New Delhi: IT/Electronics is today a key-leveraging factor in building a nation’s productivity and efficiency and a prime mover and enabler for new technology development and for improving quality of life.
Strategic importance of electronics hardware has potential to contribute to GDP and enhance value addition in sectors like entertainment, defence, agriculture and aerospace. India has lagged far behind its Asian peers in exploiting the opportunity thrown up by growth in electronics, to create employment significantly.
Electronic hardware, if tapped, can enhance value addition across sectors: entertainment, defence, agriculture and aerospace
In 2006-07, demand for electronics hardware was estimated at $30 billion against which supply was $16billion. This gap grew steadily because rate of growth in demand (25%+) constantly outpaced growth in domestic production. Demand drivers are strong and this gap can turn unmanageable if domestic production does not keep pace. Import of electronics contributes to over 25% of the country’s trade deficit.
According to a forecast by ISA-Frost & Sullivan’s Report, market for all electronic products and equipment would reach an astronomical $320 billion by 2015, against which potential for local manufacturing could be $155 billion. This would contribute a significant 12% of GDP, possibly provide employment to 21 million people (directly and indirectly) and generate revenue of about $56 billion (Rs224,000 crore) including direct and indirect taxes for exchequer. In comparison, present total employment is less than 2 million and revenue is less than Rs15,000 crore
The Government recently announced a semiconductor policy which aims to promote manufacture of ICs and hi-tech products. Though it is a positive step to promote investments in this high-end segment of electronics, it may be a case of too little too late.
It fails to address problems faced by bulk of electronics sector which comprises mainstream technology products like consumer electronics, power electronics, defence and entertainment in which we have domain knowledge and expertise. It does not impact severe disabilities faced by manufacturers of components and parts for these products such as connectors, relays, switches, cables, resistors, capacitors, ferrites, transformers, coils, components for TVs and radios, crystals, batteries and PCBs.
* Government to consider measures for manufacturers that encourage investments in electronic components/ assemblies and products facing nil customs duties
*Investment incentives similar to those provided for semiconductors to enable industry to move ahead
* Make corrections in tax structure, similar to those for cellphones and computers which have yielded encouraging results and eliminate all cascading taxes
*Simplify procedures and open self declaration based green channels, at least for players who have an established track record
* Help create a vibrant eco-system and value chain; countries like China, Malaysia, Taiwan, Korea realized their potential and took extraordinary steps to establish their industry; unless government has the will to take similar steps, the electronics harware opportunity will be lost
* Policy and structural support to be provided to the extent of 7-8% to high value add manufacturing (over 30%) if real manufacturing is to flourish
* Have zero CST across value chain: CST is a major impediment and this has to be eliminated immediately. It has a cascading effect and should be abolished completely on all electronic components, assemblies, and inputs (atleast upto the final equipment stage) to ensure there is no negative protection against electronics hardware manufacturers
* Income tax rebate to be based on value addition: This would encourage high value addition manufacturing and long term investments; IT rebate to be equivalent to 5% of value addition or 50% of payable Income Tax, whichever is lower; reinstating benefits under Section 80HHC of Income Tax for export income would help global competitiveness
* Have no differentiation between components for IT and non-IT segments
*Allow supplies of all electronics / IT hardware manufactured in the EOU / EHTP / SEZ units to DTA units to be counted towards fulfillment of positive NFE condition
* For electronic components (high value addition) allow DTA sale (from EHTPs) @ 50% excise duty + retention of 50% ED as special/ development fund for 5 years
* Customs duty on all inputs for electronics/IT hardware to be brought down to 0%
* Electronic components attracting 10% duty, for consideration of their survival should be left untouched
* Finished products and sub-assemblies in TV Value Chain to be kept at peak customs duty with some differential for parts and components to encourage manufacturing
* Simplify cumbersome procedures for imports and allow all manufacturers to work under a green channel for all their essential inputs
* Reduce excise duty throughout value chain: Have an 8% excise duty for all inputs used in manufacture of electronic components and through the chain and:
-12% on all finished equipment and sub-assemblies
- 12% on components/ parts of components and specific inputs (end-user based) as well as all capital goods
- 16% on basic materials and dual use materials
- VAT @4% for all electronics – across value chain; VAT on all electronic components, assemblies and sub-assemblies be levied at a uniform rate of 4% .
* Encourage all large corporations to use minimum 30-40% local inputs, either through fiscal incentives or through mandatory requirements under a phased manufacturing programme
* Cellular network: BSNL has made a similar condition mandatory for global suppliers for its recent tender for a large number of lines for its cellular network; this should be a requirement for all Central and State government purchases.