A fine balancing act

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By Vivek Ratnakar

President Pratibha Patil, in her address to the Parliament in June 2009, had declared this decade as the ‘decade of innovation’. Thus, it was anticipated that the Union Budget 2010 will live up to this expectation and set the ball rolling for innovation and development in electronics, which is among India’s sunrising industries. Although, Opposition might have preferrered walkout to register its ‘anger’ over the budget, the electronics industry has welcomed it, calling it a well balanced and responsible budget given the present circumstances when the electronics industry is on the recovery path and expects accelerated double digit growth in the next few years.

Some of the electronics segments benefiting from the 2010 Budget include solar power, research and development and energy efficient lighting sector and mobile accessories.

According to K Srinivasan, secretary, ELCINA, the Budget has tried to address the issue of high inflation facing the country while also trying not to constrain growth, which is critical to meet the aspirations of people.

“The current Budget is a well balanced Budget. With regards to the semiconductor industry, it is a welcome step with a focus on financial inclusion, solar semiconductors, research and development and further enabling the use of smart cards and identification technologies at various levels,” said Ashok Chandak, senior director, global sales and marketing, NXP Semiconductors.

The Department of IT has recently estimated that demand for electronics hardware would soar from $45 billion today to $125 billion in 2014 and further to $400 billion in 2020. This would result in a massive import bill of $300 billion by 2020.

However, the Budget failed to address this issue, which could provide a great opportunity for domestic manufacturing, but could turn into a threat if left without a clear policy direction.

Bonanza for solar power sector

The budget has increased the plan outlay for the Ministry of New and Renewable Energy (MNRE) by 61 per cent from Rs 620 crore in 2009-10 to Rs 1,000 crore in 2010-11. Besides, a concessional customs duty of 5 per cent to machinery, instruments, equipment and appliances required for the initial setting up of photovoltaic and solar thermal power generating units has been extended. The sector has also been exempted from the Central Excise duty.

These steps are expected to reduce the cost of setting up solar panels from 20 per cent to 15 per cent, making solar system manufacturing an affordable venture. For consumers, it will mean that around 300-400 million Indian homes, which have no access to power, may be able to use solar electricity in the next few years.

Sunil Wadhwa, CEO, NDPL, which launched its first solar rooftop project for power consumers last year, said, “This is a commendable step by the government as it will boost solar generation in the capital. The waivers will reduce overall expense of generating solar energy. This will have a long term cascading effect as more demand for solar panels will lead to further reduction in costs.”

Restoration of the 100 per cent accelerated deprecation for solar energy projects is another such step that can help promote use of solar energy. Lastly, extension of long term loans at 2.5 per cent to industry and individuals investing in solar energy applications will be a step forward in promoting enterpreneurship in the sector.

Boost to R&D

A National Clean Energy Fund for funding research and innovative projects in clean energy technologies has also been proposed in the Union Budget. To further encourage R&D across all sectors of the economy, the government has enhanced the weighted deduction on expenditure incurred on in-house R&D from 150 per cent to 200 per cent. The weighted deduction on payments made to national level laboratories, research associations, colleges, universities and other institutions, for scientific research from 125 per cent to 175 per cent has also been enhanced. The income of the approved scientific research association has been exempted from tax.

“Deduction on inhouse R&D has been increased to 200 per cent from 150 per cent, which will definitely help put back focus on R&D. Going forward it will play an important role in driving nation building initiatives across sectors,” said Ajai Chowdhry, CEO and chairman, HCL Infosystems Limited. Currently, any payment made to an approved scientific research association is eligible for weighted deduction. The income of the approved scientific research association is exempt from tax.

Deepa Doraiswamy, South Asia & Middle East program manager, Frost & Sullivan, said, “The government has been emphasising on local innovation and this was apparent through certain measures announced in this Budget.” This shall influence companies to invest more in research and new product development and pave way for more outsourced R&D activities to flow into the country. Since the electronics industry is one of the R&D intense segments, this favorable increase in deduction for R&D is expected to be appreciated, however, it would have been even more welcome if the government had allowed higher weighted deduction for amounts incurred in excess of base amounts spent in R&D in the previous year.

Energy efficient lighting sector

According to Finance Minister, LED lights are staging a debut as a highly energy efficient source of lighting for streets, homes and offices. Central Excise duty on these has been reduced from 8 per cent to 4 per cent at par with compact fluorescent lamps.

Srinivasan has appreciated the reduction in excise duty on LED lighting. “It is an industry which needs urgent attention and encouragement from the government. However, there is some ambiguity on whether this reduction is applicable to the LED components which we aspire to manufacture. In addition, some essential inputs for manufacturing electronic components have been included in the zero duty import list for actual users. This was strongly recommended by ELCINA.”

Mobile chargers

The Union Budget 2010 has also responded positively to the industry’s request on manufacturing of parts and accessories of mobile handsets in India. The Budget proposes to remove the 24 per cent import duty on components/raw material imported for manufacture of batteries, chargers and other part and accessories. This stimulus will help bring more investment to the country and encourage domestic manufacture of parts and accessories.

Full exemption from customs, CVD as well as SAD has been extended to parts for the mobile phone chargers and hands free headphones. According to Srinivasan, this will discourage development of local value chain and the industry will remain dependent on imports due to total exemption from Excise Duty. Local parts for chargers and hands free headphones would cost more as they are manufactured from inputs (plastics, copper, metals) which are subject to tax.

However, Nokia, one of the leading manufacturers of mobile phones in India, believes that these moves are extremely encouraging to the category, and will help catalyse India’s emergence as a global telecom manufacturing hub.

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