Union Budget: Saptarishi For The Electronics Industry Too?

Key features of Budget 2023-24 announced by Finance Minister Nirmala Sitharaman on
1st February this year are highlighted below, along with the reactions from the industry

Presenting the Union Budget this year, when Finance Minister Nirmala Sitharaman announced the adoption of Saptarishi (seven priorities) to guide India through the Amrit Kaal, all of the electronics industry was hoping for a helping hand too. And why not? The electronics and tech markets are still reeling under the Covid-19 pandemic-induced downfall.

Hence, the government’s decision to eliminate import duty on the camera lens and components was taken in good stead, as it will benefit mobile phone manufacturers in India. Electronic Industries Association of India (ELCINA) believes that such exemption should be extended to all other electronic product segments that use camera modules and electronic components.

Highlights

But before going into the nitty-gritty of it, let’s come back to square one and look at the major points of the Economic Survey and Union Budget 2023-24, with an eye on the Electronics System Design & Manufacturing (ESDM) sector:

• Globally, India is the 5th largest economy, and its per capita income has increased by over 2x in the last five years to ₹197,000.
• The domestic electronics industry, as of FY20, is valued at US$118 billion. India aims to reach US$300 billion worth of electronics manufacturing and US$ 120 billion in exports by FY26.
• The major drivers of growth in this industry are mobile phones, consumer electronics, and industrial electronics. India has become the second-largest mobile phone manufacturer globally, with the production of handsets going up from 60 million units in FY15 to 310 million units in FY22.
• ₹350 billion priority capital has been assigned for clean energy transition. The minister announced an outlay of ₹197 billion for the recently launched National Green Hydrogen Mission, with a target of 500MMT (million metric tonnes) of green hydrogen by 2030.
• Transportation and logistics received a major push with an outlay of ₹2,400 billion for railways and announcements for 50 additional airports, helipads, water aero drones, etc.

•  Pushing for a reduced digital divide, labs for 5G applications, classrooms, precision farming, and healthcare applications will be set up, and the scope of Digilocker will be expanded.
• Receiving a significant fillip after the lockdown, phase 3 of E-courts projects is to be launched with an outlay of ₹70 billion.
• This year, three Centres of Excellence for AI, and other advanced emerging technologies will be set up.
• The Budget also touched upon the aspect of skill development in Industry 4.0, robotics, drones, and related industries.
• The government reduced the basic customs duty (BCD) on certain parts, such as camera lenses, while concessional duty will continue on lithium-ion cells for another year.
• Agriculture Accelerator fund to be set up for encouraging innovative startups to bring affordable rural ideas to fruition.

Changes to be noted

• Substitution/Amendment in Tariff Heading 8517–Information Technology Agreement, 1996–motivated in Supporting Manufacturing of Electronics.
• Expansion in the scope of Tariff Heading 8524: Separate tariff items have been added for flat panel display modules for certain categories of ADPM, mobile phones, television sets/LCDs, and residual categories for others.
• The scope of exemption expanded to include capital goods used for manufacturing the batteries for electrically operated vehicles.
• Reduction in the customs duty rate on components used in the manufacture of open cell of TV panels.
• Reduction in effective customs duty on the camera lens and sub-parts/inputs used in the manufacture of mobile phone camera modules.

Positive steps

The industry associations have welcomed the following steps announced in the Budget:

1. Removal of duty of camera lens of 2.75%
2.  Removal of duty on inputs to parts of connectors—palladium tetra amine sulphate
3. Reduction of BCD on parts of the open cell of the TV panel from 5.5% to 2.75% (including SWS)
4. Continuation of customs exemption notifications, which were facing the sunset on the 31st of March 2023, for another year
5. Customs duty exemption for the import of machinery required for the manufacture of lithium-ion cells for batteries used in EVs
6. Reduction of BCD on specific parts used in the manufacturing of television sets to 2.5%
7. Reclassification in HS Codes 8517 and 8524 for flat panel display inputs
8. Relief on customs duty on import of certain parts used in the manufacturing of mobile phones
9. Rectification of inverted duty structure to encourage manufacturing of electric kitchen chimneys

Gaps

Notwithstanding the beneficial steps announced on February 1, the Budget left many long-standing demands unfulfilled, despite repeated requests put up by industry bodies and individual companies.

According to the Chairman of India Cellular & Electronics Association, Pankaj Mohindroo, “A high-performing sector’s genuine requests have not been addressed. These could have provided a significant impact on competitiveness leading to better exports, arresting the grey market and boosting revenue.” He pointed out the below-mentioned issues:

1. Capping of BCD on import of high-end mobile phones could have arrested the burgeoning smuggled market, which has crossed ₹120 billion, in 2023. This measure would have boosted government revenue, reduced smuggling, ensured fair trade, and helped build legal businesses in India.
2. Removal of input duties on Resin, Mesh, Sponge, Film, Gasket, Logo, Cover Tape, and Adhesive Tape from 8.25% – 16.5% to zero level was essential to promote the manufacturing of a very critical vertical—Mechanics. But the Budget didn’t provide the needed relief in this direction.
3. Input duties of 2.75%, the duty imposed in the previous Budget on the many inputs of PCBA, inputs of connector, and inputs of camera module were not removed.
4. Removal of duty on certain parts of the chargers would have provided the huge charger manufacturing industry with a competitive edge.
5. The 50% increase in GST from 12% to 18% has dealt a very cruel hand to this high-performing industry, which kept the nation’s economy moving during the Covid pandemic.

ICEA opined that while the industry had met the 2021-22 manufacturing target of ₹2,750 billion, we will fall short of the manufacturing target of FY 2022-23 because of domestic demand shrinking in 2022-23. Mohindroo added that, competitiveness is the key to both buoyant domestic demand and export.

In a post-Budget session conducted by ELCINA, long-term and enhanced support for components manufacturing under PLI and the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) was recommended. The association also stated that the EMS sector must be included under the SPECS scheme to provide subsidies against capital investments, as it will hopefully give the required thrust to value addition and boost electronics manufacturing in all segments.

Some industry players suggested bringing Service Linked Incentive Schemes, on the lines of Production Linked Incentive (PLI) Schemes, to improve the workflow. Going forward, deeper digital and Internet of Things (IoT) penetration and the ever-increasing impetus on smart cities and robotics will boost the industrial and automated electronics sector in Industry 4.0. Also, the PLI scheme is expected to assist more domestic players to achieve economies of scale in production through localising. In turn, it will magnify India’s role in the global value chain and enhance export competitiveness. What remains to be seen, though, is the effective implementation of the initiatives announced for India’s Amrit Kaal.

Vaishali Yadav, a journalist at EFY, muses upon clouds, security, sustainability, integration, smartness, machines and learning—both trivially and technologically