Budget 2020 promises support for the electronics industry, but ignores telecom

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By: Nijhum Rudra

Budget 2020 has evinced a mixed response from the industry. While most policies have been welcomed, the general sense is of a Budget that lacks bold moves and could have done better. There are some who are pleased with the new announcements, while others are not so happy.

With the Indian economy facing the lowest GDP growth in six years, Finance Minister Nirmala Sitharaman presented the Union Budget for the second time after the NDA returned to power. The finance minister stated that the Budget is centered on achieving seamless delivery of services through digital governance, to improve the quality of life of Indian citizens via a national infrastructure pipeline, and offer social security through pension and insurance penetration.

Most importantly, the Budget is based on three important themes. The first is aspirational India, which seeks to give all sections of the society higher standards of living, with access to health, education and better jobs. The second theme is economic development for all, underscored in the PM’s call for ‘Sabka saath, sabka vikas, sabka vishwas’, and the third is a caring society that is both humane and compassionate. These three themes will be backed by corruption-free, policy-driven good governance, and a transparent financial sector.

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The Budget has allocated ₹ 273 billion for development, and to promote industry and commerce in 2020-21. An investment clearance cell will be set up to provide ‘end to end’ facilitation. It is proposed that five new smart cities will be developed in collaboration with the respective states on a PPP basis. A scheme to encourage the manufacture of mobile phones, electronic equipment and semiconductor packaging is also proposed.

Deepak Tiwari, a practicing chartered accountant who spoke to Electronics Bazaar exclusively says, “The Indian economy is in bad shape right now and the government acknowledging this is the first positive move towards solving the looming economic crisis in our country. This was made clear with the corporate tax rate cut, which was a major step towards reviving the economy.”
According to various tax experts, the Union Budget 2020-21 does not shoot for the stars, but is focused more on the groundwork required to improve the economy.

“The budget primarily focuses on a holistic growth approach; the expectations have been kept at a relatively moderate level and more effort has been put into resolving the difficulties faced on the ground, in order to revive the economy,” adds Tiwari.

Impact of the Budget on particular sectors

Telecom
Experts from the debt-ridden telecom sector expressed their utter disappointment in the Budget as it failed to address the bad loan scenario of telecom companies, which are now under pressure to return to the banks dues amounting to approximately ₹ 1.47 trillion. According to PTI, in the current fiscal year (2020-21), the government has more than doubled its revenue estimate from the debt-ridden telecom sector to ₹ 1.33 trillion, mainly on account of levies derived from adjusted gross revenue (AGR).

What the experts in the telecom industry say
“The Budget has emphasised the importance of creating a robust digital infrastructure. Increasing connectivity across the country will provide greater opportunities to telecom operators and drive higher data offtake—especially in rural areas. The revised estimate (RE) of non-tax revenues from communication services for FY2020 stood at ₹ 589.90 billion, which is 17 per cent higher than the Budget estimate (BE) of ₹ 505.20 billion and is higher than our estimates. The BE for FY2021 stands at ₹ 1.33 trillion, 125 per cent higher than the RE for FY2020. Despite the deferral of spectrum payments due in FY2021 and FY2022, the higher BE for FY2021 can be attributable to some participation in 5G spectrum auctions and the expectation of payments of AGR-related dues.”
—Ankit Jain, assistant VP, corporate ratings, ICRA Ltd

“While the Union Budget has laid major emphasis on boosting domestic manufacturing of network products, mobile phones, electronic equipment, semiconductors and healthcare products, and has allocated ₹ 273 billion for the development of industry and commerce by 2021, it is disappointing that there were no announcements made regarding the rationalisation of levies and taxes currently imposed on the severely distressed telecom sector. The telecom infrastructure has not been taken into consideration and that is what is going to build the country. It is also disappointing to note that telecom was not given an infrastructure status even though a slew of crucial reforms have been announced on infrastructure. The telecom sector, which is the backbone of the country’s economy, did not receive significant support.”
—Rajan S. Mathews, DG, COAI

Electronics manufacturing
As the demand for electronics, both industrial and consumer products, is on the rise in India, the government has launched several schemes and initiatives to promote the industry. Since the last Budget, the finance minister has been introducing new schemes to attract manufacturers from different countries to commence operations in India. Hence, Indian electronics manufacturers and SMEs feel they have been neglected and none of the policies implemented will promote their companies. In this Budget, the FM has announced new schemes to promote manufacturing of mobile phones, electronic components and semiconductor units. She added that the nation needs to manufacture network products domestically and become part of the global value chain.

What the experts in the electronics industry say:
The Union Budget 2020-21 will boost the country’s development in the coming years, under the ‘Aspirational India’, ‘Economic Development for All’ and ‘A Caring Society’ themes. Measures such as lowering of income tax rates will lead to more savings in the hands of taxpayers, which will in turn increase consumption, spurring growth in the consumer durables category. The government has also addressed the liquidity crisis of the NBFCs, which will mean more inflow of capital. This will restart the lending cycle, which will help to put more cash in the hands of the consumers, thereby reviving demand. Focusing on its ‘Make in India’ policy, the new scheme announced for promoting electronics manufacturing, electronic components and semiconductor units will provide the much-needed impetus to the sector. It will create an ecosystem for local manufacturing to improve India’s exports and bring in large investments into the country.
—Dinesh Chhabra, CEO, Usha International

The Union Budget 2020 takes a pragmatic approach to spur sustainable growth by maintaining a focus on core aspects of the economy. It’s a progressive budget that lays thrust on the sectors that will enable India’s economic growth. We are excited to know that the government aims to make India a manufacturing destination for mobile phones, electronic components and semiconductors, and we keenly look forward to a detailed policy for the sector as it can pave the way to making India a major semiconductor hub in the coming years. We also welcome the Budget allocation of ₹ 80 billion for quantum computing, which can open up a lot of new opportunities and commercial applications in the future.
—Sanjay Gupta, VP and India country manager, NXP Semiconductors

Budget 2020 has been drafted around the key themes of talent, technology, entrepreneurship and sustainability, and we applaud the Centre’s efforts in boosting the economy. The finance minister has maintained a focus on tourism by announcing that iconic destinations will be connected by ‘corporate’ trains like Tejas; and the plan to develop five archaeological sites into iconic destinations. Five new smart cities have also been proposed and Barco looks forward to partnering with the government in this direction.
—Rajiv Bhalla, MD, Barco India

We welcome the steps taken by the government in the Union Budget towards boosting electronic manufacturing in the country. The electronics industry has huge potential, both in terms of manufacturing in India and job creation, and will provide a major impetus for growth. This will further enhance the export of networked products. Another important step is the further push provided by the government to its smart cities mission. It aims to create 100 cities with state-of-art infrastructure that includes intelligent lighting and Wi-Fi access points, leading to an enhanced quality of life for every citizen, while building efficient living spaces for future generations. As a company, Syska has been striving towards developing technology-driven, energy-efficient and affordable solutions that positively impact the lives of our customers. With India heading towards mass urbanisation, we are aligned towards promoting sustainability, enhancing social development and creating new employment opportunities through rapid digital innovations.
—Rajesh Uttamchandani, director, Syska Group

The Union Budget 2020 has provided enormous opportunities for companies looking to set up manufacturing facilities in the country. Additionally, the Budget also lays emphasis on making every district of the country an export hub, with the government allocating ₹ 273 billion for the development and promotion of industry and commerce in 2020-21. This initiative will enable Indian companies to develop the infrastructure and manufacturing capabilities required to build products that can be exported. We also welcome the government’s commitment towards boosting emerging technologies such as the Internet of Things, artificial intelligence, machine learning, analytics and creating a sustainable environment to combat climate change.
—Bishan Jain, director, Goldmedal Electricals

The removal of the dividend distribution tax will reassure international investors and kickstart the flow of FDI, by making Indian equities more attractive. This year’s Budget focuses on entrepreneurship and early stage startups, and the FM has provided a series of measures that will encourage them—it positions entrepreneurs as job creators. The overall focus on boosting the transport infrastructure will help enable the greater commercialisation of highways to raise finances for operating road assets. Recent developments to promote digital payments such as zero MDR are pre-Budget announcements and there was an expectation of a clear roadmap from the government on supporting a digital payments infrastructure, given that the sector will be a major catalyst to achieving the US$ 5 trillion target.

—Dr Keshab Panda, CEO and MD, L&T Technology Services

From the perspective of the engineering and technology services industry that thrives on innovation, the government’s move to revitalise the IP filing and protection process is a welcome step. Additionally, the thrust on quantum computing as a key focus area promises to further consolidate India’s position in the global digital transformation landscape. The announcement of the proposal to set up data centres is also a step in the right direction in terms of acknowledging the importance of data and data analytics.

Overall, the Budget puts the role of technology in the limelight spanning across all the three focus areas—aspirational India, economic development and a caring society.
—Sanjay Sudhakaran, VP, digital energy, Greater India Zone at Schneider Electric

Electric vehicles
The automobiles sector is a key area that has been reported to be undergoing static growth over the past one year. To boost this segment the government has announced a slew of new features. Let’s have a look at them.

  • Imported electric vehicles are set to become costlier as Finance Minister Sitharaman has announced an increase in customs duty on various types of such vehicles, with the government promoting local production.
  • To promote local manufacturing in the EV segment, the government has increased the custom duty on imported completely built units (CBUs) of commercial EVs to 40 per cent with effect from April 1, 2020, from 25 per cent currently.
  • It proposes to hike custom duty on SKD forms of electric buses, trucks and two-wheelers to 25 per cent from 15 per cent currently, with effect from April 1, 2020.
  • The custom duty on completely knocked-down (CKD) forms of passenger EVs, three-wheelers, two-wheelers, buses and trucks will go up to 15 per cent from the current 10 per cent.
  • The government also proposes to increase custom duty from 5 per cent to 7.5 per cent on the parts used to manufacture catalytic converters.

What the EV industry experts say
A lot of startups are expected to benefit in terms of early stage advice and direction, with the investment clearance cell that has been proposed in the Budget. Nurturing and supporting the startups in their initial stages is imperative to strengthen the foundation of the entire ecosystem. Further, the increase in the turnover limit for tax exemption from ₹ 250 million to ₹ 1 billion will help in higher valuations for startups. This will further attract investments into the ecosystem.
—Jeetender Sharma, founder and MD, Okinawa Autotech Pvt Ltd

The government has increased the duty on components for electric vehicles in the Budget 2020. Clearly, this indicates the intent to promote manufacturing of electric vehicle components in India and this is a right step in that direction. However, the ancillary ecosystem for electric vehicles is still in a nascent stage in India, and most EV companies are dependent on imports for parts. So this new duty rate will affect the prices of EVs in the short- to medium-term and can lead to a slowdown in demand. We expected a GST cut on lithium batteries from 18 per cent to 12 per cent, but that has not happened.
—Nischal Chaudhary, founder, BattRE

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