What the ESDM industry expects from Union Budget 2015

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budget2012February 20, 2015: It’s time for the Modi government to present its second budget. With a positive mood across the economy, the ESDM industry awaits a proactive budget and shares some of its recommendations and expectations

ASSOCIATIONS SPEAK

Subhash Goyal, president, Electronic Industries Association of India (ELCINA) and managing director, Digital Circuits Pvt Ltd

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    Simplify excise procedures, particularly under the ‘Import of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods’ (IGCRDMEG) Rules 1996 on the import of inputs/raw materials for electronic components at zero per cent under customs notifications 25/99 to equate with the import of finished components without procedural hassles. ELCINA has been recommending ‘self-certification by the manufacturers’ along with process-based physical verification by the concerned officials instead of the existing tedious and time-consuming process

  • As a step to encourage local manufacturing, India needs to discourage the import of completely assembled PCBs, which form the core of the bill of materials (BOM) of electronic equipment. A 5 per cent customs duty should be imposed on fully assembled PCBs being imported for manufacturing electronic equipment so that there is an incentive to assemble them locally. This would also drive the demand for local components

  • In order to provide low cost financing, it is recommended that the electronic system design and manufacturing (ESDM) sector is notified for priority sector lending. As a priority sector, ELCINA proposes that a 5 per cent interest subsidy should be provided for electronics manufacturing units

  • Another proposal is that various expenses that ESDM firms incur under finance, power and logistics ought to be tax-deductable. The government could allow deduction of double the cost of power, finance and inland transportation from the taxable corporate income

  • The costs of power, finance and transportation are part of the annual balance sheets/profit and loss accounts, which are audited statements. This provision would set off two-thirds of the costs incurred under these three accounting heads and make the rates internationally competitive

  • The government should allow deduction of 25 per cent of the cost of installing infrastructure facilities from the taxable corporate income. This would set off the cost of installation of power backups, utilities, test facilities, etc

  • The interest rate is the largest contributor to the disability cost of ESDM firms and adversely impacts competitiveness vis-a-vis global manufacturers. ELCINA proposes that ‘Electronics’ is included in the list of core industries provided by the Ministry of Commerce and Industries. This would allow the benefits of the recent RBI circular, which provides a flexible structure for long-term loans for electronics manufacturing, applicable for high investment segments of electronics such as components, semiconductors, solar energy, LEDs and other similar high-tech items

  • The National Policy for Electronics (NPE) proposes setting up a National Electronics Mission. This initiative has been pending and the implementation of the NPE has been left to government officials. ELCINA requests that this mission be established urgently, with clear deliverables based on achieving certain investment targets of the NPE

  • Create a brand for Indian ESDM products. The ‘Made in India’ tag/label should be allowed on electronic products only when there is a minimum value addition of 30 per cent

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ASSOCIATIONS SPEAK

Ashok Chandak, chairman, India Electronics and Semiconductor Association (IESA) and senior director, NXP Semiconductors

  • The absence of an electronics commission has deeply affected the ESDM players and the ecosystem. There is an immediate need of setting up an electronics regulatory commission (with industry representatives) similar to the Telecom Regulatory Commission in India, which will act as a one-stop shop that implements policies, frames regulations, gets approvals and resolves issues for electronics companies in India. This will provide a fair and transparent policy environment which promotes a level playing field and facilitates fair competition

  • The status of ‘deemed export’ should be granted to ITA1 products/components manufactured and sold in India. This would enable the benefits of drawback, advance authorisation and refund of output excise duty paid by manufacturers. They can avail credit of input taxes paid on components imported and made in the country and paid for in cash for value addition. To qualify for the status of ‘deemed export’, domestically manufactured electronic products (DMEP) should meet certain domestic value-addition norms, where the threshold progressively increases over the years

  • Apply additional import duty on non-ITA1 products

  • Fast track the installation of DRM transmitters to promote digital radios and car audio systems designed and manufactured in India

  • Implement smart metering in all the state electricity boards

  • Implement smart card-based national ID card projects and contactless payments

  • Standards need to be formulated for cyber security, the smart grid in India, smart lighting and home automation

  • Ensure market access to companies manufacturing products in India, to boost domestic production. There is a need to mandate government procurement of electronic products manufactured in India. The existing PMA policies framed should be implemented on an immediate basis to promote electronic products manufactured in India

  • Make government purchases of Indian products mandatory, whereby Indian-designed integrated circuits (ICs) are used to promote a globally competitive fabless ecosystem in India

  • There has been a restriction on imports of used electronic equipment, which is treated as hazardous waste. However, lots of value-addition and R&D activities are done using imported electronic equipment. To give a boost to the R&D activities in the ESDM sector, the government should consider removing these restrictions

  • Presently, due to the inverted duty structure, import of finished goods is encouraged and the import of semi-manufactured goods and components is discouraged. The latter can be used for manufacturing completed products in the country, for which substantial value-addition can take place

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ASSOCIATIONS SPEAK

Vinod Sharma, chairman, CII National Committee on ICTE manufacturing and managing director, Deki Electronics

  • India should be positioned as a premier electronics manufacturing hub. The share of information, communication technology and electronics (ICTE) manufacturing, which currently accounts for about 10 per cent of India’s manufacturing GDP, can grow to 33 per cent by 2022 and become the key driver to achieve the growth of the manufacturing sector and create 28 million jobs. We need to address the key challenge of making the existing investments competitive in the zero-duty regime, ushered in on account of India signing the Information Technology Agreement (ITA1) of the WTO. Under the terms of this agreement, the duties on 217 tariff lines were phased out over a seven-year period (1998-2005).

Compensation for disabilities:

  • Compensate for the disabilities related to the high cost of power, finance and infrastructure, which account for 8 per cent of the manufacturing cost

  • Allow deduction of double the cost of power, finance and inland transportation (all of which are part of a company’s audited balance sheet/profit and loss account) from the taxable corporate income

  • Implement the policy provision for domestic tariff area (DTA) sales of ITA1/zero duty (ICTE products) being given the same benefits as physical exports (Para 2.1(b) of NPE 2012)

  • Electronics industry to be given priority status for financing by banks

Reducing transaction costs:

Simplification of procedures whereby the import of inputs required by the ICTE industry (manufacturing items importable at zero duty) should be free from all taxes and duties. On the output side, duties and taxes should be charged only when the goods are sold in the domestic market.

Encouraging value-added manufacturing:

  • To encourage value-added manufacturing and exports under the ‘Focus Product Scheme’, and the ICTE industry should be given ‘Duty Credit Scrip’ at 10 per cent of the value addition done

  • To encourage value added (VA) manufacturing, incentives in terms of relief in VAT, proportionate to the value addition done, should be considered

Taxation – creating a level playing field:

  • A level playing field with respect to taxation on locally manufactured products vis-à-vis imports for institutional imports should be created. In addition, a duty equivalent to the applicable VAT should be levied on imports

  • The special additional duty (SAD) of 4 per cent should be abolished for the ICTE industry. SAD was intended to provide a level playing field to manufacturers vis-à-vis imports. However, as traders are also permitted its refund, the levy serves no purpose. In a number of instances, levying SAD results in CENVAT overflow, leading to a blockage of funds

  • Abolish the central sales tax (CST) of 2 per cent for the electronics industry. In the decentralised model of ICTE manufacturing, raw materials are converted to piece parts; components are converted to sub-assemblies and finally, the finished products are manufactured in different states, for sale in possibly yet another state. The total incidence of CST could cascade to over 6.5 per cent. This places the domestic manufacturers at a disadvantage as compared to imports as there is no equivalent levy on imports

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INDUSTRY SPEAK

The government should streamline the ports by setting up a green channel through which fast clearance of imports can take place

Anil Bali, director, Deki Electronics

It is a positive move that the government is pushing for ‘Make in India’ and bringing out policies to promote local manufacturers. Now, it is up to the industry to exploit this situation. However, there are still some things that need to be done. Most importantly, the government should streamline the ports by setting up a green channel through which fast clearance of imports can take place. Presently, there is perpetual congestion at the sea ports as imports far exceed exports. Moreover, the GST implementation should be done at the earliest. Though the government has assured industry that the implementation will happen by April 2016, it should not be delayed any further.

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The right policies, incentives, infrastructure and encouragement from the government will act as a catalyst for the ‘Make in India’ drive

Pradeep Vajram, CEO, SmartPlay

The 2015 budget is much awaited, especially in the light of the government’s ‘Make in India’ initiative. Currently, the manufacturing sector faces many challenges. The right policies, incentives, infrastructure and encouragement from the government will act as a catalyst for the ‘Make in India’ drive. This will transform the import-driven Indian electronics industry to an indigenous manufacturing hub, leading to a reduction in our import bill and making India a self-sustained economy. We expect that the evolution in the manufacturing sector will naturally foster innovation and talent growth.

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The two key areas that need to be taken care of include GST and FDI

Krishnappa Subramanya, solar consultant and expert, and ex-CEO of Tata BP Solar

There is a need for a level playing field, which has been a long-pending request by Indian industry. This applies to duties and taxes, rates of interest, physical infrastructure, speed of decision making and a stable policy regime. The two key areas that need to be taken care of include GST and FDI. While GST will ensure clean business, uniformity and a level playing field within India, FDI is an absolute must in electronics as it will help the sector grow with massive investments from foreign investors. This, in turn, will bring about manufacturing scale, use of the latest technology, standards and procedures, a culture of R&D and innovation.

Moreover, for the solar sector specifically, it is time for the industry to lessen its dependence on the government – its subsidies and incentives. Instead, the industry should ask for demand creation, progressive policies, copious supply of water and electricity, good infrastructure, and the elimination of the ‘inspector raj’.

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At this juncture, there should be tangible investments made towards building a strong infrastructure

C M Menon, regional sales director, Analog Devices India Pvt Ltd

The year 2014 has seen some significant announcements from the newly elected government in terms of initiatives to boost manufacturing, improve infrastructure, attract more investment and improve India’s ranking in the ‘ease of doing business’ list of countries. While 2014 has set the stage, industry’s expectations from the 2015 budget would be around implementation and execution of plans—on the Digital India, Make in India and Smart Cities initiatives. At this juncture, there should be tangible investments made towards building a strong infrastructure to support and leverage innovative technologies. These should work towards creating more manufacturing clusters, promoting localisation of products and demand, reducing import duties on electronic components and making importing these components easy. Introducing skills development programmes in the country will also provide the required impetus to India’s electronics and manufacturing sectors.”

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The government should really look into funding R&D

Tanay Krishna, head – marketing, Centre for Development of Telematics (C-DOT)

As compared to the bigger countries, the R&D spending in the Indian telecom sector has been minimal. The government should really look into funding R&D, and whatever we generate should be spent on building the infrastructure of the company or on the people who are working there. So this fund can at times act as an extra budget that can be utilised for something as important as field trials for the technology produced. India’s upcoming wireless technologies, which are for the citizens of this country, should be well-funded because they are a part of the overall development of the country.

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Madhukar Tripathi, senior manager – marketing and sales, Anritsu India

The government must look to reduce the custom duties. This will reduce the cost of the end product and will benefit the consumer. The government should also give more incentives to the buyers to support local brands or manufacturers.

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Haresh Abichandani, managing director, Millenium Semiconductors

The government should increase the customs duty on set-top boxes and the complete range of cluster box units (CBU) because that will help us to enhance our business.

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The period of investment allowance should increase from two years to five years

Neeraj Bharara, director, Rosy Electronics

“We want the government to create a business-friendly policy environment, which can be achieved by abolishing the ‘inspector raj’ and amending or revising clauses in our industrial policy, labour policy and taxation procedures, as those have not changed with the times. This will drive ‘Make in India’ in a competitive world environment.

For new ventures and companies to be set up, the environment should be business and entrepreneur-friendly requiring minimum regulations and time. The period of investment allowance should increase from two years to five years, given that projects have a much longer gestation period.

Also, the corporate tax rate should be decreased from the existing rate of 30 per cent to 20 per cent.

The government should develop stronger infrastructure including power, communications and civil infrastructure (roads, ports and airports). Moreover, skilled manpower should be promoted along with creating awareness on quality and productivity, nationwide. The government has already started work on this. But the pace needs to be intensified and be result-oriented.

Restrictions on imports

Last of all, if the government aims to promote Indian manufacturers, there should be greater restrictions on imports. Step-wise indigenisation of the equipment/machinery used in manufacturing activities can be achieved by discouraging imports.

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