLRI), these training schools include courses in leather fashion technology, testing and R&D centres.


Automobile & Auto Components Stepping on the gas

The joint venture Toyota Kirloskar has its plant at Bidadi, on the outskirts of Bengaluru, with a production capacity of over 1 lakh units per annum. Make in Karnataka |

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Automobile & Auto Components In 2016, India produced an average of 24 million vehicles. With that, it became the sixth largest automobile producer in the world. Today, the country also happens to be the fifth largest market for passenger and commercial vehicles. In 2015-16, the overall market size witnessed a growth of 2.57 percent over the previous year. The automobile industry accounts for 7.1 percent of the country’s GDP by volume. India is also an important exporter of automobiles. The auto components sector, too, is not far behind. Over the last 10 years, 2006-16, the sector recorded a CAGR of 14 percent. As of 2016, the size of India’s auto components sector stands at `2.6 lakh crore ($39.1 billion approximately) and accounts for 2.3 percent of the country’s GDP. It contributes 4 percent to the country’s export basket, with the value of exports at the end of 2016 being `71,976 crore ($10.82 billion approximately). The sector appears well poised to achieve five-fold growth, targeting a turnover of `13.3 lakh crore ($200 billion approximately).

An expanding middle class and rising disposable incomes, both rural and urban, have been the primary growth drivers for the automobile sector as a whole. India also boasts of being home to the world’s 12th largest number of high net worth individuals (HNIs) and the list is ever growing. The growth has been remarkable in the two-wheeler market; with a total market share of 81 percent, the two-wheeler segment leads India’s automotive and spare parts industry. Another major push for this level of growth can be attributed to the growing interest of companies to explore rural markets. Further, government policies like lower excise duties and plans to promote environmentally friendly vehicles, and growth plans of key players in the sector promise to turn India into a global leader in the automotive sector by 2020.

Policy thrust Recent government policies aim to unleash the growth potential

Several hybrid and electric vehicles are manufactured in Karnataka, which proposes to offer incentives. Apart from the pioneering Mahindra e2o (earlier Reva), there are companies like Ather Energy, Prevalence Green Solutions and Go GreenBOV. India’s clean energy roadmap includes compliance with Bharat Stage VI norms which will boost electric vehicles.

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Automobile & Auto Components of the automotive sector while balancing the impact that it is likely to have on the environment. §§ The Auto Policy states that foreign investments of up to 100 percent is to be allowed in the auto industry without conditions of any minimum investment amount. Imports and manufacturing initiatives are allowed to proceed without approvals and prior licensing. The government has also made provisions for rebates in R&D expenditures. §§ According to the Automotive Mission Plan 2016-2026, the country plans to increase exports of vehicles by five times and that of auto components by 7.5 times. The automotive industry is going to play a key role in the Make in India initiative, and has also been estimated to create at least 65 million jobs by the end of 2026. At the same time, the stress will be on improvements in manufacturing design and processes to ensure environmental safety, and to support sustainable development. §§ The National Mobility Mission Plan 2020 aims at the production of affordable and efficient hybrid and electric vehicles, or xEVs, through government and industry collaborations. To that effect, indigenous manufacturing methods, necessary infrastructure and consumer awareness about the initiative is to be promoted. The policy aims at putting at least 6 million hybrid and electric vehicles on the road by 2020. §§ To promote consumer awareness around cleaner and greener modes of transportation such as the xEVs, the Department of Heavy Industry (DHI) has launched a pilot project in various metropolises and towns. This is also expected to ease the transition and improve consumer acceptance. Consumer acceptance will depend on how easily they can access the Electric Vehicle Supply Equipment which will be required to charge the cars.

Source: Ministry of Statistics and Programme Implementation, Government of India

§§ The Technology Platform for Electric Mobility, which is a joint initiative of the Departments of Heavy Industry and Science and Technology, is focused on developing indigenous low-cost electric technology. It plans to fund 60 percent of the R&D cost for consortia projects that will develop indigenous lithium battery technology, motors and drives, charging infrastructure, drive cycle and traffic pattern, and light-weighting of XEVs. The National Electric Mobility Mission Plan has got a corpus of `14,000 crore ($2.1 billion approximately) to fund such consortia projects. Karnataka houses one of the country’s four major automobile and auto component manufacturing hubs. The concentration of such units is on the Bengaluru-Hosur route, which the state shares with Tamil Nadu. The other three manufacturing hubs are the Delhi region in the north, inclusive of Gurgaon and Faridabad; Kolkata– Jamshedpur region in the east; and Pune, Nashik, Aurangabad and Mumbai region in the west. The auto component sector in the state has been growing at a CAGR of 18 percent. On its own, Karnataka is the second major hub and the fourth Make in Karnataka |

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Automobile & Auto Components largest producer of automobile and auto components. It has five major auto clusters and houses manufacturing facilities of some of the biggest international OEMs like TVS Motors and Honda in the two-wheeler segment; Mahindra and Mahindra and Toyota among passenger vehicles; and the likes of Bharat Earth, TAFE, Volvo and Scania in the commercial vehicles segment.

Major players

Honda: Honda Motorcycles and Scooters India (HMSI) started its plant in Narasapura in 2013. It witnessed significant growth in the following years, wherein domestic sales increased by 34 percent and exports shot up by 20 percent. In 2016, HMSI announced an increase in the capacity of the plant by 6 lakh units at an investment of `600 crore ($90.2 million approximately) within the next two years. HMSI at present exports to almost 20 countries, including the neighbouring nations of Nepal and Sri Lanka. Toyota: Toyota Kirloskar, a joint venture between the Kirloskar Group and Toyota, has its facilities at Bidadi. The plant is spread across 432 acres and has a capacity of over 1 lakh units per annum. In December 2016, Toyota registered the highest sales of the last five years with over 14,000 units sold in just one month. TVS Motors: TVS Motors is one of the largest manufacturers

of two-wheelers in India. With its Karnataka plant based out of Mysuru, TVS Motors sold 2.4 lakh units of motorcycles and 2.21 lakh units of scooters. The company also exported 99,000 units. Volvo: Volvo’s bus and truck manufacturing facility is located in Hosakote. In 2015, Volvo announced an investment of `957 crore ($143.87 million approximately) to expand its manufacturing plant. This was also expected to create at least 2,000 employment opportunities. Delphi: Delphi is one of the largest players in the auto components sector in India. Its technical centre in Bengaluru happens to be the largest one outside the US; the facility has been operational since 2011. As it stands today, Karnataka’s auto components industry has the potential for growth in local, national as well as international markets. There are over 50 auto parts manufacturing companies in the state that collectively accounted for a turnover of `9,979 crore ($1.5 billion approximately) in 20142015. More than 6 percent of the country’s auto components output comes from Karnataka. Apart from Delphi, other auto component manufacturers functional in the state include Denso, Bill Forge, Autoliv, Falken Tyre India, Bosch, EXEDY India, Aisin, Continental AG, JK Tyre, Indo Schottle and Aequs. With the presence of both tier 1 and tier 2 companies, Karnataka’s automobile industry churns out production to the tune of `18,628 crore ($2.8 billion approximately), accounting for 8.5 percent of the national output in the sector.

Karnataka makes over 6 percent of India’s auto components.

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In recent times, the industry in the state has seen rapid growth. In 2010, the sector only accounted for `7,318 crore ($1.1 billion approximately) worth of production and is today perched on top with an increase of 36.5 percent. The industry in the state has attracted annual investments of at least `4,657 crore ($700


Automobile & Auto Components million approximately), generating revenues worth `3,992 crore ($600 million approximately). It employs over 55,000 workers. The OEMs in Karnataka are fairly localised, which in turn helps them reduce manufacturing cost, consequently leading to an overall increase in profit margins. There are several factors that make Karnataka an attractive destination for investments in this sector. §§ The state has a strong and ever-growing customer base. Bengaluru has been hailed as the Silicon Valley of India for a long time now. Every year people from all over the country move here in pursuit of higher education or better jobs. As public transportation is not cheap here, most people who can ride or drive opt for two-wheelers or second-hand vehicles, thus contributing to the country’s growing automotive industry to a significant extent. There are over 44 lakh registered vehicles in Bengaluru city alone. §§ Karnataka is home to some of the leading original equipment manufacturing companies in the automobile industry, which form the foundation of the entire ecosystem. §§ Auto clusters are located in Hosakote in Bengaluru Rural, Bidadi in Ramanagaram and in Dharwad. §§ The industrial valve cluster is located in Hubballi-Dharwad. §§ The auto components clusters in Shivamogga and Belagavi connect to ports on the east and west coasts. §§ Geographically too, Karnataka is an extremely convenient location. Its proximity to the auto clusters in the south (Tamil Nadu and Andhra Pradesh) and west (Maharashtra and Gujarat) make investors and manufacturers see the state as an ideal region for setting

up their plants. §§ The state is well connected to six major ports through a network of national highways, making movement of goods for exports easier. §§ A dedicated freight corridor between Chennai and Bengaluru to speed up goods movement has been planned. §§ Karnataka also has a robust workforce of highly skilled professionals – over 1,400 in ITIs and 400 R&D centres, and almost 200 engineering colleges that contribute to much of the innovation in the state.

Government enablers in growth In the Industrial Policy of 2014-2019, Karnataka has been identified as one of the focal points for the growth of the automotive sector. Keeping in step with national policies related to the industry, the Karnataka government has also made proposals that can be expected to help the state’s automotive sector grow further. §§ A Single Window Clearance mechanism has been proposed which will allow other departments to approve investments in the sector through an e-udyami. §§ Exporters who have held a good track record will be issued a Green Card that will enable a seamless movement of products and save them time at check points. §§ An Automobile Research and Innovation Centre has been proposed in Karnataka, which will also serve as an incubation center. §§ To further improve connectivity in the state, improvement of the port at Mangaluru has been prioritised. It will be connected to major industrial clusters within the state. Make in Karnataka |

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Automobile & Auto Components §§ In line with the central government’s drive towards hybrid and electric vehicles, the state government has proposed a reduction of road tax and registration tax for manufacturers of hybrid and electric vehicles in the state. At present, manufacturers of hybrid and electric vehicles in Karnataka include companies like Mahindra e2o, Ather Energy (in which motorcycle major Hero has picked up close to 30 percent stake), Prevalence Green Solutions and Go GreenBOV. This particular area of the sector seems to have immense scope for growth. §§ Original equipment manufacturing companies are being encouraged to partner with various IT firms to provide

sector-specific professional training. A Sectoral Training Institute for the automotive industry has also been proposed in Bidadi and Narasapura. As per official reports, the state government is also in the process of announcing a dedicated Automobile Policy in addition to the existing ones mentioned above. Karnataka is uniquely poised for growth in the automobile and auto components industry. With its unique advantages, including geography and connectivity as compared to other states, and government policies designed to enable growth, the automotive segment seems to be the new sunrise industry after IT.


Biotech & Pharma

Aerospace & Defence

A healthy dose

The National IPR (Intellectual Property Rights) Policy of 2016 Government of India is focused on encouraging IPRs as marketable financial assets that will promote innovation and entrepreneurship. This has also given a boost to IPRs in Biotechnology & Pharma, with 100 IPRs already facilitated. Make in Karnataka |

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Biotech & Pharma India holds about 2 percent share of the global biotechnology industry and is one of the top 12 biotech destinations in the world. The sector comprises about 800 companies and generated a cumulative revenue of `74,920 crore ($11.26 billion approximately) in 2016. Fuelled by a growing demand for healthcare services, food and nutrition, and intensive R&D activities, the biotechnology sector is growing at a CAGR of 23 percent. Biotechnology is estimated to attain a valuation of `6.8 lakh crore ($102.2 billion approximately) by 2025, and the government plans to invest `34,000 crore ($5.11 billion approximately) to develop human capital, infrastructure and research initiatives in this sector. The Biotechnology Industry Research Assistance Council (BIRAC, a special purpose organisation of the Department of Biotechnology, Government of India) supports the industry through funding, mentoring, handholding and infrastructure. It has thus far supported 104 new startups, 346 companies and 509 projects, including 121 collaborative projects, at a total cost of `423.58 crore ($63.68 million approximately). Biopharma contributes 64 percent to the biotech sector, followed by Bioservices (18 percent), Bioagri (14 percent), Bioindustry (3 percent) and Bioinformatics (1 percent). The Indian pharmaceutical industry is on a robust growth trajectory and is expected to grow at a rate of 15 percent annually between 2015 and 2020, faster than the global pharma industry, which is set to grow at a rate of 5 percent per annum during the same period. The sector currently accounts for 2.4 percent of the global industry in value terms and 10 percent in terms of volume. India is the world’s largest provider of generic drugs; it contributes 20 percent of global exports in generics. Indian pharma companies registered 49 percent of the overall Drug 48

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Master File (DMF) in the US in 2012. India is the largest exporter of formulations and ranks 12th in the world in terms of export value. The country is also a leading destination for clinical trials, contract research and manufacturing activities. According to the Department of Industrial Policy and Promotion, the pharmaceutical sector ranks sixth among sectors attracting highest FDI inflows into the country, a number which is sure to rise as the central government relaxed norms and allowed 100 percent FDI for this sector. Karnataka has been at the epicentre of the growth of the biotech and biopharma sectors in the country. The state has more than 60 percent of India’s biotech companies and generates 26 percent of the total national revenue. Some of the biopharmaceutical firms in the state are dedicated to manufacturing monoclonal antibodies, which include anti-cancer drugs, as well as insulin and vaccines that are produced using cell culture. In 2015, the central government allocated `176 crore ($26.46 million approximately) towards biotechnology projects in Karnataka. The state contributed to more than a quarter of the country’s total biotech exports of around `26,518 crore ($4 billion approximately) for 2014–2015. Karnataka was the first Indian state to have a dedicated Biotech Policy in 2001, which propelled the state onto a rapid growth trajectory that saw the setting up of several leading biotechnology institutions such as the Institute of Bioinformatics and Applied Biotechnology (IBAB), the Institute of Agri-Biotechnology, Dharwad and the Bangalore Helix – Biotech Park in Electronic City. The policy also recommended an annual biotechlogy conference and exhibition, the Bangalore India Bio, and the establishment of a Vision Group comprising sector experts and industry leaders. Karnataka’s Millennium Biotech Policy II of 2009 has built upon


Biotech & Pharma the achievements of the 2001 policy by identifying new avenues of innovation. It offers several incentives like a subsidy for effluent treatment plants, interest-free loans from the government for paying value-added tax, financial support towards patent registration, and greater freedom for agri-biotech companies to conduct field trials.

Biotech vision Karnataka drew up an action plan in line with the Centre’s National Biotechnology Development Strategy 2014. One of the aims of the policy is to meet 20 percent of its fuel needs from biofuels by 2020. Over the last one year, the state has made some progress that may go a long way in nurturing the biotech sector: §§ A bio-venture fund worth `40 crore ($6.01 million approximately) has been set up to promote projects in the areas of stem cells, genetics and bio-manufacturing. §§ Bengaluru is also home to the country’s first BioInnovation Centre – a world-class incubation centre with a central instrumentation facility - built with the help of the Karnataka BT & IT Services and the Central Department of Biotechnology (DBT). §§ Another fund with a corpus of `33 crore ($4.96 million approximately) has been set up for companies to support technology transfers and research projects. The state will contribute 26 percent of the fund and the remaining 74 percent will be raised from venture capitalists. It has also set up a corpus fund of `20 crore ($3 million approximately) to enable commercialisation of research results. §§ A unique package of concessions has been sanctioned for mega projects. §§ BTFS were set up to increase the employability quotient of students and make them industry–ready. §§ Five biotech parks have been established in different parts of the state. A sum of `5,500 crore ($826.82 million million approximately) is being invested in the Helix

Biopharma constitutes 64 percent of India’s biotechnology sector.

Biotech Park, a joint initiative of the Department of IT, BT, S&T, and Alexandria Real Estate Equities, the world’s largest laboratory space providers. Set over 106 acres in Electronic City, the Helix Biotech Park is expected to generate direct employment to 20,000 in the R&D sector and indirect employment to 60,000. §§ An animal quarantine facility has been set up near the Kempegowda International Airport. §§ A bio-IT facility has been set up in the Institute of Make in Karnataka |

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Biotech & Pharma Bioinformatics and Applied Biotechnology (IBAB) in Electronic City, Bengaluru, as a Centre of Excellence for Research and Training in Bioinformatics. §§ The Single Window Clearing mechanism has been made available for all biotech projects. §§ To promote IPR and innovation, the Karnataka Biotechnology Council will develop a comprehensive database on patents, with online processing. An exclusive cell to advise entrepreneurs on how to file patents and how to protect IPR will be constituted. The cell will interact with the National Law School, produce publications for the use of entrepreneurs, conduct seminars, and advise companies on IPR management. §§ To create awareness about investment opportunities in biotechnology, genomics, bio-fuels, bioinformatics, and contract research among the entrepreneurial community, the state has hosted several events. Karnataka is a force to be reckoned with in the pharmaceutical sector as well, contributing 8 percent to the country’s revenue and 12 percent to the country’s exports. The state’s pharmaceutical industry consists of a range of manufacturing units, from small units to multinational enterprises, both in the public sector as well as private companies, and provides direct employment to over 25,000 people. Exports of basic chemicals, pharmaceuticals and cosmetics from Karnataka accounted for `10,907 crore ($1.64 billion) in 2015-16, a 30 percent increase from `8,300 crore ($1.25 billion approximately) in 2013–2014. The state is focusing on maintaining its leadership position in pharmaceutical manufacturing and has taken explicit measures for export promotion through the Karnataka Pharmaceutical Policy 2013 (KPP 2013). The policy is modelled on the lines 50

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of the state’s Biotechnology Policy and aims to accelerate the pharmaceutical business in the state with a focus on R&D, intellectual property and clinical trials.

Pharma infrastructure

The KPP 2013 has identified three broad areas for investments: §§ Infrastructure §§ Education §§ R&D The infrastructure plans comprise pharma parks, common testing laboratories, cold storages and warehousing. The KPP 2013 envisaged creation of pharma parks in the PPP model with equity contribution of up to 26 percent from the Karnataka State Industrial Infrastructure Development Corporation (KSIIDC), the Karnataka Industrial Area Development Board (KIADB) and the Infrastructure Development Department (IDD). The policy also offered a onetime capital subsidy of up to 50 percent of the total cost, subject to a ceiling of `5 crore ($751 thousand approximately), with the remaining 50 percent coming from the stakeholders. Additionally, a similar one-time capital subsidy with the same benefits was extended to establish effluent treatment plants. Each park is to be equipped with a common effluent treatment plant (CETP), common testing laboratory, cold storage with warehousing, and standalone power stations. Housing facilities with all basic amenities are also planned so that people can ‘walk-to-work’. Yadgir: KIADB has acquired around 3,000 acres of land at Kadechur and Badihalla in Yadgir district to set up a pharmaceutical SEZ. The area is well-connected by road to Hyderabad (Telangana); Vasco da Gama (Goa); and Bengaluru, Hubbali, Dharwad, Belagavi and Ballari (Karnataka). It is also one of the largest railway stations in the Hyderabad-Karnataka


Biotech & Pharma the Karnataka Pharmaceutical Development Council (KPDC), a monitoring agency, and the Vision Group on Pharmaceuticals. With R&D being the driver of this industry, the government has offered an annual grant of `50 lakh ($75 thousand approximately) for research, monitored by the KPDC. It has also proposed to incentivise clinical trials for bio-availability and bio-equivalence by covering 20 percent of the total expenditure, subject to a ceiling of `1 crore ($150 thousand approximately).

Source: Karnataka Udyog Mitra

region; it lies on the Mumbai-Chennai railway broadgauge line and is connected by rail to major towns in Telangana, Andhra Pradesh, Tamil Nadu, Maharashtra and, of course, Karnataka. The location and incentives offered have encouraged pharma companies to relocate from Hyderabad to Yadgir. The Yadgir industrial hub has attracted investments of `13,500 crore ($2.03 billion approximately) till date. Hassan: The KIADB Pharmaceutical SEZ in Hassan hosts six pharma units – two of which are already operational. The topography of Hassan and its climatic conditions, which are conducive to growing coffee, make it ideal for medicinal plantations. Medicinal, aromatic and other economical plants (MAOEP) are an important part of the biotech ecosystem and their culture provides growers with an opportunity to enhance their income. The processed and finished products, with their distinctive properties, contribute significantly to the pharmaceutical industry.

R&D and education The state government has also announced the setting up of

The state is home to many nationally and internationally renowned biotechnology research institutions, including the Indian Institute of Science, National Centre for Biological Sciences, NIMHANS, and Jawaharlal Nehru Centre for Advanced Scientific Research. It is also home to key life science companies like Advinus Therapeutics, AstraZeneca, Biocon Limited, Jubilant Biosys, Metahelix Life Sciences, Strand Life Sciences, Strides Arcolab and XCyton Diagnostics Limited. One of the key growth drivers for Karnataka that helps differentiate it from other biotech hotspots is the strong research base that has been created over time. There are 103 R&D centres which conduct frontline research. However, there is a dearth of skilled personnel, and to address this issue, the KPP 2013 has promoted Biotechnology Finishing Schools (BTFS) with well-equipped laboratory facilities and appropriate course content. This is expected to ensure a continuous chain of industry-ready graduates. Till date, 12 BTFS host institutions have been established, with `1 crore ($150 thousand approximately) being sanctioned per finishing school. In 2009, the state had set up a bio-cluster to facilitate research in biosciences and entrepreneurship by providing R&D, training and services in state-of-the-art technology platforms. The cluster consists of the Institute for Stem Cell Biology and Regenerative Medicine, the National Centre for Biological Sciences, and the Centre for Cellular and Molecular Platforms. Make in Karnataka |

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Biotech & Pharma Under the KPP, the Karnataka Government has proposed to set up a venture capital fund of `50 crore ($7.5 million approximately), with a price preference of 15 percent for micro, small and medium enterprises (MSMEs). This is expected to lower the entry barrier for potential entrepreneurs in the pharmaceutical sector.

Nurturing biodiversity According to estimates, 198 pharmaceutical and 82 cosmetic units in the state use bio-resources in their production process. Under the guidance of the Karnataka Biodiversity Board (KBB), 4,636 Biodiversity Management Committees (BMCs) were set up to promote sustainable use and documentation of biological diversity at local levels. The BMC is mandated to prepare a People’s Biodiversity Register (PBR), in consultation with grama panchayats, which will contain comprehensive information on availability and knowledge of local biological resources and harness traditional knowledge on their use. In all, 468 PBRs have been prepared so far under the initiative, creating an invaluable database for the industry.

Some major moves Investment by GSK: GlaxoSmithKline Pharmaceuticals, the Indian unit of UK-based GSK, started work on its largest greenfield pharmaceutical manufacturing facility, in Vemgal in Kolar district, with an estimated investment of `1,000 crore ($150.3 million approximately). The facility is coming up on a 50 acre site and will make over 8 billion tablets and 1 billion capsules a year in the area of gastroenterology and antiinflammatory medicine. Availability of investment incentives and cheap government land were said to have sealed the choice of Vemgal. GSK‘s clinical development centre in Bengaluru includes a warehouse, site infrastructure, employee welfare centre, and utilities to support the manufacturing and packing of medicines. International Med Expo: Karnataka was identified by the Union Government to play host to the first-ever international exhibition and conference on pharmaceutical industry, India Pharma 2016 and Indian Medical Expo 2016, at the Bengaluru International

Besides the BMC initiative, the Biodiversity Board has mapped a biodiversity atlas, aimed specifically at maintaining biodiversity in arid regions. Project areas of 100-200 hectares have been demarcated across 13 dry districts, and 14 rare, endangered and threatened plant species have been identified. Going forward, the state proposes to set up a clutch of agribiotech parks. A Nutraceutical and Phyto-Pharmaceutical Park (N2P2) has been planned in Mysuru, in collaboration with the Central Food Technology Research Institute. A feasibility study is underway for the proposed agri-biotech park in Dharwad, in collaboration with the University of Agricultural Sciences. A similar marine/aqua biotech park has been planned in collaboration with the College of Fisheries, Mangaluru, and one for animal biotechnology, in collaboration with KVAFSU, Bidar. 52

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India’s healthcare sector is growing to meet the demands of its growing population.


Biotech & Pharma Exhibition Centre (BIEC). Experts feel that such conferences will help stimulate the growth of the state’s core competency in contract research and manufacturing services (CRAMS). This is also expected to attract FDI and incentivise local companies to expand operations in both greenfield and brownfield projects. Ayush licensing: The state has set up a full-time Ayush Drug Licensing Authority to strengthen inspections of the Ayurveda, Homoeopathy, Unani and Siddha medicine manufacturing and marketing activities in the state. There are 215 Ayurveda units, 10 Homoeopathy units, and two Unani units in the state. There are seven approved Ayurveda, Siddha and Unani drug testing laboratories to cater to market needs. Pharmexcil office: With Pharmaceuticals Exports Promotion Council of India (Pharmexcil) opening an office in Bengaluru, its fifth in the country, it is expected to play a pivotal role in establishing Karnataka’s credentials as a world-class pharma manufacturing state. It is also expected to help sort out all exportrelated challenges, especially those that exporters face while obtaining documentation from the office of the Central Drugs Standard Control Organisation (CDSCO). In Karnataka, there are seven US FDA-certified, eight MHRAcertified, and 82 WHO-certified plants, besides several plants with international approvals, including those from UNICEF, MCC South Africa, ANVISA, and PIC/S (Pharmaceutical Inspection Convention and Pharmaceutical Inspection Co-operation Scheme) which reinforce the state’s position as a hub for quality outsourcing. On the face of it, companies appear well-equipped to meet future needs in the areas of innovative formulations, novel drug delivery systems and nanotechnology, among others.

Focus on North Karnataka

The state plans to allot over 400 acres of land to the pharma sector in the Hyderabad–Karnataka region, which will cost over `1,500 crore ($225.5 million approximately). Some of the incentives on offer by the state are: §§ The unit price of land being offered by the Karnataka Government is `7 lakh ($10 thousand approximately) per acre against `35 lakh ($52 thousand approximately) offered by the Telangana Government. §§ Karnataka offers 100 percent exemption of stamp duty on registration of loan agreements and land registration. §§ It also offers 100 percent reimbursement of land conversion fee. §§ There is 50 percent exemption on entry tax. §§ 100 percent capital subsidy on setting up effluent treatment plants. §§ 25 percent tax exemption on electricity tariffs. §§ 25 percent investment subsidy on upgrading technology. §§ A liberal interest subsidy on loans depending on the size of the investment. Apart from the state’s own policy measures to help grow the bio-pharma sector, Karnataka benefits from regional geopolitical changes. The bifurcation of the neighbouring Andhra Pradesh into Telangana and Andhra Pradesh, and the consequent lag in sorting out economic resources like water and power appears to be working to the advantage of Karnataka. More than 33 bio-pharmaceutical companies, including Virupaksha Organics, Gowra Petrochemical Industries, Optimus Drugs, and Hetero Labs, which have set up factories in Hyderabad, have crossed the borders into Karnataka.

Karnataka’s policy of offering competitive incentives to develop the backward Hyderabad-Karnataka region seems to paying off. Make in Karnataka |

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KRISHNA BHAGYA JALA NIGAM LIMITED (A Government of Karnataka Undertaking)

ALMATTI DAM

NARAYANAPUR DAM

IRRIGATION PROJECTS UNDER KRISHNA BHAGYA JALA NIGAM UPPER KRISHNA PROJECT: A DREAM REALISED

Scheme-A Irrigation Potential Created– 6.04 Lakh ha.

◆ DAMS: • •

Almatti Dam Narayanpur Dam

Planned Irrigation Potential in Scheme-B-5.23 Lakh ha.

◆ LIFT IRRIGATION SCHEMES: • • • • •

Almatti Left Bank Canal Almatti Right Bank Canal Mulwad Lift Canal Rampur Lift Canal Indi Lift Canal

◆ FLOW CANALS: • • • • • •

Narayanpur Left Bank Canal Narayanpur Right Bank Canal Shahapur Branch Canal Jewargi Branch Canal Mudbal Branch Canal Indi Branch Canal

◆ LIFT IRRIGATION SCHEMES Mulwad LIS Chimmalagi LIS NRBC Extension Mallabad LIS Indi LIS Extn. Rampur LIS Txtn. Koppal LIS Bhima Flank Herkal LIS Total

WITH BEST COMPLIMENTS FROM

2,27,966 ha 87,067 ha 61,747 ha 33,730 ha 20,690 ha 13,923 ha 48,436 ha 15,344 ha 13,923 ha 5,22,826 ha


Chemicals & Plastics

Electronics Hardware

Aerospace & Defence

Inflexion point

About 25 percent of plastics produced in India comes from the small scale sector. Make in Karnataka |

55


Chemicals & Plastics Providing raw materials for a variety of sectors such as pharmaceuticals, cosmetics and textiles, the chemicals sector is an important contributor to the national economy. India is one of the largest markets for the chemical industry, consuming one-tenth of the global average. The country is also the third largest producer of chemicals in Asia, and seventh largest in the world (by output), third largest producer of agro chemicals (fertilisers) and produces 16 percent of the world’s dye stuff and dye intermediates. India produced 23.9 million tonnes of major chemicals (including petrochemicals) in 2015-16 and 9 million tonnes of polymers. The chemicals sector accounts for around 3 percent of the GDP and 12.7 percent of total exports of the country. The sector had a market size of `9.8 lakh crore ($147.3 billion approximately) in 2016 and is estimated to reach `27.4 lakh crore ($412 billion approximately) by 2025. Total investment in this sector is `4 lakh crore ($60.13 billion approximately) and it provides employment to around 1 million people.

§§ Agro Chemicals, including insecticides, herbicides and fungicides, and other crop protection chemicals §§ Speciality Chemicals such as paint, adhesive, electronic chemicals and others §§ Biotechnology including biopharma, bio agri, bioservices and bioindustrial products

PLASTICS A major sub-sector of the petrochemicals industry, the plastics industry in India comprises around 55,000 plastic processing units spread over both organised and unorganised sectors and employing around 4 lakh. About 25 percent of the total production comes from the small scale sector, which have almost 75 percent of the processing units. India is the third largest consumer of plastics in the world, around 12 million tonnes, of which 8-9 million tonnes are produced domestically and about 3-4 million tonnes are imported. Domestic consumption is expected to touch 20 million tonnes by 2020.

Exports in the chemical industry grew from `84,500 crore ($12.7 billion approximately) in 2013 to `86,500 crore ($13 billion approximately) in 2015, registering a growth of 0.9 percent. India exported chemical products worth `65,500 crore ($9.8 billion approximately) in 2016.

India exported `52,000 crore ($7.82 billion approximately) of plastic products in 2015-16. The industry produces and exports a wide range of raw materials, polyester films, luggage, sacks and bags, polyvinyl chloride (PVC), packaging, sanitary fittings, electrical accessories and surgical tools, among others.

The chemicals sector in India is broadly classified into the following sub groups:

Plastics are mostly used in packaging, which uses 56 percent share of the total output (flexible packaging uses 42 percent and rigid packaging 14 percent). The packaging sector is one of the fastest growing sectors, driven by increasing demand for bottled water, personal care and other consumer items. The sector is valued at `88,000 crore ($13.23 billion approximately) and the rigid plastics packaging market is expected to grow at 15 percent annually.

§§ Bulk Chemicals, including basic organic chemicals such as methanol and acetic acid, and basic inorganic chemicals such as caustic soda and other chemical intermediaries. §§ Petrochemicals, including olefins such as ethylene and propylene, and aromatics such as benzene, toluene and xylene isomers. 56

| Make in Karnataka

Other plastic products find application as construction equipment (12 percent), household products (9 percent), appliances


Chemicals & Plastics (7 percent), cables (6 percent) and others (10 percent). The central government has identified thrust areas for the plastics industry, which include modern farming through plasticulture, packaging for processed foods and consumer non-durables, better performing plastics for automobiles and consumer durables, infrastructure development through cost effective plastics and innovative products for telecommunications and information technology services.

NATIONAL CHEMICALS POLICY The central government launched a draft National Chemicals Policy in 2013, which will create an enabling framework to accelerate manufacturing, increase investment in R&D, promote green technologies and address environmental concerns.

Aims and objectives §§ Increase the chemical sector growth to 6 percent per annum

MRPL has a 15 million Metric Tonne Refinery, north of Mangaluru city, and apart from this, it owns and operates ONGC Mangalore Petrochemicals Limited (OMPL), in the adjacent Mangalore Special Economic Zone. This petrochemical unit is capable of producing 1 million tonnes of Para Xylene for export.

§§ Provide appropriate policy support to enhance global competitiveness of the Indian chemical industry §§ Make India a reliable hub for manufacture of quality chemicals §§ Adopt a cluster approach to develop ancillary industries §§ Provide R&D assistance with a focus on sustainability and green technology §§ Promote human resource development §§ Establish a robust framework to promote safety and security of chemical facilities §§ Establish Indian Bureau of Corrosion Control to regulate and prevent losses from corrosion, which causes an annual loss of `2 lakh crore ($30 billion approximately). §§ Set up a National Chemical Centre to act as a data repository on this sector As the focus shifts to product innovation, green technology and environmental friendliness, the chemical industry is at an inflexion point. There are ample opportunities for domestic players to scale up and consolidate, and for international conglomerates to set up a manufacturing base. Under the Make in India campaign in 2014, the central government altered policies and allowed 100 percent FDI in the chemical industry, as well as delicensed most of the industry, barring a few hazardous chemicals. This has opened up the sector for greater investment. The chemicals sector (excluding fertilisers) ranks seventh in sectors attracting FDI equity, and the FDI inflow to the sector was `221.4 crore ($33.3 million approximately) during AprilSeptember 2016 alone. During April 2014-March 2016, the FDI equity inflows in the sector increased by 107 percent to `15,000 crore ($2.25 billion approximately) compared to `7,362 crore ($1.11 billion approximately) in 2012-14. Make in Karnataka |

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Chemicals & Plastics and Tamil Nadu are under implementation, and the central government has approved six more in Jharkhand, Chhattisgarh, Madhya Pradesh, Haryana, West Bengal and Uttarakhand with a total investment of about `400 crore ($60.13 million approximately).

SKILL DEVELOPMENT

Source: Annual Report 2015-16, Department of Chemicals and Petrochemicals, Ministry of Chemicals and Fertilisers, Government of India

PETROLEUM, CHEMICALS AND PETROCHEMICALS INVESTMENT REGION (PCIPRs) The central government has established four Petroleum, Chemicals and Petrochemicals Investment Regions (PCPIR) in Odisha, Gujarat, Tamil Nadu and Andhra Pradesh. PCPIRs are specifically delineated investment regions to establish manufacturing facilities for petroleum, chemicals and petrochemicals. These have received investments worth `1.72 lakh crore ($25.86 billion approximately) and employed 2.73 lakh persons in direct and indirect activities. Kerala, Karnataka and Maharashtra are new applicants for PCPIR.

The Central Institute of Plastic Engineering and Technology (CIPET) was established in 1968 by the central government, with the assistance of the United Nations Development Fund and International Labour Organisation. Today, CIPET is a premier national institution devoted to skill development technology support services and research. CIPET operates on a hub and spokes model in 28 locations – with five high learning centres, 12 other learning centres, three specialised centres, two R&D wings, five vocational training centres and one petrochemical data service. Headquartered in Chennai, CIPET currently has centres at Ahmedabad, Amritsar, Aurangabad, Baddi, Balasore, Bhopal, Bhubaneswar, Chennai, Gurugram, Guwahati, Gwalior, Hyderabad, Hajipur, Haldia, Imphal, Jaipur, Kochi, Lucknow, Madurai, Murthal, Mysuru, Raipur, Valsad and Vijayawada. In April 2016, the central government approved the setting up of 11 new CIPETs, including an Advanced Polymer Design & Development Research Laboratory in J&K, along with other centres in Uttarakhand, Uttar Pradesh, Bihar, Rajasthan, Tripura, Karnataka, Andhra Pradesh, Jharkhand, Chhattisgarh and Maharashtra.

PLASTIC PARKS The central government recognised the need to set up speciality plastic parks with state-of-the-art infrastructure in 2015. These parks will be a joint endeavour between the centre and the state, with the centre providing 50 percent of the project cost, subject to a maximum of `40 crore ($6 million approximately) per project. Currently, four plastic parks in Madhya Pradesh, Odisha, Assam 58

| Make in Karnataka

Karnataka has positioned itself as a major growth centre for the chemical industry, with a presence of more than 500 companies and large R&D centres for chemicals and petrochemicals, including a technology centre in Bengaluru established by the Saudi Base Industries Corporation (SABIC). The `681.7 crore ($102.5 million approximately) technology centre will house 300


Chemicals & Plastics researchers and engineers who will focus on developing materials for construction, clean energy, medicine and transport. The port city of Mangaluru is evolving as the centre of chemical and petrochemical industries in the state. Mangalore Refinery and Petrochemicals Limited (MRPL) is the state’s leading player and public sector refinery. It has expanded its capacity from 9 million tonnes to 11.82 million tonnes per annum, and plans to increase its capacity to 15 million tonnes by 2018. MRPL is the only refinery in India to have two hydro-crackers which produce premium diesel and two Continuous Catalyst Regeneration platforms to produce high octane unleaded petrol. There are six pipelines from the refinery to the coastal terminal at New Mangalore Port, and a 362 km Petronet pipeline between Mangaluru and Bengaluru, transporting 76,806 kg of Naptha, Petrol, Kerosene, Aviation Turbine Fuel (ATF) and Diesel.

MANGALORE SEZ Mangalore Special Economic Zone Limited (MSEZL) is promoted by Oil and Natural Gas Corporation of India (ONGC), Karnataka Industrial Areas Development Board (KIADB), Infrastructure Leasing and Financial Services (IL&FS) and Kanara Chamber of Commerce

and Industry (KCCI), along with the central and state governments. Spread across 1,600 acres near Mangaluru City, MSEZL is well connected by road, rail, air and sea, being 15 km away from the city centre, 5 km from the international airport and 8 km from the port. It has received investments worth `13,600 crore ($2.04 billion approximately) and exports over `2,700 crore ($406 million approximately) worth of products from its units.

STATE GOVERNMENT INCENTIVES The state government offers the following incentives for investment in this sector: §§ Duty free import/domestic procurement of goods for development, operation and maintenance of units §§ Single Window Clearance §§ Exemption from State and Central sales tax and other levies §§ Single Point Clearance by Unit Approval Committee §§ Exemption from any other State taxes, cess, duties or levies as notified

Mangalore Special Economic Zone Limited (MSEZL) has emerged as one of the most vibrant operational multi-product SEZs in India. Make in Karnataka |

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ElectronicS Hardware

Aerospace & Defence

Scorching growth

Karnataka’s knowledge-driven economy has it poised to lead the electronics hardware manufacturing and services space. Make in Karnataka |

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Electronics Hardware Thanks to a strategic and continuous government push, the availability of skilled talent and a large domestic market, the electronics hardware industry in India is among the largest in the world, poised to touch `26.6 lakh crore ($400 billion approximately) by 2020. It is expected to grow at a CAGR of 26 percent during the 20142020 period, indicating a scorching pace. At the forefront of this growth story in the sector are government initiatives such as allowing 100 percent FDI and schemes like the Electronics Development Fund, Electronic Manufacturing Clusters, National Knowledge Network and National Optical Fibre Network. The sector typically covers a wide array of sub-segments including consumer electronics, industrial electronics, electronic components, strategic electronics, semiconductor design and electronics manufacturing services. Due to exponential growth in domestic demand and India’s competency as a manufacturing hub for imports, some of the products which lead revenue generation include mobile phones, flat panel display TVs, notebooks, desktops, digital cameras, inverters/UPS, memory cards/USB drives, EMS/LCD monitors and servers. What is clearly driving the trend of India emerging as a major player in this sector is the huge skilled manpower advantage. India has the third largest pool of scientists and technicians in the world. It also has strong design and R&D capabilities in auto electronics and industrial electronics. This, coupled with proactive government policies, make the country a very attractive destination to set up a manufacturing base for these high-value goods. In fact, the government is also promoting the development of electronics manufacturing clusters throughout the country, prominently in India’s Silicon Valley, Bengaluru. 62

| Make in Karnataka

The expected market size for major electronics sub-sectors in India by 2020 are: §§ Telecom equipment - `2.3 lakh crore ($34.5 billion approximately) §§ Laptops, desktops, tablets - `2.3 lakh crore ($34.5 billion approximately) §§ LED - `2.3 lakh crore ($34.5 billion approximately) §§ Consumer electronics - `1.9 lakh crore ($28.5 billion approximately) §§ Set top boxes - `66,528 crore ($10 billion approximately) §§ Automotive electronics - `66,528 crore ($10 billion approximately) §§ Medical electronics - `56,548 crore ($8.5 billion approximately) It would be safe to predict that Karnataka and its capital Bengaluru – variably described as the Silicon Valley of India or the technology capital of India – will be at the forefront in the electronics hardware manufacturing and services space, given its knowledge-driven economy. The state has some inherent advantages. The primary enabler is its technology talent pool, which is a key catalyst for a strong knowledge-driven industrial base. The state, with its numerous academic institutions, churns out professionals to suit the needs of hardcore electronics disciplines such as Very Large Scale Integrated (VLSI) conductors and semiconductor design and embedded software. As per the Karnataka Electronic System Design and Manufacturing Policy 2013, the state boasted of 85 chip design houses, 336 R&D facilities, and has over 6 lakh technology professionals employed in Bengaluru alone, in 2012.


Electronics Hardware Second, Karnataka is home to one-third of the software companies who contribute to over a third of national exports. The state already has an established base in electronics, computer software services and biotechnology – the knowledge-driven economic sectors, which together account for more than 60 percent of its total exports. The state’s exports amounted to `3.14 lakh crore ($47.2 billion approximately) in 2014-15, which is roughly about 13 percent of the total national exports for the year. In fact, exports account for a third of the state’s total income. Third, while the state enjoys the inherent advantages of a knowledge-based economy and a vast talent pool, it needed

a clear-cut policy direction that would propel the sector in line with the national goals of achieving `26.6 lakh crore ($400 billion approximately) revenue by 2020. Karnataka, predictably, envisioned that it would be a major contributor to this revenue target. Here is how:

Karnataka Electronic System Design and Manufacturing Policy 2013 The state formulated a clear-cut policy that listed the objectives, route map, policy concessions, infrastructure support, brand building and training way back in 2013. The key objective of the policy was to enable the state to

By 2020, Karnataka plans to contribute to 10 percent of the revenue in India’s electronics hardware manufacturing sector. Make in Karnataka |

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Electronics Hardware contribute to 10 percent of the `26.6 lakh crore ($400 billion approximately) revenue envisaged for the electronics hardware manufacturing sector by 2020. The state also targeted a 20 percent share of national exports pegged at `5.3 lakh crore ($79.6 billion approximately) by 2020. The policy also targeted creation of 2.4 lakh new jobs in the sector. It envisaged that a quarter of India’s PhDs and 5,000 patent filings would come from the state in the electronics hardware manufacturing space. The policy framework created an environment that would make Karnataka emerge as the most preferred destination for investments in the Electronic System Design and Manufacturing (ESDM) area. The state policy covers the following areas of electronics design and manufacturing: Embedded software for IT, Telecommunications, Defence, Medical, Industrial, Automotive, Consumer Products, Applications and Components, parts and accessories. The state has created a category called ‘Karnataka ESDM Companies’ which qualify for special concessions and sops. To qualify under this tag, a company has to be registered in the state, should be engaged in electronics hardware manufacturing, should achieve a minimum of 30 percent domestic value addition for any specific product, and should employ at least 50 percent of its workforce from Karnataka. In line with the Government of India policy, these companies will be given Preferential Market Access for ESDM products procured by all state government departments.

Infrastructure support In order to achieve its target, the state government has also rolled out a series of initiatives ranging from infrastructure development, branding and training, fiscal measures, capital subsidies and other capacity building measures. All these steps are geared to make the state a preferred location for electronics hardware manufacturing. 64

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ESDM innovation centres: Karnataka has proposed setting up three ESDM innovation centres that will provide complete infrastructure to entrepreneurs and companies who want to take their product concept and implement a working prototype. Such innovation centres will have all the requisite facilities such as VLSI design tools, prototype development facilities, testing facilities, characterisation labs, compliance and certification labs, along with the requisite manpower and component stocks. The first such centre is to be set up at IIIT-Bengaluru, with subsequent centres coming up in other parts of the state. Hardware Parks: A dedicated Hardware Park near Kempegowda International Airport and a dedicated area for electronics hardware units in the IT Investment Region are on the anvil. The policy has also provided an impetus to full-fledged testing centres and for the development of solar farms. Electronics hardware manufacturing hubs: It is proposed to set up seven ESDM Manufacturing Clusters (EMC) in the state by 2020 on a PPP model. These EMCs are to provide internal and external infrastructure, inclusive of advanced logistics, shared testing and training facilities. The state will provide funding support of upto 20 percent of the total infrastructure cost. The EMCs will be designed based on the latest international standards of town and country planning, and will be environment-friendly with a proper segregated disposal mechanism and landscaped lung space. The hubs have been planned in different corridors across the state. While the hub for semiconductors, alternative/solar energy, aerospace, medical electronics and embedded systems is to come up in the Bengaluru–Tumakuru belt, the one for manufacture of electronics components, plastics, metal fabrication and electronics manufacturing services has been planned for west Karnataka, in the Shivamogga-Hassan belt. In North Karnataka (Hubbali-Dharwad corridor), the plan is to establish a


Electronics Hardware base for automotive electronics, high-tech machining and hightech tooling, and a manufacturing base for medical electronics and computer peripherals in the Mysuru-Nanjangud corridor of the old Mysore region. Transport: The state government will take the necessary measures to increase the number of trains and aircraft operating to and from major cities of Karnataka to facilitate better movement of goods and passengers. The plan includes the development of complementary infrastructure such as roads, railways, etc., to ensure proper connectivity between the cluster and the nearest airport, seaport or railway stations.

Karnataka Semiconductor Venture Capital Fund To boost the creation of Fables Design companies and semiconductor IP, which is a core need for the ESDM sector, the state government launched an investment vehicle in fiscal year 2014-15. Called Karnataka Semiconductor Venture Capital Fund (KARSEMVEN Fund), it has a total fund size of `96.15 crore ($14.4 million approximately). The fund had achieved an initial closing of `50 crore ($7.5 million approximately) in the year of launch. It has reportedly invested in two companies, namely Graphene Semiconductor Services and Prodigy Technovations. The fund’s mandate is to provide funding to Karnataka ESDM companies for their start-up, growth and debt/working capital needs over the next seven years. This fund will work closely with the ICT Innovation Fund and will be jointly funded by the Government of Karnataka, Government of India and other publicprivate financial institutions. The Government of Karnataka's contribution shall be limited to 26 percent of the fund size. The main investment objective of the fund is to promote Karnataka as a semiconductor design hub. Nearly 70 percent of

the country’s chip designers work here and around 80 percent of the sector’s revenues in design are from Bengaluru alone. The target is also to attract investments in high-tech semiconductor manufacturing and promote generation and use of green energy – specifically solar energy.

Marketing Brand Karnataka globally As part of its efforts of making Karnataka the most preferred location for investments in the electronics hardware space, the state is also working on marketing efforts to attract global investors. As part of the brand building initiatives, the state has proposed to work with the central Ministry of External Affairs to conduct road shows for ambassadors of various countries in New Delhi, sign MoUs with identified sister cities in other countries, and engage with the top 50 ESDM companies in the world to proactively invite investments into the state. Incentives for ESDM companies expanding globally: In order to assist Karnataka's ESDM companies in their international market expansion plans, the state is offering reimbursements of 50 percent of the actual costs (including travel) incurred in international marketing, sales promotion, trade show participation, webinars, market research and other similar activities. This reimbursement will be subject to a maximum of `10 lakh ($15 thousand approximately) per year per company.

Financial incentives §§ Capital subsidy: Karnataka will provide up to 10 percent capital subsidy or `5 crore ($751 thousand approximately), whichever is lower, to Karnataka ESDM companies (both for ESDM manufacturing as well as R&D units). It will be given to the first two anchor units in each Greenfield Cluster. §§ Export incentives: In order to be competitive in the global markets and enable ESDM companies’ forays abroad for Make in Karnataka |

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Electronics Hardware

Cumulative FDI inflows to the electronics sector (US$ billion) (FY16)

0.8

0.89

FY 10

FY 11

1.16

1.19

FY 12

FY 13

1.34

FY 14

1.49

FY 15

1.64

FY 16

Source: Department of Industrial Policy and Promotion; TechSci Research Notes: FDI - Foriegn Direct Investment; FY - India Financial Year (April-March)

exports, the state has proposed a duty drawback scheme in respect of state taxes that do not get refunded to the exporting units in the normal course. §§ Deemed export incentives (for domestic sales): For sales within Karnataka, the ESDM units will be eligible for an incentive in the form of an interest-free loan against the eligible gross VAT under the Industrial Policy 2009 – 14. For domestic sales outside Karnataka (inter-state sales), the state will reimburse 95 percent of central sales tax, till GST is implemented, paid by the eligible units during the first five years of operations.

The best innovations in the sector will be selected by the Screening Committee, comprising industry and academia representatives. Incentives for Patents and IPR: According to the ESDM policy statement, high-value-added manufacturing requires the creation of IPR, which needs to be protected in the form of patents, both in India as well as abroad. The state government is actively encouraging this so that Karnataka becomes a leader in IPR and knowledge economy, which in turn will result in significant commercial success. The target is to file 3,000 domestic and 2,000 international patents by Karnataka ESDM companies by 2020. The government will reimburse up to 50 percent of the actual costs (including filing fees, attorney fees, search fees and maintenance fees) with a maximum of `1 lakh ($1,500 approximately) for filing a domestic patent and up to `5 lakh ($7,500 approximately) for filing an international patent. This reimbursement is payable 75 percent after the patent is filed, with the balance being released after the patent has been granted. These incentives are additional to any existing national scheme.

Promoting innovation and incentivising research

R&D grant: Similarly, to encourage R&D investments in ESDM and create a culture of innovation and IPR, the state government will award grants in the form of reimbursement equalling up to 20 percent of the actual R&D expenses (including manpower costs) incurred annually by Karnataka ESDM companies, subject to a maximum of 2 percent of their annual turnover. The R&D grant shall be subject to a maximum of `1 lakh ($1,500 approximately) per company per year and will be in addition to any similar benefits announced by the Government of India.

The most critical part of the EDSM space is that it is very knowledge intensive. So, the government has decided to create an environment conducive for innovation and invention by way of awarding grants and protecting intellectual property.

With a slew of incentives offered by the state government, Karnataka is set to build upon its advantages and surge ahead in the electronics hardware sector.

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Heavy Engineering & Precision Tools Growing demand

Bengaluru contributes 60 percent of India’s precision tools production. Make in Karnataka |

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Heavy Engineering & Precision Tools The global machinery and capital goods industry is projected to reach `133 lakh crore ($2 trillion approximately) in 2018. As an export-driven industry, the Indian engineering sector is gearing up to increase its share of the markets. In fiscal year 2016, engineering exports from India stood at `3.91 lakh crore ($58.8 billion approximately). Engineering exports include capital goods, transport equipment, and light engineering products such as castings, fasteners, and forgers. Between 2008 and 2016, the industry has been growing at a CAGR of 7.2 percent. The largest export market for Indian engineering are the US and Europe, which account for over 60 percent of the total exports. India’s engineering exports to Japan and South Korea have also increased in recent times, by 16 and 60 percent, respectively. Sri Lanka, Nepal and Bangladesh have also emerged as major destinations for India’s engineering exports during April-February 2015-16, together accounting for a sizeable chunk of `34,391 crore ($5.17 billion approximately). The Union Budget 2016-17 had announced that the duty drawback scheme has been widened and deepened to include more products and countries in the export basket. The Indian engineering industry is divided into heavy engineering and light engineering. Heavy engineering consists mainly of capital goods, including precision tools, construction and mining machinery, textile machinery and other heavy industrial machinery like cement, rubber, chemical, printing, oil field equipment, and material handling equipment, among others. Due to its close integration with other industry segments, India’s engineering sector is of strategic importance. Complete delicensing, coupled with an allowance of 100 percent FDI and a budgetary push towards infrastructure development have opened a floodgate of opportunities for this sector. In keeping with the Make in India programme, the central government has relaxed excise duties on factory gate tax, consumer durables, capital goods and vehicles in order to boost manufacturing. It 68

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Karnataka is known for its prowess in innovation and engineering capabilities, including software and heavy engineering.

has also reduced the basic customs duty from 10 percent to 5 percent on forged steel rings used in the manufacture of bearings of wind-operated electricity generators. The Engineering Export Promotion Council (EEPC) has been mandated to promote Indian engineering goods in the global market. Additionally, the opening up of defence manufacturing to both domestic and foreign private players has given a boost to investments. The withdrawal of excise and customs duty exemptions granted to goods manufactured and supplied to the defence ministry by state-owned defence firms is expected to create a level playing field. These steps are seen as measures that will encourage participation of foreign OEMs such as Boeing, Airbus, Lockheed Martin, BAE Systems and others The cumulative FDI into the sector between April 2000 and March 2016 stood at `1.87 lakh crore ($28.1 billion approximately). The


Heavy Engineering & Precision Tools turnover for the sector is projected to be `8.3 lakh crore ($124.77 billion approximately) in fiscal year 2017. The growth is expected to come from capacity additions in infrastructure at home, aerospace, automobile, telecommunications and nuclear sectors globally.

robust network of engineering colleges. Traditionally, the state has been a centre for public sector undertakings in the manufacturing space, which today collaborate with global players as well as medium scale enterprises to create the relevant ecosystem.

Karnataka is among the top three performers when it comes to heavy engineering. With a CAGR of 17.50 percent, this sector is the fastest growing in the state. The state exported engineering goods worth `23,282 crore ($3.5 billion approximately) to markets in Brazil, China, USA, Malaysia, Thailand, Singapore, Germany, South Korea and South Africa, which constituted 7 percent of total exports from the state, valued at `3.13 lakh crore ($47.1 billion approximately) for 2014-15. During the April to September period of 2015, the state’s exports stood at `1.28 lakh crore ($19.3 billion approximately), of which engineering goods had a share of 13.42 percent.

The Karnataka Industrial Policy 2014-15 had prioritised industrial growth with heavy engineering as one of the focus sectors. According to the Economic Survey of Karnataka 2015-16, the GSDP at constant (2011-12) prices is expected to grow 6.2 percent and reach `7.81 lakh crore ($117.4 billion approximately) in 201516 from `7.35 lakh crore ($110.5 billion approximately) in 2014-15. Of this, industrial output is expected to have a share of 24 percent.

As the R&D capital of the country, Karnataka is one of the largest global technology hubs. It is known for its prowess in innovation and engineering capabilities, including software and heavy engineering. It also has a steady availability of skilled manpower, thanks to a

Some of the reasons that make the state a frontrunner for investments in the engineering sector are: §§ Karnataka has a land bank of 90,000 acres, out of which 40,000 acres are earmarked for industrial purposes. §§ It has high capability in manufacturing high-value products. It is one of the top five states which produce more special purpose machinery than general purpose machinery. §§ The state capital Bengaluru is easily accessible by road, rail, land and air. It is proximal to other industrial hubs like Chennai, Pune and Hyderabad. §§ An ecosystem for knowledge-based industries such as IT, bio-technology and engineering. The state has 367 R&D centres, a large number of industrial training institutes and the third largest number of engineering colleges in the country. §§ With good weather, cosmopolitan lifestyle, inclusive culture, and a non-unionised work culture, Bengaluru has also been ranked as the ‘Best place to live and work’ by Global HR consultancy Mercer.

Initiatives and policies Source: Sector Profile - Heavy Engineering & Machine Tools, Karnataka Udyog Mitra

Making heavy engineering a key focus sector, the Industrial Policy Make in Karnataka |

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Heavy Engineering & Precision Tools of 2014-19 provided for a Single Window Clearance system to facilitate new investments. It proposed to establish new industrial corridors to boost growth in the following regions: §§ Bengaluru-Mandya-Mysuru-Chamrajanagar §§ Chitradurga-Ballari-Kalaburagi-Bidar §§ Dharwad-Koppal-Raichuru §§ Bengaluru-Hassan-Mysuru §§ Tumakuru-Shivamogga-Honnavar §§ Raichuru-Bagalkot-Belagavi Dharwad and Tumakuru have been identified as nodes in the Bengaluru-Mumbai economic corridor and the Chennai-Bengaluru industrial corridor, respectively. The state has been divided into industrial zones with location-based incentives on offer to ensure inclusive and balanced growth in the sector. There are plans to establish industrial areas on a PPP model. The policy also offered a slew of financial concessions: §§ Exemption from entry tax §§ Interest free loan availability §§ Exemption from payment of electricity tariff to ultra-mega and super-mega projects §§ Exemption from stamp duty §§ Reimbursement of land conversion fee

PRECISION TOOLS INDUSTRY The precision tools industry is one of the sub-sectors of heavy engineering. It churns out the basic machinery for use in railways, electrical equipment, automobiles, defence equipment and industrial machinery. With a growth rate of 12 percent, this sector in India is one of the top gainers globally. Bengaluru alone contributes 60 percent of the country’s precision tools production, with an estimated value of `2,208.4 crore ($332 million approximately). India stands 13th in production and 10th in consumption of precision tools. Nationally, exports of precision tools were valued at `300 crore ($45.1 million approximately), out of a total turnover of `4,803 crore ($722 million approximately). The industry in India has about a thousand units in the production of machine tools, accessories/attachments, subsystems and parts. Of these, around 25 operate on a large scale and account for about 70 percent of the turnover. The rest are in the MSME sector. Approximately 75 percent of the Indian machine tool producers are ISO-certified. Nearly 200 precision tool manufacturers are operational in the organised sector. The large organised players cater to India’s heavy and medium industries, while the smallscale sector meets the demand of ancillary and other units. Many machine tool manufacturers have also obtained CE Marking certification, in keeping with the requirements of the European markets. There are more than a hundred private sector units, situated mostly in Delhi, Coimbatore, Ludhiana, Pune, Bengaluru, Chennai, Kolkata, Mumbai, Satara and Amritsar.

§§ Concessional registration charges §§ Investment subsidy §§ Subsidy for setting up Energy Effluent Treatment Plant §§ Interest subsidy for water harvesting, technology upgradation §§ Reimbursement of cost of preparing project reports 70

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The industry can be segmented in several ways: Forming Cutting (Source: http://www.imtma.in)

CNC `126 crore `3,756 crore

Conventional `381 crore `462 crore


Heavy Engineering & Precision Tools The industry has seen a growth rate of 5 percent in exports from `281 crore ($42.2 million approximately) during 2014-15 to `296 crore ($44.5 million approximately) during 2015-16. Production grew 12 percent to `4,727 crore ($710.6 million approximately) during 2015-16 from `4,230 crore ($636 million approximately) in 2014-15. Indian Machine Tool Industry 2014-15 & 2015-16 (` crore) Production Exports Imports Consumption

2014-15 4,230 281 5,318 9,267

2015-16 4,727 296 5,945 10,376

Growth Rate 12% 5% 12% 12%

(Source: http://www.imtma.in)

With the demand from the capital goods sector (especially automobile and textile industries) projected to remain high, precision tools have a growth opportunity in the near future. The sector is known for higher productivity, superior precision and accuracy, and low-cost manufacturing solutions. Experts foresee a growing demand for CNC (computer numerical controlled) precision tools. However, the industry lacks design and engineering capability to take up high precision CNC work. This is mainly due to technology gaps in metal cutting and metal forming tools. To bridge this gap, both the government and private players are putting together a host of R&D initiatives and importing relevant technology. The range of precision tools now being manufactured in India covers items such as lathes, drilling machines, gear bobbers and gear shapers, boring machines, clothing machines, unit head power hammers, mechanical and hydraulic presses, welding machines, furnaces, rolling mills, and more. India’s first integrated machines tool park is to be set up in Tumakuru in Karnataka across 300 acres by the Indian Precision

Karnataka is among the top three performers when it comes to heavy engineering, which is also the fastest growing sector in the state.

Tools Manufacturing Association. The state government is keen to develop a Free Trade Warehousing Zone (FTWZ) for the engineering sector through the PPP model. A joint establishment of the Advanced Machine Tool Testing Facility, a state-of-the-art equipment facility at the Central Manufacturing Technology Institute by precision tool industry, Government of India and Department of Industrial Policy and Promotions has been instrumental in harnessing and developing the sector in Karnataka. About 28 percent of the precision tools companies in India is located in Karnataka, with Bengaluru as the base. Maharashtra is the next major centre, and the other hubs are New Delhi, Tamil Nadu, Punjab, Andhra Pradesh, Haryana and Gujarat. With a proposed precision tool park in Vasanthanarasapura, and several units in Peenya Industrial Estate, Bommasandra Industrial Estate in Bengaluru and more in Belagavi, Karnataka is the number one state when it comes to precision tools manufacturing. The industry caters to the engineering, watch, electronic, automobile and aerospace industries, with aerospace occupying a major chunk. Some of the leading players in the state are Goodrich, Titan, Nasmyth India and Dynamic Technologies. Such incentives are bound to ensure that Karnataka consolidates its position as a leader in the sector of heavy engineering and the sub-sector of precision tools. Make in Karnataka |

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Manufacturing & Startups Boosting local growth

The VISIQ is an ultrasound machine made in India by Philips India and exported across the world.


Manufacturing & Startups The launch of the Make in India initiative in 2014 and the National Manufacturing Policy gave a much-needed fillip to the manufacturing sector, which had stagnated after the global slowdown of 2007-08. Attracted by the incentives offered, more and more manufacturing giants are lining up to ‘sell anywhere, but make in India’. The Government of India received proposals of more than `1.2 lakh crore ($18 billion approximately) and companies such as GE, Siemens, HTC, Toshiba, Alstom, Foxconn and others are setting up manufacturing plants in the country. The manufacturing sector grew at a staggering rate of 9.3 percent in 2016, which drove the GDP growth rate to a record high of 7.6 percent. According to a report by the United Nations, India is projected to grow at a rate of 7.7 percent in 2017, making it the fastest growing large developing economy. The Make in India campaign has also attracted hardware-based technology startups. The government announced the Startup India campaign and the Startup Action Plan in 2015, which aim to

encourage startups in areas other than software. According to the startup analytics firm Tracxn, 207 hardware-based startups were founded in India in 2014-15, and total funding in hardware-led startups added up to `953.6 crore ($143.3 million approximately) in that period. Karnataka has been a benchmark for manufacturing and industrial activity in the country. While the public sector thrived here in the immediate post-Independence years, small and medium industrial units contributed significantly to the GSDP in the subsequent years. The sector was hit by the global slowdown and has since been on a path to recovery, contributing 14.6 percent to the GSDP in 2016. At the Invest Karnataka Meet in February 2016, the state bagged proposals worth `1.3 lakh crore ($19.5 billion approximately). At the Make in India Week held in Mumbai later that month, Karnataka received investment commitments worth `10,000 crore ($1.5 billion approximately), including a proposal from French company Tar Kovacs Systems Group, to establish an ocean-based renewable energy project. Other major proposals included Global Mode & Accessories, who proposed to set up a garment manufacturing unit, and one by First Solar to manufacture solar cells. A slew of government policies had played a defining role in orchestrating the state’s resurgence as a force to be reckoned with in the manufacturing sector. Karnataka has ambitious plans in play for the sector to grow at 12 percent CAGR over the next decade and regain its ranking of the 1980s and 1990s.

Ather Energy is a startup that makes electric smart scooters.

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The Karnataka Manufacturing Taskforce (MTF) was set up in 2013 to develop a vision and strategise the growth of the sector. The MTF submitted its report later that year and recommended steps to boost manufacturing that would make Karnataka a preferred destination for Indian and international investors. It believes that Karnataka has all the necessary fundamentals in place - economic, political, resources and skills that are needed to


Manufacturing & Startups Most of the above recommendations were accepted in the Karnataka Industrial Policy 2014-19 (KIP 2014 – 2019), which has the following objectives: §§ To maintain an industrial growth rate of 12 percent per year §§ To enhance the contribution of the manufacturing sector to the GSDP from the present level of 16.87 percent to 20 percent by the end of the policy period §§ To attract investment of `5 lakh crore ($75.2 billion approximately) §§ To create 15 lakh employment opportunities Source: Grant Thornton & Assocham: Startups India: An Overview, 2016

convert it into a manufacturing powerhouse within a decade.

MTF’s suggestions The recommendations suggested by MTF had three basic objectives: §§ Raise the manufacturing sector’s share of the GSDP to 25 percent by 2025 from 17.9 percent recorded in 2012 §§ Create 1.5 crore incremental employment within the stipulated period §§ Ensure balanced and inclusive growth across Karnataka Essentially, achieving this would require a CAGR of 12 percent every year till 2025, as against a CAGR of 7.8 percent noted between 2005 and 2012. The MTF had also forecast that the manufacturing sector would invest about `12.5 lakh crore ($188 billion approximately) and generate output worth `3.75 lakh crore ($56.4 billion approximately) by 2025. This would conservatively add around `2.5 lakh crore ($37.6 billion approximately) to the state exchequer through taxes till 2025, besides providing for a host of other secondary benefits.

§§ To create an environment to enhance ease of doing business in the state To pave the way for such optimistic, forward-looking projections, a number of reforms concerning large-scale, medium-scale, and small-scale enterprises across various industrial sectors have been announced. National Investment and Manufacturing Zones (NIMZs) will be developed, which are likely to fulfill the critical need of moving manufacturing bases away from Bengaluru, incentivising industry to set up new units, encouraging small and medium-scale enterprises (SMEs), and granting financial concessions to very large projects. The policy has been formulated to boost industrial growth rates and revenues as well as make the cost of living for labour affordable, thereby improving the standards of living in the state in the long run. Within this period of five years (2014-2019), the policy has sought to bring about sweeping changes across different sectors in the manufacturing sector. Besides aligning with the recommendations of the Karnataka Manufacturing Taskforce 2025, the policy has also been aligned with the objectives and goals of the National Manufacturing Policy (NMP). The explicit objective of the NMP was accelerated development, inclusive growth and provision of gainful Make in Karnataka |

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Manufacturing & Startups employment. The NMP aims at increasing the share of manufacturing in the GDP to 25 percent by 2025 and creating 100 million jobs.

Development of NIMZs To begin with, Tumakuru, Bidar, Kolar and Kalaburagi districts have been chosen as locations for NIMZs. This involves setting up integrated industrial townships with state-of-the-art infrastructure, skills development facilities and land-use plans based on zoning. The NIMZs are to be developed through Special Purpose Vehicles (SPVs) according to the guidelines of the NMP. The state government would support these SPVs through equity participation, but the economic support input had a ceiling of `500 crore ($75.2 million approximately) per NIMZ. Small and large manufacturers would operate together in NIMZs. This setup would allow for easy collaboration between businesses within a strong value chain, help reduce costs and lead time, achieve economies of scale and encourage technology transfer. To decongest Bengaluru and promote other areas through industrial development, potential areas are to be selected as Special Investment Regions (SIRs). Mysuru, Mangaluru, Hassan, Bagalkote, Vijayapura, Raichur, Koppal and Ballari are to be developed as industrial nodes. Industry observers believe that creating townships alongside these centres is likely to help in checking the unbridled rise in land prices.

Incentivising new enterprises One of the remedial measures suggested by most industry and trade bodies has been to make the business environment in the state friendlier to entrepreneurs. Karnataka is no stranger to new enterprises, being the breeding ground of the IT revolution in the country. An existing IT ecosystem encouraged the development of software and tech startups, which earned Bengaluru the moniker 76

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Cooey is a startup: a health monitoring IOT platform that collects (device), stores, analyses and provides insights into a patient’s vital signs. It has a wireless body fat analyser, a blood pressure monitor and a Smart Glucometer.

of startup capital of India; the city ranked 15th among the top 20 locations in the world to launch a startup by the Global Startup Ecosystem Ranking System. The government aims to encourage entrepreneurs to look beyond software and focus on other product sectors. The Karnataka Industrial Policy has sought to incentivise new industrial units, cut the industry application fees by 50 percent and make the Single Window Clearance Mechanism more effective to improve ease of doing business. A comprehensive study for the simplification of regulatory procedures will be done by the government to reduce time and cost of compliance with bureaucratic procedures for industrial investments. All regulatory and statutory approvals required for project clearances are to be covered in the study. Along with this, the state has introduced a Startup Policy in 2016 with the specific aim to create at least 6,000 product startups and stimulate growth of 20,000 technology startups. The state plans to do this through the following mechanisms: §§ Setting up a fund of funds: The government plans to mobilise a `2,000 crore ($300 million approximately) Fund


Manufacturing & Startups

Another startup, MangoMan Consumer Electronics makes Teewe, an HDMI dongle. Ezetap makes card readers that enable a smartphone to become a mobile point of sale solution.

of Funds, which effectively means that the government will invest in venture funds which, in turn, will invest in startups. There is a provision to disburse a part of this Fund of Funds during the angel stage itself. An investment committee that will include government officials, and industry and academic experts with sector-specific domain knowledge will be set up to decide such investment. §§ Technology for social good: The government aims to facilitate the generation of 25 innovative technology solutions with an impact on sectors like healthcare, food security, clean environment and universal education, among other objectives. Ideally, it would like funded startups to provide workable and scalable solutions to some of the challenges the government faces. The government has even planned to incentivise its approach by identifying five challenges each year, and the winners will automatically be eligible to utilise the incubation space that the government will be facilitating in various ways. The identification of the challenges will be decided by a panel consisting of representatives of government,

subject specialists and non-governmental organisations. §§ New Age Incubation Network (NAIN): A NAIN is to be created involving engineering colleges, professional and postgraduate institutions in tier-2 cities in a phased manner. The aim is to set up incubators in at least 50 academic institutions, wherein students would take up projects. Performance levels would be rewarded by way of grants for supporting operational expenses, as well as annual financial support of `3 lakh ($4,500 approximately) per project. The students would also have the added incentive of interning with some of the startup companies. §§ Startup Cell: To help entrepreneurs wade through the maze of administrative matters relating to the setting up of a startup, the government has started a Startup Cell which will assist them in registration as per the norms of The Factories Act, The Maternity Benefit Act, The Karnataka Shops and Commercial Establishments Act, the Contract Labour (Regulations and Abolition) Act, The Payment of Wages Act, the Minimum Wages Act, and the Employment Exchanges (Compulsory Notification of Vacancies) Act, as well as the law governing the safety of women employed by startups working in the night. Make in Karnataka |

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Manufacturing & Startups The government introduced a ‘Startup Booster Kit’ in 2016, which is a collection of necessary software tools and services, such as cloud, virtual telephony, debugging and online payment, available at a special price tailor-made to cater to the needs of young startups. The government has partnered with IBM, Amazon, Microsoft, Ozonetel, Airtel, Vodafone, CanvasFlip, HeadSpin and other tech giants to provide these services. The startup cell witnessed a record 600 registrations within a week of the announcement of the booster kit.

Encouraging SMEs SMEs have a huge impact on socio-economic development. SMEs contribute 8 percent to the country’s GDP, 45 percent to the manufacturing sector, and 40 percent to exports. They provide employment to over 80 million youth. As an acknowledgement of this critical segment of industrial activity, the KIP has set aside a minimum of 20 percent of allocable land to develop SMEs. The state is reported to have a land bank of 40,000 acres. It has proposed to develop Rural Industrial Areas exclusively for SMEs in industrial corridors. Infrastructure facilities like road connectivity, drainage system, street lighting and water supply systems are also to be developed. To make it easier for SMEs to kick-start operations, the KIP has proposed to create a venture capital fund to support startup enterprises, especially in the micro and small sectors. It has proposed to set up angel funding schemes to encourage firstgeneration entrepreneurs to set up micro and small industries in the state, based on innovative ideas. The government has decided to incentivise commercial and rural banks to provide easy loans to small industries under their clusterbased approach. Quality-improvement interventions by SMEs - like upgrading existing technologies and installing new technologies for quality control, cleaner and environment-friendly production, quality 78

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Inoho’s ‘home controller’ allows users to access and control home appliances from anywhere in the world, via the internet.

testing and fee paid for quality certifications - are eligible for a onetime subsidy through reimbursement of actual costs. Technology development centres are to be set up in each of the four NIMZs; they will help in passing on technical knowhow to the micro and small industries. The state will offer aid to SMEs to participate in international trade fairs/exhibitions and give support to market themselves on international platforms. Government departments have been mandated to make purchases from micro and small enterprises within Karnataka at a price preference of 15 percent against the products of large and medium players. Finally, to make operations easy and hassle-free, the state has evolved a mechanism to reduce inspections of SMEs by various departments and push for self-certification. Alongside these, the procedure for submission of returns under various labour laws is expected to be streamlined further, with improved coordination


Manufacturing & Startups between the Labour Department and SMEs.

Financial concessions for large players Provisions have been made for certain financial incentives and concessions for large, mega, ultra-mega and super-mega enterprises. Some noteworthy ones are given below: §§ Exemption from stamp duty and concessional registration charges. §§ Reimbursement of land-conversion fee and exemption from Entry Tax. §§ Interest-free loan to large, mega, ultra-mega and super-mega enterprises on net VAT and CST. In the past, Karnataka has spearheaded the growth of industries, particularly in the areas of electrical and electronics, information & communication technology (ICT), biotechnology, and, more recently, nanotechnology. It has also been home to a robust aerospace industry with a significant number of ancillary units feeding into the large sector. This has been made possible by the industrial structure of the state that allows for the coexistence of modern hightech capital goods and knowledge-intensive industries with traditional consumer goods industries – both characterised by the presence of major multi-billion-dollar MNCs and large Indian conglomerates, both private and public. Make in Karnataka |

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Aerospace & Defence

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Aerospace Defence Putting Science to&Work

Your Partner Delivering

INNOVATIVE Scientific Solutions

Discovery Capabilities

Development Capabilities

Manufacturing Capabilities

Chemistry

Drug Substance (DS)

Clinical and commercial supplies

Biology

Drug Product (DP)

of innovative molecules

Integrated Drug Discovery

Integrated DS-DP

Biologics and small molecules

Therapeutic Antibody Discovery & Engineering

Pre-Clinical & Clinical Bioprocess Development & Characterization

Bioinformatics ,

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Aerospace & Defence

IT PARK, SHIVAMOGGA

YOUR FUTURE

IS MADE HERE KEONICS IS OFFERING LAND FOR JOINT VENTURES/PPP AND WORK SPACE FOR IT COMPANIES/STARTUPS IN THE FOLLOWING CITIES OF KARNATAKA

Karnataka State Electronics Development Corporation Limited (KEONICS), your perfect partner in IT infrastructure invites you to Karnataka, a land of opportunities. First ever Electronics City in Asia was established by KEONICS in Bengaluru. KEONICS is committed to support business entrepreneurs by providing land and of�ice space at business friendly locations. Visit www.keonics.com for more details.

MYSURU

SHIVAMOGGA

MANGALURU

Land: 2.76 Acres Location: KIADB Indl area, Hebbal, Mysuru (Opposite to INFOSYS campus)

Land: 36 Acres in IT SEZ park, 2 Kms from proposed Airport Office Space: 6000 Sft in Ground floor in Shivamogga IT park

Land: 3.25 Acres of land Location: Blue Berry Hills, Dorebail, Opp to A.J.Hospital, Mangaluru

Karnataka State Electronics Development Corporation Limited (A Government of Karnataka Enterprise)

For more details contact Sri Kanthraj 9686201930

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We are Proud to Make in Karnataka and contribute to Make in India TOYOTA KIRLOSKAR MOTOR PVT. LTD. Plot No 1, Bidadi Industrial Area Bidadi, Ramanagara District - 562 109, Karnataka, India. Tel: +91 080 6629 2929 Fax: +91 080 27287076 www.toyotabharat.com  

TOYOTA INDUSTRIES ENGINE INDIA PVT. LTD. Plot No: 9, Phase II, Jigani Indl Area, Jigani, BANGALORE - 560 105 Karnataka, India. Tel: +91 8110 424000 Fax: +91 8110 424001 http//tiei.toyota-industries.com  

TOYOTA KIRLOSKAR AUTO PARTS PVT. LTD. Plot No # 21, Bidadi Industrial Area,  Bidadi, Ramanagara District - 562 109, Karnataka, India. www.tkap.com  

KIRLOSKAR TOYOTA TEXTILE MACHINERY PVT. LTD Head Office & Factory: Plot No. 10-13, Phase II, Jigani Industrial Area, Jigani, Bangalore - 560 105 INDIA. Tel: +91 8110419555 Fax : +91 8110419519 KTTM E-mail: raghavendra.m©kttm.toyota-industries.com; anandakumarbgd©kttm.toyota-industries.com Branch details: Coimbatore Branch: Tel No.: +91 422-2223183 E-mail: kttmcbe@kttm.toyota-industries.com Guntur Branch: Tel No.: +91 863-2230005 E-mail: kttmgnt©kttm.toyota-industries.com Mumbai Branch: Tel No.: +91 226798863/64 E-mail: kttmbom©kttm.toyota-industries.com Delhi Branch: Tel No.: +91 11 25513302 E-mail: kttmdel@kttm.toyota-industries.com


Best wishes from

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