The Indian electronics industry has pinned its hopes on the Union Budget 2018-19, and expects positive announcements from Finance Minister Arun Jaitley. The notification from the Ministry of Finance, which hiked the customs duty on imported electronic items in December 2017, is a ray of hope for this industry. However, manufacturers now expect a lot more, and are not prepared to settle for just one positive pre-budget announcement.
By Abid Hasan
The Indian electronics industry has welcomed the move to hike the customs duty on imported electronic products, which is expected to give a much needed boost to local manufacturing. Yet, the electronics industry has more expectations from the finance ministry with respect to the upcoming budget.
Last year, the Narendra Modi led government also raised the budget allocations for electronics manufacturers. In order to position India as a global manufacturing hub, the government increased the allocation to programmes such as the Modified Special Incentive Package Scheme (MSIPS) and the Electronics Development Fund to ₹ 7.45 billion.
Boosting local manufacturing
N.K. Mohapatra, CEO, ESSCI (Electronics Sector Skills Council of India) is pretty sure local manufacturing will pick up. Talking to Electronics Bazaar, he says that the government is well aware of how to go about achieving this.
Mohapatra says, “I believe there are various ways of doing this. One option is to put duty barriers on imported products. Imported electronic products should have higher duties and not zero duties. This will make local manufacturing attractive; otherwise, imports will be cheaper and everyone will shy away from local manufacturing. That is what is happening today, making it easy for all the Chinese products to enter India.”
Industry experts feel that India is capable of establishing a good manufacturing base, but this can only happen if there is a duty structure that discourages imports.
Mohapatra also urges the industry to act mature and not ask the government for subsidies for everything. “Industry should forget about subsidies and be prepared to compete if it wants to grow,” he says.
This will be the fourth Union budget of the BJP led government, and the electronics industry has huge expectations from it. Last year didn’t go too well for the players in this industry.
The president of the Manufacturers’ Association of Information Technology (MAIT), Nitin Kunkolienker says, “Industry expects the rationalisation of GST rates. The finance minister has constantly said that he will bring down the GST rates. We are also expecting that there will be a merger of two to three GST rates for our industry.”
Make in India, but when?
The government’s ‘Make in India’ programme has been backed by massive promotion over the years. It has also created a debate among different sectors in the country. In the Indian electronics industry, everyone welcomes this programme and the idea of local manufacturing, but the fact remains that imports of electronic products have always been high in recent years.
The chairman of the India Electronics and Semiconductor Association (IESA), Ashwini K. Aggarwal, feels the Make in India drive should be intensified and that there should be continuity in improving the ease of doing business.
He says, “Proactive defence electronics, an appropriate duty structure to promote local manufacturing and restricting imports from FTA (Free Trade Agreement) countries with suspect value addition will play a significant role in the Indian electronics industry.”
Sharing his thoughts on the ease of doing business, Aggarwal adds, “The government needs to refresh the National Policy on Electronics 2.0 for the upcoming plan period.”
He points out that if the government enables competitive TAT (turn around time) and operational efficiencies as benchmarked against leading Asian countries such as Singapore, Taiwan, China and Korea, it will act as a major boost for the Indian electronics industry.
The industry has high hopes from the upcoming Union Budget, and it can be recalled that last year in his budget speech, the finance minister had said, “We are also creating an ecosystem to make India a global hub for electronics manufacturers. Over 250 investment proposals for electronics manufacturing have been received in the last two years, totalling an investment of ₹ 1260 billion.”
Industry association ELCINA was disappointed last year with the FM’s budget and is hoping for better support this year. Pankaj Gulati, president, ELCINA urges: “The Goods and Services Tax should be used as a tool to benefit the manufacturers bound by the ITA agreement.” He also seeks the imposition of duty on those technology and telecommunication products that fall outside the purview of the Information Technology Agreement (ITA-1) signed by India in 1996-97. “Such a move will boost domestic IT and telecommunications equipment manufacturing in the country,” Gulati adds.
ELCINA is lobbying for GST rationalisation and customs duty on goods not covered under ITA-1 to enable value added electronics manufacturing in India to take off.
In the second week of December 2017, the electronics, IT and telecommunications industry delegates representing ELCINA, MAIT, NASSCOM and TEMA, covering the hardware and software sectors, approached the government. They pointed out that considering some recent protectionist and discriminatory policies followed by other countries, the IT-ESDM sector will need the government’s help at the policy level to ensure Indian industry is able to combat visa restriction issues, as well as safeguard India’s economic interests. This was reported officially by the Ministry of Finance.
Shyam Sujan, general secretary, Electric Lamp and Component Manufacturers Association of India (ELCOMA), feels positive about the upcoming budget and believes the government is working on the association’s requests on taxation and duties. The government’s decision to increase the import duty on finished goods (in LED lighting) by 20 per cent will help to establish manufacturing in India.
Sujan says, “We were quite disturbed with the entry of unauthorised finished products into the market. So we requested the government (which has been quite helpful) and it decided in favour of the industry; we are happy with that. Our second request is that the GST on LEDs should be reduced to 6 per cent, as these are the most energy-efficient products. Besides, three years back, we reduced their price from ₹ 475 to less than ₹ 100. We want to make LEDs very affordable. We also want to make sure that incandescent lamps, which are still selling in fairly large quantities, should be replaced by LEDs.”
A muscular market
The Indian electronics market is poised for growth and is expected to reach US$ 400 billion in 2022 from US$ 69.6 billion in 2012. The market is projected to grow at a compound annual growth rate (CAGR) of 24.4 per cent during 2012-2020. Total production of electronics hardware goods in India is estimated to reach US$ 104 billion by 2020.
It’ll be unfair on the government’s part if this industry doesn’t get the proper attention during this Union Budget. Over the years, the Indian government has set up Electronics Hardware Technology Parks (EHTPs), Special Economic Zones (SEZs) and brought about a favourable climate for foreign direct investment (FDI). It has also increased liberalisation and relaxed tariffs to promote growth in the sector. In addition, the government gave its green signal to the Modified Special Incentive Package Scheme (MSIPS), under which the central government will be offering up to US$ 1.7 billion in benefits to the electronics sector in the next five years.
The growing customer base and the increased market penetration of consumer durables have provided enough scope for the growth of the Indian electronics sector. Also, digitisation of cable TV could lead to increased broadband penetration in the country and open up new avenues for companies in the electronics industry. With all these factors in mind, the industry expects the upcoming Union Budget to bring cheer to the electronics industry, and especially to local manufacturers.
