The government’s premier think-tank NITI Aayog released the DRAFT version of “Make in India – Strategy for Electronic Products”. This strategy document is in the DRAFT stage, and up for review and comments till 15th of June. The strategy document aims to give a strong push to Prime Minister Narendra Modi’s Make in India initiative. You can view the draft strategy document here.
NITI Aayog has outlined recommendation for a two-pronged strategy:
1. Increase Exports by making Indian electronics globally competitive
2. Reduce Imports by increasing production of electronics in India quickly
There have always been encouragement when it came to incentivising high-value electronics manufacturing, but making a shift in this strategy the government is now considering to give 10-year tax holiday for all types of electronics manufacturing as long as it attracts large investments (US$ 1 Bn) and generates employment for 15,000 people.
Under the export-oriented strategy the government would provide investment incentives, simplifying tax regime, ending the inverted duty structure, setting up of coastal economic zones dedicated to electronics manufacturing, forging free trade agreements that can help India capture duty free markets.
Here’s a summary of recommendations made by NITI Aayog:
Recommendation 1: Export Oriented Strategy
The objective behind this strategy is to create an ecosystem in which Indian electronics industry becomes globally competitive.
End Tax Uncertainty and Simplify Tax Regime
- Clearly establish in writing the tax liabilities applicable to producers of electronic products under different circumstances in full detail.
- Eliminate tax exemptions and simplify tax system
- Rollout GST
End Inverted Duty Structure
- Bring all input tariffs down to the tariff applicable to the final product
- Exports to be subjected to zero taxes: all tariffs and domestic taxes paid to be rebated back at the exit point
- Impose Countervailing duty (CVD) equivalent to all domestic indirect taxes on imports
Coastal Economic Zones (CEZ)
- Identify CEZ ranging from 2 to 3 thousand square kilometers under Sagarmala Project for establishment of Electronics Export Clusters
- Create Electronic-Industry Specific Zones and Clusters Within the CEZ
- Provide each Zone to be provided with State of the art Infrastructure
- Provide Ease of Doing Business for Trading across Borders as per International Standards a long with relatively flexible labor and land acquisition laws
- Provide Liberal Laws for Development of Urban Spaces
Investment Incentives
- A ten year Tax Holiday for a firm that invests a Substantial Sum and generates a large employment within CEZ. For this purpose an investment threshold of US $1 billion with the employment of 20,000 may be considered.
Free Trade Agreements (FTAs)
- Convert FTAs into Opportunities
- Forge Free Trade Agreements to capture/ access Duty Free Market for Electronic Goods
- Export orientation to eventually enable signing of the Information Technology Agreement 2 (ITA-2)
Low Value Added but High Volume Products
- Do not shun low Value addition per unit. If produced on a large scale, low value addition per unit still translates in a large total value addition and large number of jobs (for example, i-Phones in China)
Recommendation 2: Import Substitution Strategy
The objective of Import substitution strategy is to expand the production of Electronic Goods in the short run. It is however imperative to move ahead with the measures aimed at reorientation towards export simultaneously. This will ensure that the present opportunity to capture the large world market in Electronics arising out of China’s rising real wages is not missed. This is also required to ensure that a future entrenched domestic industry does not rule out a switch to export oriented strategy.
End Inverted Duty Structure
- Ending Inverted Duty Structure to Enhance Production and to Improve Overall Efficiency Department of of the System
- All tariffs and domestic taxes levied on inputs whether sourced domestically or from abroad to be rebated back at the exit point
- Impose Countervailing duty equivalent (CVD) to all domestic indirect taxes on imports
Investment Incentives
- Introducing Ten-Year Tax Holiday to anyone investing about $ US 1 billion and creating around 15,000 jobs in Electronics Industry
Preferential Market Access (PMA)
- Modify Preferential Market Access policy of DeitY to allow preference in Government Procurement, especially in the Area of Defense
