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.
- 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.
- 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.
- 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.
- 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 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.
- 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.
- 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.
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.
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.
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)
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.
Saurabh Kumar, MD, EESL
Rajan S. Mathews, director general, Cellular Operators Association of India (COAI)
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
Abhishek Kumar, regional director, South Asia, Oncam
Faisal Kawoosa, research analyst, TechArc
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
Arijit Biswas, co-founder, EnrichAI
Rajan Navani, vice chairman and MD, JetSynthesys
Rahul Sharma, managing director-India, LogMeIn
Sudhir Singh, managing director, Marg ERP Ltd
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
Anil Chaudhry, zone president and MD, Schneider Electric-India
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