The Manufacturers Association for Information Technology (MAIT), which actively participates in all government policy initiatives for the information and communications technology (ICT) sector, has recently appointed Sabyasachi Patra as its executive director. In a conversation with Srabani Sen of Electronics Bazaar, Patra, a staunch believer in making India a manufacturing hub, discusses the challenges the industry is facing and suggests some possible solutions.
EB: How has the Indian electronics industry grown over the last couple of years? Is the growth as per your expectations?
At this point of time, demand generation is happening in the electronics industry—by 2020, the demand will be worth US$ 400 billion and the net imports will be US$ 323 billion. And this demand will increase substantially due to the enabling initiatives taken by the government. For example, all gram panchayats are to be connected by fibre optics, and several e-health and e-education programmes have been launched by the government. All these programmes will create more and more applications for electronics and IT products, thereby significantly increasing the demand for electronic products.
However, only demand generation is not enough. This demand should lead to manufacturing in India; only then can we consider the industry to have grown in the true sense.
EB: What are the problems being faced by the electronics industry currently?
Encouraging electronics manufacturing in India on a war footing is of strategic importance as we are already very late when compared to other countries. We know the advantages of making India a manufacturing hub, besides creating immense employment opportunities and bringing about women’s empowerment.
Unfortunately, the Indian ICT manufacturing sector has several limitations. The major challenge that it faces today is the tax structure of the country. The free trade agreements (FTA) that India hassigned with different countries also increased the challenge. For example, as a result of signing the FTA with Thailand, finished goods were imported at zero duty, whereas LCD and LED panels attracted a basic customs duty of 5 per cent, affecting domestic manufacturing. However, this has been changed in the Budget. Also, due to the inverted duty structure, higher duty is charged on components than finished goods. This has resulted in many manufacturers turning into traders. Besides, a 4 per cent special additional duty (SAD) is also levied. So the total input duty on raw materials is very high as against the duty payable on the finished goods. This has resulted in many manufacturers turning into traders. Besides, a 4 per cent special additional duty (SAD) is also levied. So the total input duty on raw materials is very high as against the duty payable on the finished goods.
Second, despite the presence of big OEMs in the Indian ICT sector like Dell, Lenovo, Nokia, HCL, Samsung, etc, manufacturing has still not taken off the way it should have, as the ecosystem is not in place. Unless the suppliers to these OEMs also set up their manufacturing bases in India, the components as well as most of the finished goods will continue to be imported. Due to the prevailing high corporate tax rates in India, the component manufacturers are not keen on manufacturing in India. For example, in China, the standard rate is 25 per cent but the tax rate is reduced to 15 per cent for qualified enterprises. Tax holidays and other incentives are also offered in China. Similarly, the tax rate in Taiwan is 17 per cent.
Third, the most significant infrastructure constraint for manufacturing is the unreliable yet expensive power supply. Transport is also a constraint, and companies complain about the limitations of Indian airports and the road network.
EB: What are the possible solutions to these problems?
We feel that SAD should be abolished and all cases of inverted duty structures should be removed to provide a level playing field for manufacturing facilities in India. Another way of attracting investments to India from our neighbouring countries is to exempt units engaged in ICT manufacturing from paying the minimum alternate tax (MAT) along with allowing intra-SEZ (special economic zones) transactions. Also, since this industry is in its nascent stage, one should not look at any notional loss of income due to these exemptions. These exemptions will benefit the manufacturing industry much more in the long run.
In the ICT sector, where products are imported at zero duty, there is no difference between exporting and supplying to the domestic tariff area. So all products under ITA-1 manufactured in the domestic tariff area should be given the same benefits such as, income tax benefits, incentives under the focus products scheme, etc, which accrue to physical exports.
EB: What is MAIT doing to promote manufacturing in India?
We are in constant dialogue with the Department of Electronics and IT (DeitY) and Ministry of Finance, and are trying to convince them to remove the inverted duty structure so that components can be manufactured in India. We are also in discussions with various industries to come and set up manufacturing facilities in India. We even interact with overseas companies on the same lines.
EB: What role is MAIT playing in the electronics industry?
With a major focus on manufacturing IT hardware and electronics products, we help the government in implementing new initiatives for the ICT industry. We play a role in developing a globally competitive Indian ICT industry, promote business through international alliances, and promote electronics manufacturing in India.
As we recognise the importance of manufacturing in India, we have exchange programmes that involve delegations visiting our overseas counterparts to help us acquire the knowledge to replicate favourable conditions here. If an overseas company wants to set up a facility in India, who will they talk to? The government does not have the bandwidth to interact with individual companies. So they interact with us and we try to resolve all their queries. On this front, we initiate studies, interact with the government, and arrive at a consensus on what the government needs to do so that companies can come to India and set up facilities.
EB: Is MAIT currently working with the government on any particular project?
We are closely working with the Department of Electronics and IT (DeitY) in formulating various schemes. We are working on a study that looks into the issue of why some countries like China are doing well and what needs to be done to replicate the same scenario in India. We also work on attracting overseas companies to set up manufacturing facilities in India. We are currently studying the feasibility of manufacturing tablets in India. Another study we’re involved with is about the energy efficiency of equipment. We are working seriously with DeitY on e-waste and the deadline related to implementing government rules. We aim to create awareness among the public on this important topic.
