Recommends the measures that the new government must ensure attracting investments and growth of ESDM Sector in India
ELCINA, the largest and oldest industry association representing the electronic components and equipment manufacturing industry in the country since 1967, welcomes the clear mandate given by the electorate of India which would enable unhindered implementation of important national policies. Vigorous policy implementation for development and efficient application of resources is required to boost growth of agriculture and industrial sectors and raise the share of industry in our GDP to 35% and that of manufacturing from 16 to 25%. ELCINA is committed to support the new leadership to successfully implement its promise of making India a global manufacturing hub and provide good governance, the plank on which they have been given the mandate by the people of India.
Domestic markets continue to grow at a brisk pace fuelling the very high dependence on imports. Less than 30% electronic components and raw materials required for local equipment manufacturing are available from domestic sources. Even this 30% domestic share, has high import content. For semiconductors, there is almost 100% dependence on imports. In this scenario, the market forecast of a US$ 300 Billion import bill for electronics by 2020 is likely to become a reality.
The Finance Ministry has invited recommendations from Industry Associations for the Union Budget for 2014-15 for consideration of the new government which is expected to push for economic reforms in its fiscal policy. There is a welcome realization in the Finance Ministry that inverted duty structure and cost disabilities are hampering the growth of domestic manufacturing of Electronics. All the raw materials and piece parts going into electronic components and electronic assemblies when imported as inputs for manufacturing, must be brought to 0% import duty so that local manufacturing can be enabled.
Delay in implementation of this recommendation of ELCINA is one of the factors which has resulted in continuation of large scale imports which are expected to exceed Oil imports before 2020.
The New Electronics Policy announced in 2012 (NPE 2012) is the result of exhaustive discussions, research and inputs from all stakeholders. It provides a comprehensive policy and roadmap for revitalizing the Electronic Systems Design & Manufacturing (ESDM) Sector. ELCINA believes that policy implementation needs the backing of an empowered organization for which the National Electronics Mission (NEM) had been conceptualized within the NPE 2012. Establishment of the NEM has been inordinately delayed. Establishing the NEM with a single point agenda of implementation the NPE in letter and spirit can bring desired results from the NPE and enable us to address the serious challenge of soaring imports.
The Union Cabinet’s approval for setting up of two Semi-conductor chip fabrication facilities in the country with huge financial support is a pragmatic decision and has the potential to kick start the ESDM sector. Many developed countries which lead in electronics have provided financial incentives to semiconductor fabs in the past establishing them successfully and catalysed expansion of ESDM sector as well as technological excellence in their countries.
Under the scenario explained above, ELCINA recommends the following measures that the new government must ensure attracting investments and growth of ESDM Sector in India:
- High Domestic Taxes and anomalies therein cause Fiscal Disabilities with very high indirect taxes. 12% GST (8% Excise + 4% VAT) across the board should be made applicable for electronics value chain.GST, an excellent reform measure for economic growth is pending because of controversy of revenue sharing between the Centre and State Governments. ELCINA recommends quick implementation of GST.
- Cascading impact of CST on components and electronic assemblies is detrimental for domestic manufacturing. This tax is a manufacturing sin as it is not imposed on imports. While the CST rate is 2%, the impact on the value chain is 5-6% due to its cascading effect.
- Inverted Duties due to Dual Use of Inputs such as Plastics, Copper, Aluminium, etc continue to plague hardware manufacturers. Though specific inputs are covered under Customs Notification 25/99, the procedure for claiming this benefit is extremely cumbersome and time taking and continues to be so inspite of repeated pleas by ELCINA.
An anomaly in the above procedure is that while importers of electronic components, assemblies and equipment are allowed import duty exemption (under ITA-1) without the need to follow procedural formalities, indigenous manufacturers have to comply with complex excise procedures involving inordinate delays. Simplification of import procedure for actual users (manufacturers) and a self declaration system is one reform which can accelerate domestic manufacturing and reduce avoidable imports.
- Compared to competing nations such as China, Taiwan, Korea and others, high cost of Finance, Power and Logistics/ Regulatory and Procedural problems in India add to disabilities typically estimated at 8-10% for components.
- However, if we consider the entire value chain of electronics equipment, from basic raw materials to finished equipment, the disability is estimated in excess of 18% due to finance cost. This discourages capital intensive, high value add investments in manufacturing which require high and long term investments necessitating a supportive fiscal and infrastructural environment.
In order to provide low cost financing it is recommended that ESDM Sector is notified for priority sector lending. ELCINA proposes that a 5% interest subsidy should be provided for electronics manufacturing units.
- Under a zero duty regime, there is no difference between exports or domestic sales which are made in competition with imports at zero duty. The industry has been requesting for recognition of this parity. In this context the DTA Sales of ITA-1/Zero duty electronics products manufactured in the country need to be given the status of physical exports and extended all benefits of export schemes. Revival of Income Tax benefits similar to those under Section 10A and 10B is another step which can incentivize electronics manufacturing.
- Special Policy package is required for high value added manufacturing required for raw materials and components which form the building blocks of electronics manufacturing/ESDM Sector. Present policy caters to electronics manufacturing in general and is more suitable for equipment manufacturing/assembly activity. For eg. PCBs and raw materials used for electronics manufacturing, need a special dispensation as they require very high investment, access to technology and pollution control measures.
- As a step to encourage local manufacturing, India needs to dissuade import of complete assembled PCB Assemblies which form the core of BOM of electronic equipment. A 5% Customs Duty should be imposed on fully assembled PCB Boards being imported so that there is an incentive to assemble them locally and this would also drive demand for local components.
ELCINA would like to highlight that the National Policy for Electronics has been conceived over the last four years after much thought, deliberations and analysis by all stakeholders. There is no doubt that thorough implementation of this Policy will bring immense success for the ESDM industry and growth of manufacturing. We trust that the new government will endorse the NPE 2012 and facilitate its implementation with urgency. We must not dither or hesitate, as this will wipe out the gains garnered assiduously with persistent, diligent hard work by all stakeholders.
