Not a growth inducing Budget, feels industry


By Nitasha Chawla

Industry feels that the Budget has curtailed the stimulus for growth and puts pressure on the already slow manufacturing sector

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, the industry feels that overall the Budget will not offer the much needed growth 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. The 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 comes when barely a month before the presentation of the Budget, Union Minister for Human Resource Development, and 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 Electronic 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 Mmanaging 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. 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 sector came as a major disappointment for the PV players. The Budget has announced concessions and exemptions for energy saving devices, plant and equipment needed for only solar thermal project, ignoring the PV industry which holds almost 100 per cent of the solar energy market in India. Domestic manufactures of solar PV cells and modules have been lobbying since long for exemption of all duties on raw materials and imposition of import duty on foreign finished PV cells and modules. This would have brought down the input costs, but sadly the exemption is 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 Gudget has played a smart move by, on the one hand ‘reducing’ the excise duty to 6 per cent on LED lamps and LEDs and full exemption of special addition duty (SAD) on LEDs,on the other hand, it 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 it has 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 in the duty 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 starved energy situation of 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 LED.”
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 LED which made it around 5 per cent. The concession remains the same. They have now increased the standard rate to 12 per cent and, hence, its 50 per cent is 6 per cent. The reduction in SAD will impact the domestic production adversely and this goes against the electronics policy of the government which talks about promotion of domestic production. Reducing SAD is like reducing the protection for the Indian manufacturing,” he says.
The Budget has also offered full exemption from basic customs duty on LED, LCD panels. However, the spoiler is that a fully exempting LED, 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 came as a mixed bag. While it was generous to the larger sized units of MSME sector by introducing India Opportunities Venture Fund (IOVF), for bulk of the micro segment, it had little substantive other than a regulatory ease offered by extending limit of mandatory audit from Rs 6 million to Rs 10 million.
In order to enhance availability of equity to MSME sector, Pranab Mukherjee announced a proposal to set up a Rs 50 billion IOVF with SIDBI.
However, industry experts feel that the Budget seems to have taken away the benefit from larger MSME segment, by proposing to restrict investment 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 market access of MSMEs, government has also approved a policy which 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 proposed to exempt memory card parts for mobile phone 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 which are 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.
“Exemption of mobile phone parts from basic custom duties which while brings down the manufacturing cost of mobile phones, will aid in deeper penetration of mobile phone manufacturers 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 growth of home grown handset companies and generation of Indian intellectual property rights. Companies like Lava can now invest on R&D as there is an increase in deduction of income tax from 150 per cent to 200 per cent.” .

Excise duty on lithium ion battery cut

In addition to full exemption from basic customs duty, the excise duty on lithium ion battery packs for supply to electric vehicle or hybrid vehicle manufacturers was reduced to 6 per cent from 10 per cent. The excise duty on specified parts of hybrid vehicle also got reduced to 6 per cent from 10 per cent. This will help the industry to achieve better cost efficiency. Reductions in taxes and duties for hybrid and electric vehicle components is a positive step for production of such vehicles.

Semiconductor sector disappointed
As PVG Menon, president, India Semiconductor Association (ISA), 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, infrastructure set up, reduced customs duty to encourage domestic manufacturing of set top boxes (STBs). Whereas, an increase in excise duty and service tax will straight away affect the end consumer in terms of rise in prices of STBs.

With inputs from Diksha P Gupta on LED


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