The Union Budget 2019-20: How the industry has reacted

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Finance Minister Nirmala Sitharaman and the minister of state for finance and corporate affairs, Anurag Singh Thakur, along with senior officials presented the Union Budget 2019-20 to President Ram Nath Kovind at Rashtrapati Bhavan in New Delhi on July 5, 2019 (Courtesy: pib.nic.in)

The Union Budget 2019-20, presented by Finance Minister Nirmala Sitharaman, has a host of proposals that outline the roadmap to turn India into a US$ 5 trillion economy by FY25. But what does this Budget propose for the Indian electronics industry, and how do experts in the industry view it? Let’s find out.

By Potshangbam July and Nijhum Rudra

India’s first full-time woman finance minister, Nirmala Sitharaman, has announced various proposals while presenting her maiden Union Budget for the fiscal year ending March 31, 2020. It was the first budget of the Narendra Modi government after being re-elected for the second time in an election held in April and May. Presenting the Budget’s blueprint, the minister said that the Indian economy had grown from US$ 1.85 trillion in 2014 to US$ 2.7 trillion within 5 years, and that the Centre had targeted taking it to US$ 5 trillion by FY25. Sitharaman also expressed that investment-driven growth is a must in India as the country required ₹ 20 trillion (₹ 20 lakh crore) worth of investments per year.

The key highlights of the Union Budget 2019-2020 that will impact the Indian electronics industry, startups and power sector are explored in this article.

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Electronics

  • Electronic items made in India are set to become cheaper as the finance minister (FM) announced the withdrawal of custom duty on these items.
  • The FM has proposed increasing the custom duty on CCTV cameras, IP cameras, digital video recorders and network video recorders to 20 per cent from 15 per cent, in order to provide the domestic industry a level playing field.
  • Proposed increase in custom duty on the indoor and outdoor units of split air conditioners to 20 per cent from the present 10 per cent to promote domestic manufacturing.
    Withdrawal of the custom duty exemption on capital goods used for manufacturing specified electronic items such as cathode ray tubes, CD/CD-R/DVD/DVD -R, deflection components, CRT monitors/CTVs and plasma display panels.
  • Apple products to get cheaper as FM proposes to ease FDI norms in single-brand retail.

Custom duty

  • Basic custom duty on certain items to be increased to promote the cherished goal of ‘Make in India’.
  • Imports of defence equipment not manufactured in India are being exempted from basic custom duty.
  • The removal of basic custom duty on the capital goods needed for manufacturing parts and components will reduce capital costs by 7 per cent and improve competitiveness.

Electric vehicles

  • The government has already moved the GST Council to lower the GST rates on electric vehicles (EV) from 12 per cent to 5 per cent.
  • Tax deduction of ₹ 150,000 allowed on interest paid for loans taken to purchase electric vehicles.
  • Allocation of ₹ 100 billion for the Faster Adoption and Manufacturing of Electric Vehicles (FAME II) scheme. The scheme aims to speed up the adoption of EVs by offering the right incentives and charging infrastructure.
  • Custom duty on certain EV parts is being exempted to promote e-mobility.

Telecom

  • The government expects a 28 per cent increase in non-auction revenue amounting to ₹ 505.20 billion in the fiscal year 2019-20 from the telecom sector, as compared to the ₹ 392.45 billion earned in the previous fiscal year ended March 31.
  • Spectrum sales through auction have been the main contributor to the government’s revenue.
  • However, no auction was conducted in the previous fiscal year ended March 31, 2019, and the latest estimates for the next fiscal year also don’t appear to factor in any auction proceeds.

Startups

  • Startups and their investors will not be subjected to scrutiny regarding the angel tax on shared valuations if they provide the required declarations on their returns.
  • Investors and their sources of funds will be e-verified.
  • An exclusive TV channel will be set up for startups, which focuses on connecting them with venture capitalists.

Manufacturing plants

  • The government plans to launch a scheme to invite global companies through transparent bidding to set up mega manufacturing plants in sunrise and advanced technology areas such as semiconductor fabrication.
  • The government will provide tax incentives to high-tech manufacturing plants in the fields of solar photovoltaic cells, lithium storage batteries, solar electric charging infrastructure, computers, servers, laptops, etc.
  • The government will provide investment-linked income tax exemptions under 35AD of the Income Tax Act and other indirect tax benefits.

MSMEs

  • The government promises to provide loans of up to ₹ 10 million within 59 minutes through a dedicated online portal.
  • The government will create a payment platform for MSMEs to enable the filing of bills and payments on the platform itself, to cut down payment time.
  • The government plans to invest heavily in infrastructure and for job creation in the MSME sector.

Digital payments
To discourage business payments in cash, a tax deduction at source of 2 per cent is to be levied on cash withdrawals exceeding ₹ 10 million in a year, from a single bank account.
Business establishments with an annual turnover of more than ₹ 500 million may offer low-cost digital payments; no charges or merchant discount rates to be imposed on customers or merchants for these transactions.

Skills development
The government plans to take up industry-relevant skills training through the Pradhan Mantri Kaushal Vikas Yojana (PMKVY). This is to help create a large pool of skilled manpower that meets high standards, quickly.

There is to be a focus on new-age skills like artificial intelligence (AI), the Internet of Things (IoT), Big Data, 3D printing, virtual reality and robotics, which are valued highly both in India and overseas. This will help to prepare India’s youth for jobs in the latest technologies.

Power
The Centre will work with state governments to remove barriers such as cross-subsidy surcharges, undesirable duties on open electricity sale, and captive generation for industrial and other bulk power consumers.

Since there is a need for reforms in tariff policy, besides the structural reforms, a new package of power sector tariff and structural reforms will be unveiled soon.

Here is how the industry experts reacted to Union Budget 2019

Rajoo Goel, secretary general, Electronic Industries Association of India (ELCINA)
“To promote local manufacturing of electronic products, the finance minister has enhanced custom duty on split ACs, CCTV cameras, IP cameras, DVRs, NVRs as well as their chargers. This is a major boost for local manufacturers of these products. This will really benefit domestic manufacturing if the industry increases value addition, and the components as well as sub-assemblies of these products are manufactured in the country. Import duties have also been enhanced on some auto electronic parts and signalling equipment, which will give additional protection to this industry segment.

Relief under Section 35AD of the Income Tax Act to manufacturers of solar photovoltaic cells, lithium ion batteries, servers, laptops and solar charging equipment for EVs is an important positive step. However, the electronics industry had requested that the entire sector be covered under 35AD, which has not been done. The FM must consider this request, and at least provide this benefit to all ICT products and their inputs covered under ITA-1 and allowed for import at zero duty.

Reduction of GST and import duty on inputs for EVs is a positive step and will give a much needed boost to this product category, which is the future of mobility.
Accompanied with FAME 2, the EV sector should see the required positive movement the industry has been waiting for. The Union Budget will provide a boost to electronics manufacturing and, combined with the effective implementation of the National Policy on Electronics 2.0, ELCINA expects an improvement in the industry’s fortunes.”

Saurabh Kumar, MD, EESL
“EVs are the future for mobility and it is a very welcome step that the GST on these will be reduced to 5 per cent. In addition, there are custom duty reductions on certain EV parts, giving a thrust to domestic manufacturing. The subsidy under FAME is another step that has been taken. All this will reduce the capital cost of EVs, which is one of the biggest barriers to their adoption, currently. The announcements in the Budget will create a huge demand for EVs, and this is a welcome step.”

Rajan S. Mathews, director general, Cellular Operators Association of India (COAI)
“We laud the government for a progressive and forward looking budget that has provided the building blocks for a US$ 5 trillion economy.

It is also heartening to note that the Budget has focused on evolving technologies like artificial intelligence, Big Data, robotics, etc, and acknowledges their critical role in the Indian economy in the coming years. We are hopeful that the government will also roll out specific measures to harness these technologies of the future so that Digital India reaches every segment of the economy.

The telecom industry has been a significant engine for GDP growth, rural inclusion, women empowerment, affordable communication services and ubiquitous connectivity. As such, the industry hoped the Union Budget would provide relief from the high taxes and fees on this industry. Given the importance of the industry in driving inclusive growth, we remain optimistic the government will provide the much needed financial relief and impetus to the industry in a post-Budget review.”

Pankaj Mohindroo, chairman, India Cellular and Electronics Association
“The Budget has put an emphasis on protecting the domestic industry and promoting manufacturing. The government now must ensure that the electronics manufacturing industry is covered under the sunrise and advance technology category, since an ecosystem for manufacturing will come about only through the proper linkages in it. While we have seen green shoots in mobile phone and component manufacturing, there is a long distance to travel before we become truly competitive and turn into a global hub for mobile phone and electronics manufacturing.”

Abhishek Kumar, regional director, South Asia, Oncam
“The government has earmarked ₹ 50 trillion for the development of railway infrastructure. A sizeable part of it will be diverted towards avant-garde surveillance solutions for smart management across railway stations as well as various nodes in the railway network. The Union government’s focus is also on rural infrastructure expansion, and we believe that surveillance will be an integral element in this development. Another key takeaway for the surveillance industry is that the government also has a positive view towards artificial intelligence technology and will be promoting indigenous R&D around AI, Big Data and robotics. It has also taken a slew of measures aimed at the Indian startup ecosystem, which will be looking towards AI technology and security to develop high-end products and ensuring seamless processes. We appreciate the finance minister and her team for meticulously balancing all dynamics to bring about favourable market results.”

Faisal Kawoosa, research analyst, TechArc
“For the tech domain, the expectations from the Budget were that there would be some real out-of-the-box solutions to issues that the industry is grappling with. We need manufacturing to go to the next level; we have to set the stage for connected consumer electronics (CE) and at the same time, in line with NPE ‘19, an enabling environment to boost exports is also required.

While it’s great to see the government suggesting measures that could bring forward India’s entry into the EV space to an earlier stage, the benefits can only be seen around a decade from now. There is also a need to have something for the immediate to medium timeframe, which is completely missing from the Budget.

I don’t see anything that helps domestic CE firms, including makers of mobile phones and their accessories, to give their best for the next wave of electronics manufacturing in India. Tweaking the customs duty structure is a short term tactical approach and does not strengthen the fundamentals of the industry.”

Dr Keshab Panda, CEO and MD, L&T Technology Services
“The government’s focus on positioning India as the top destination for research and innovation augurs well with the interests of the ER&D industry. Moreover, the announcement on providing support to the skills development initiatives related to AI, IoT, 3D printing, VR and robotics has the potential to establish India as a global talent hub for digital technologies. Lastly, earmarking ₹ 100 billion over a three-year period towards building a wider ecosystem of electric vehicles is a welcome move. It is now for the value chain players to come together and replicate the success achieved by Indian ER&D players for global auto majors on the EV front.”

Arijit Biswas, co-founder, EnrichAI
“We feel that Budget 2019 will foster the startup ecosystem in the country by encouraging different stakeholders including entrepreneurs, investors, talent and consumers to participate in a more spirited manner. While the government’s push to skill India’s youth in cognitive technologies will help startups and global R&D teams with deep pockets to source talent easily, the setting up of a dedicated TV channel for and by startup founders will provide a cost-effective medium for entrepreneurs to demonstrate innovative ideas and gain mind share of the masses. Overall, we feel that the Budget will encourage the youth of the country to consider entrepreneurship as a very serious and viable career option, after their academic pursuits.”

Rajan Navani, vice chairman and MD, JetSynthesys
“The introduction of an e-verification mechanism gives an impetus to companies by improving the ease of doing business, driving efficiencies for investors, and bolstering the startup ecosystem in India. To deliver on the country’s Digital India vision, we believe that an increased focus on initiatives for new-age skills in artificial intelligence, Big Data, robotics, etc, will further bridge the gap between technology and talent. This sets the tone for the industry to move from Start-up India to Scale-up India.”

Rahul Sharma, managing director-India, LogMeIn
“We would like to congratulate India’s first woman finance minister, Nirmala Sitharaman, for presenting an admirable budget. The Union Budget is a step in the right direction by strengthening the ICT infrastructure and the digital penetration in rural geographies. The finance minister has introduced the PPP model for BharatNet, and has set up a committee to rationalise the tax structure, as well as to review USOF and the spectrum usage charges. This will considerably improve the industry dynamics as revenues continue to fade in the market. The honourable minister has further proposed several schemes to build skills, infrastructure, and conduct R&D around cutting-edge technologies including artificial intelligence and Big Data, which is another key takeaway.”

Sudhir Singh, managing director, Marg ERP Ltd
“SMEs and MSMEs will play the most significant role in achieving India’s ambitious target of becoming a US$ 5 trillion economy by 2025. To give a boost to this segment, there is a need for an ideal environment for ease of doing business, for nurturing demand based skilled manpower, and to ensure wider adoption of technological advancements in the SME and MSME sector. An allotment of ₹ 3.5 billion for 2 per cent interest subvention for all GST-registered MSMEs under the Interest Subvention Scheme is a step in the right direction.

The Budget has also given a boost to the nation’s entrepreneurial spirit by extending the Stand-Up India scheme till 2025, the setting up of 80 livelihood business incubators and 20 technology business incubators to develop 75,000 skilled entrepreneurs in agro-rural industries, and by encouraging women entrepreneurs. There are several other measures to streamline labour laws, education, and the rental housing segment, which will have a direct impact on startups in the country.”

Tarun Bhalla, founder and CEO, Avishkaar
“When I started Avishkaar, there were quite a few hurdles that I had to navigate through. This initiative of the government to have a dedicated channel for startups for information dissemination could prove to be immense for budding entrepreneurs. The focus on job creation in the MSMEs sector and a dedicated payment platform will help give a much needed boost to the industry. Also, teaching skills such as AI, Big Data, IoT and robotics will help create a skilled workforce in the near future.”

Anil Chaudhry, zone president and MD, Schneider Electric-India
“We are glad to see the direction given by the government by outlining the key areas as a part of the broader vision for the future – with ‘Energy for All’ at its very core. It is a well balanced budget with a clear push towards the socio-economic growth and development of the country. The focus given to provide access to energy to each and every household in rural and urban areas is very progressive.

There is a visible push for new age technologies and digital solutions as the Budget specifically mentioned the importance given to artificial intelligence, the Internet of Things, Big Data and Digital India – which are an integral part of the long term vision. With an eye to boost economic growth and Make in India, the proposal to launch a scheme to invite global companies to set up mega-manufacturing plants is laudable. All in all, it is encouraging to see the government’s continued focus on the following programmes – UJALA, Saubhagya and UDAY Yojana—as key initiatives for the nation’s economic growth, with an even greater focus on digitisation to boost the rural economy.”

Anil Gupta, CMD, KEI Industries Ltd
“The power sector has seen phenomenal growth, achieving the electrification of almost 96 per cent of all households in the last five years. This large growth in the sector can be attributed to the infrastructure boom in India, which has created more avenues for companies like ours. Investments in railways, housing and farming are paramount to overall infra-growth for our company. The government is also planning to invest ₹ 50 trillion on railways which will further boost the demand, resulting in expansion of our business. The government has also shed light on its plan of ‘One nation, one grid’, and the Pradhan Mantri Gram Sadak Yojna will be a standalone element in ensuring power connectivity at affordable rates.”

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