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Union Budget leaves electronics industry puzzled

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The live telecast of the Union Budget 2018-19, like last year, started out with people from the electronics industry glued to their televisions, with much anticipation and hopes for what would be in store for them. But the finance minister’s speech proved that the budget boxes were not big enough to keep the electronics industry happy.


By Abid Hasan

The only major announcement for the electronics industry in the current Budget was an increase in customs duty on mobile phones, from 15 per cent to 20 per cent. Finance Minister Arun Jaitley in his speech said, “In this Budget, I am making a calibrated departure from the underlying policy of the last two decades, wherein the trend largely was to reduce the customs duty. I propose to increase customs duty on mobile phones from 15 per cent to 20 per cent; on some of their parts and accessories, to 15 per cent; and on certain parts of TVs, to 15 per cent. This measure will promote the creation of more jobs in the country.”

 Budget highlights
 There were no major announcements directly targeted at the electronics industry; however, a few initiatives that could boost it cannot be ignored. Some of the announcements which are likely to impact the industry are:

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  • The FM announced that the next financial year will see major advancements in e-citizen services, which will be driven by artificial intelligence.
  • A sum of ₹ 100 billion will be allocated for the telecom industry to get it ready for 5G adoption as early as possible. With this amount, the government will target 500,000 Wi-Fi hot spots to provide broadband access to 50 million rural citizens. Apart from this, an indigenous 5G test bed will be set up at IIT Chennai.
  • The Budget 2018 also plans to connect 100,000 gram panchayats via Internet cables. The government will explore the possible usage of blockchain technology for this.
  • Wi-Fi Internet services and CCTV cameras will be progressively provided in all trains. Talking about the Railways, the finance minister said the focus in the next fiscal year will be on safety, maintenance of railway tracks, and increased use of technology and fog safety devices
  • As many as 99 cities have been selected for the ambitious Smart City Mission, for which an outlay of ₹ 24 trillion has been made.
  • The Indian manufacturing sector is back on track with over an 8 per cent growth rate.
  • ₹ 160 billion will be spent to provide free electricity to 40 million families.
  • Online loan sanctions for MSMEs to be revamped.
  • System of toll payment by cash will be replaced by electronic payments, which is likely to increase the sale of POS machines.


Largely disappointing for some

There is no doubt that the objective behind this move is to support the government’s agenda to boost local manufacturing. However, according to Syed Tajuddin, CEO, Coolpad India, this budget is pretty regular with a mixed bag of things, and there is nothing path-breaking or outstanding to boost the manufacturing sector.  He says, “For the consumer durables and mobile handset industries, the increase in customs duty from 15 per cent to 20 per cent will definitely increase the cost to customers, especially when it comes to getting repairs for the high-end devices.”

He adds, “The increase in customs duty on handsets will compel brands to manufacture or assemble more in India; but there is still no great support for a local ecosystem for manufacturing spare parts, which will lead to a tough situation for mobile handset brands. Hence, a brand will be compelled to import most of the spare parts and customers will have to bear some of the burden of the extra cost.”

On the brighter side
The electronics industry association, ELCINA, highlights that the primary push for the ESDM (electronics system design and manufacturing) sector this year is the move towards Phase 2 of the Phased Manufacturing Program (PMP) for mobile phone manufacturing. This had been introduced two years ago through the differential duty mechanism and later by imposing 10 per cent BCD (basic customs duty) on imports of smartphones.

In a statement, the association said, “The enhanced duty on selected inputs is meant to ensure large scale CKD (completely knocked down) assemblies, PCBAs (printed circuit board assemblies) and also that a number of mechanical components are manufactured locally. Value addition in mobile manufacturing will grow 15-20 per cent from the current sub-10 per cent levels and strengthen the manufacturing ecosystem.”

Others, too, have hailed the budget. For instance, Manish Sharma, CEO, Panasonic India and president CEAMA (Consumer Electronics and Appliances Manufacturers’ Association) says, “The ACE (appliances and consumer electronics) industry welcomes the Budget, particularly the push for local manufacturing of mobile phones and consumer electronics by increasing customs duty on imported products and components—a move that is consistent with the government’s Make in India initiative.”

Sharma feels that the focus on improving rural electrification and well-being through the ‘National Livelihood Mission’ will stimulate rural demand for electronics and appliances in the short to medium term.

He adds that the MSME sector, which forms the backbone of the electronics industry, will benefit from the reduction in corporate tax from 30 to 25 per cent; and the allocation of ` 38 billion for the development of the sector will translate to strengthening the overall electronics ecosystem.

It can be recalled that in December last year, the Finance Ministry increased the customs duty on electronics items like mobile phones to 15 per cent; and this has now been increased further to 20 per cent in the Budget. It’ll be interesting to see whether this change will lead to a boost in Indian manufacturing.

Various electronics manufacturers feel that producing in India is still not feasible and hence shy away from setting up plants here.

Chip manufacturer, Spreadtrum’s India country head, Neeraj Sharma, also believes that the increase in customs duty on imported mobile phones is a great move, which will boost the Make in India campaign by promoting local manufacturing.

The government has taken a big step towards creating a manufacturing ecosystem in India and opened the gate for global manufacturers. It’s now time for them to make their move and explore India as a manufacturing hub.

Doubling the outlay on Digital India
The finance minister is also betting big on the Digital India programme and has allocated it a whopping ₹30.73 billion. To boost the digital economy, the NITI Aayog will initiate a national programme to focus efforts on artificial intelligence. The Department of Science & Technology will also launch a mission on cyber physical systems to support the establishment of centres of excellence for research, training and skilling in robotics, artificial intelligence, digital manufacturing, Big Data analysis, quantum communication and the Internet of Things.
L&T Technology Services, CEO and MD, Dr Keshab Panda, shares, “We welcome the government’s thrust on encouraging R&D pursuits in the areas of AI, machine learning, robotics and edge analytics. This move will further leapfrog the innovations in this space that are significantly driven by Indian companies, and will place the country at the centre of the global digital transformation.”

Arun Gupta, CEO and founder of MoMagic Technologies, shares similar views. He says, “This budget has recognised the importance of artificial intelligence, machine learning and robotics as tools for further growth at the national level. NITI Aayog’s plan to establish a national programme to direct efforts in artificial intelligence is a welcome move, which will push investments and research in this space, and will put India on the right path for tech innovation.”

Some disappointments
The telecom industry, however, has cried foul for not being given enough attention in the Union Budget. The director general of the Cellular Operators Association of India, Rajan S. Mathews, feels that though the finance minister has emphasised the importance of moving to a digital economy, yet, the telecom sector, which will provide the actual digital highway, has found no substantial support in the Budget, unlike other sectors such as roads, highways and electricity.

He was quoted in the media as saying, “We are saddened to see that telecom, which is the bedrock for moving the digital economy forward, continues to remain an orphan.”
For some, this Union Budget was the only hope before the country goes for Lok Sabha elections next year, and their expectations fell flat after the Finance Minister’s speech.  Research agency Gartner’s research director, D.D. Mishra, says, “The Budget does not generate excitement to the extent that was anticipated. The creation of rural Wi-Fi hotspots, along with investments in telecom, can help the rural economy and drive much better financial inclusion as well as technology enabled growth for a subset of our rural population. However, we need a better connect between strategy and execution, especially in terms of Digital India so that we are able to fully leverage the enhanced allocation.”

Mishra feels that the approach outlined in the current Budget is fragmented at the moment, and that the outcome and objectives of Digital India need to be better connected with the investments being made. He points out that rather than restricting crypto currencies, these can be regulated to prevent any adverse impact and risks. Also, blockchain technology should be explored to leverage the opportunities it brings to the table.

The Budget has brought out mixed reactions from industry leaders, who are now planning their next move. They need to think how to play their cards well in order to make the best use of the limited incentives provided to them so far.

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