By Nitasha Chawla
The Union Budget 2012-13 has once again failed to live up to the expectations of the electronics industry. While the Finance Minister, Pranab Mukherjee, announced certain exemptions in customs and excise duty, industry feels that, overall, the Budget will not offer the much needed growth impetus to the electronics hardware industry, as was expected this year.
“The Budget this year has been quite disappointing and we do not find any strategic recommendations for the electronics manufacturing industry. Excise duty and service tax have both been increased without providing any commensurate relief to the industry,” states Rajoo Goel, secretary general, ELCINA (Electronic Industries Association of India).
This disappointment is sharply felt because barely a month before the presentation of the Budget, Union Minister for Human Resource Development, as well as Communications and IT, Kapil Sibal, said the government had prepared ‘a multi-pronged approach’ for the electronics hardware sector. The minister had promised to establish an Electronics Product Development Fund with an eventual corpus of Rs 100 billion, a National Electronics Mission, and a National Electronics Board to oversee the implementation of the new policies. However, the Budget does not indicate that any of
these measures are likely to be implemented within the next financial year.
Says Sandeep Nair, president and managing director, Emerson Network Power, “With an increase in the excise duty, the required stimulus for growth has been curtailed and would be inflationary. This puts pressure on the already slow manufacturing sector. The goods and services tax (GST) and direct tax code (DTC) reforms have still not been aggressively pursued by the government as expected by the industry. Overall, it is not a growth inducing Budget.”
No relief for solar industry
The sops announced for the solar energy sector came as a major disappointment to PV players. The Budget has announced concessions and exemptions for energy saving devices, and for the plant and equipment needed for only solar thermal projects, ignoring the PV industry which comprises almost 100 per cent of the solar energy market in India. Domestic manufacturers of solar PV cells and modules have been lobbying since a long time for exemption of all duties on raw materials and the imposition of import duty on foreign finished PV cells and modules. This would have brought down the input costs, but sadly the exemption is only for the solar thermal projects.
Sharing his disappointment, K Subramanya, CEO, Tata BP Solar, says, “The Budget is pro-imports and anti-domestic. It does not boost the solar
manufacturing sector. As a result, solar manufacturing investments in India will take a backseat, and might even lead to loss of jobs. This also makes further investments in manufacturing almost impossible. It seems that the government has not heard the woes of the industry.”
LED sector: Confusion over excise reduction
This time, the Budget has on the one hand ‘reduced’ the excise duty on LED lamps and LEDs to 6 per cent, with full exemption of special additional duty (SAD) on LEDs. On the other hand, it has raised the standard rate of excise duty from 10 per cent to 12 per cent.
Avnish Jauhari, business head, lighting, MIRC Electronics Ltd, rightly puts it, “The Budget is confusing! We were already paying 5.15 per cent excise duty. Then how has it been ‘reduced’ to 6 per cent? We are trying to understand this aspect from the excise department. Going by the existing rate of duty, 6 per cent is an increase and not a reduction. Because of this confusion, we are already facing a problem in the factory. We do not know how much to charge on the products being developed.”
Shares Gulshan Aghi, executive president and chief executive officer, Surya Roshini, “The Budget is not pro-LED at all. It has actually increased excise duty from 5.15 per cent to 6 per cent on LED lamps. Considering the situation of acute energy shortages in this country, the government could have introduced better policies with this Budget to boost the LED sector, as LED products can save energy. LED chips are imported from different parts of the world. This is
where the government could have pitched in and reduced the duties. Removal of SAD is a small effort towards the promotion of the LED sector.”
The confusion has been slightly cleared by K Vijay Kumar Gupta, CEO, Kwality Photonics P Ltd, “There is no reduction in the excise duty. In fact, it has been increased from 5.15 per cent to 6 per cent. They have mentioned the term ‘reduction’ as they have reduced it from the standard 12 per cent to 6 per cent. Earlier, the standard rate was around 10 per cent and they were giving a 50 per cent concession for LEDs, which made it around 5 per cent. The concession remains the same. They have now increased the standard rate to 12 per cent, 50 per cent of which is 6 per cent. The reduction in SAD will impact domestic production adversely and this goes against the electronics policy of the government, which talks about promoting domestic production. Reducing SAD is like reducing the protection for Indian manufacturing,” he says.
The Budget has also offered full exemption from basic customs duty on LEDs and LCD panels. However, the spoiler is that fully exempting LED and LCD panels from basic customs duty will have little effect, since already there is no custom duty for imports from Japan and Korea—countries from where major brands like LG, Samsung, Panasonic and Videocon largely get their TV panels. The Budget has also levied upon these products an inflated excise duty. As a result, the existing prices of LED/LCD TVs will shoot up by 2-3 per cent.
A mixed bag for MSMEs
For the MSME sector, the Budget is a mixed bag. While it was generous to the larger units in the MSME sector by introducing the India Opportunities Venture
Fund (IOVF), for the bulk of the micro segment, it has little substance other than a regulatory ease offered by extending the limit of mandatory audit from Rs 6 million to Rs 10 million.
In order to enhance the availability of equity to the MSME sector, Pranab Mukherjee announced a proposal to set up the Rs 50 billion IOVF with SIDBI.
However, industry experts feel that the Budget seems to have taken away the benefits from the larger MSME segment, by proposing to restrict investments in MSMEs by imposing a tax at the rate of 30 per cent on any investment received by closely held companies, where the aggregate investment exceeds the fair market value of shares.
With the objective of promoting the market access of MSMEs, the government has also approved a policy that will require ministries and central public sector enterprises (CPSEs) to make a minimum of 20 per cent of their annual purchases from MSMEs. Of this, 4 per cent will be earmarked for procurement from MSMEs owned by SC/ST entrepreneurs.
Handsets: Focus on domestic manufacturing
With an aim to boost manufacturing of mobile phones in India, the Budget proposes to exempt memory card parts for mobile phones from basic excise duty.
However, since most of the handsets in India are imported, the prices of most devices would not be impacted. But there are several entry level or feature phones being assembled in India, which are likely to benefit from this move by the government.
A reduction in excise duty on parts of mobile phones, from 10 per cent to 2 per cent (only in cases where no central VAT credit is taken by the manufacturer) was announced. Also, parts of memory cards will be exempted from basic customs, countervailing and SAD.
“The exemption of mobile phone parts from basic custom duties will bring down the manufacturing cost of mobile phones, and will aid in deeper penetration of mobile phones into the untapped parts of the Indian market,” says Pradeep Jain, managing director, Karbonn Mobiles.
Adds SN Rai, co-founder and director, Lava International, “Deduction of 200 per cent tax liability on expenditure made in R&D will boost home grown handset companies and the generation of Indian intellectual property. Companies like Lava can now invest on R&D as income tax deductions have increased from 150 per cent to 200 per cent.”
Excise duty on lithium ion batteries reduced
In addition to the full exemption from basic customs duty, the excise duty on lithium ion battery packs for electric vehicles or hybrid vehicles was reduced to 6
per cent from 10 per cent. The excise duty on specified parts of hybrid vehicles also got reduced to 6 per cent from 10 per cent. This will help the industry to achieve better cost efficiencies. Reduction in taxes and duties for hybrid and electric vehicle components is a positive step for this nascent industry.
Semiconductor sector disappointed
As PVG Menon, president, India Semiconductor Association, says, “We would have liked to see some initiatives being announced for the promotion of the domestic electronics design and manufacturing (ESDM) industry, which has a potential to grow to US$ 400 billion by 2020.”
With barely two months left for mandatory digitisation of the cable industry, the industry was expecting some relief from the government in terms of taxation, setting up infrastructure, and reduced customs duty to encourage domestic manufacturing of set top boxes (STBs). There is now an increase in excise duty and service taxes that will straight away affect the end consumer in terms of the rise in STB prices.
(With inputs from Diksha P Gupta on the LED sector)