The Budget 2009-10 brought out mixed reations from the industry. Some were pleased with the new changes, while others felt ignored and unheard
By Monika Bhati
Friday, June 19, 2009: Like always, this year’s Budget was a mixed bag of hits and misses, evoking mixed reactions amongst industrialists. Indian finance minister Pranab Mukherjee had a few things to cheer India Inc. when he presented the Budget on July 6, 2009. From the industry’s point of view, scrapping of the fringe benefit tax (FBT) and leaving the corporate tax unchanged are welcome steps. Amongst other encouraging measures is the launch of the Unique ID project—India’s big leap in e-governance. However, some associations feel the electronic component and hardware industry will continue to be plagued with lack of investments and value addition.
GST will create single-India market
The government seems quite serious about ushering in the general sales tax model in April 2010. The Centre and the states will each legislate, levy and administer the central GST and state GST, respectively.
Vinnie Mehta, executive director, MAIT, shares, “We are glad that the finance minister has unveiled the roadmap for GST, which is very critical for the creation of a single-India market. This calls for unification of the rate on excise duty and service tax. The service tax continues to be 10 per cent, while the rate of excise duty is 8 per cent.”
Although Rajoo Goel, secretary general, ELCINA expresses happiness over the announcement on a national roll out of GST, he is doubtful about its feasibility as the details are yet unknown to the industry. Moreover, Goel adds, “The central sales tax (CST) was expected to be reduced to 1 per cent this year but the budget is silent on the same. This is a negative development as even 1 per cent cost of a regressive tax like CST is a big burden on a fiercely competitive industry. The industry is disappointed at the lack of support to encourage high value added manufacturing and investments in the electronic components and hardware domain.”
Unique ID to boost e-governance
The industry sees the setting up of the Unique Identification Authority of India (UIDAI) as a major step towards improving governance with regard to delivery of public services. The ambitious plan of unique identification has been allocated Rs 1,200 million.
According to Ram Kumar Subramanian, vice president, sales and marketing, AMD India, “The unique ID project has the potential of boosting e-governance in rural areas by enhancing projects such as common services centres and improving the overall interaction between citizens and the government. Any increase in e-governance projects creates a potential for organisations such as ours.”
Customs duty on STBs welcomed
The 5 per cent basic customs duty being imposed on set top boxes (STBs) is also welcomed with open hands as it is expected to boost domestic manufacturing of STBs. Excise duty on STBs was exempted in 2003 to facilitate introduction of the conditional access system (CAS) in the country. In the Budget 2006, the exemption on excise duty was withdrawn, but customs duty was reduced from 15 per cent to nil. However, there was no corresponding reduction of customs duty on the inputs used in the manufacturing of STBs.
“It is a positive development. Set top boxes and LCD TVs are sunrise products with rapidly expanding markets and there local manufacture is bound to bring some opportunities for local electronic component manufacturers,” explains ELCINA. Neeraj Paliwal, country manager, NXP India also welcomed this move.
According to Venugopal Dhoot, chairman, Videocon, the duty on STBs may be beneficial for local manufacturers. The market for STBs is growing steadily and Videocon is looking to cater to this demand.
This move, however, disappointed the direct-to-home (DTH) players. According to Salil Kapoor, chief operating officer, Dish TV, “The additional burden of 5 per cent tax on STB will hinder the growth and will discourage the DTH industry from expanding business. This tax hike will be passed on to the customers.”
Vikram Kaushik, managing director and chief executive officer, Tata Sky, also holds the same view, “The DTH industry is one of the most heavily taxed areas in the media space. The increase in STB customs duty will add to the cost of digital television services for consumers at large.”
Consumer Electronics and Appliances Manufacturers’ Association (CEAMA), however, feels that the imposition of customs duty will not result in STB price escalation but will generate employment in the country. Suresh Khanna, secretary general, CEAMA, elaborates, “The Indian manufactured product will always have advantages of better control of development, quality, flexibility, inventory management, foreign exchange mitigation, fast ramp up to cater to spikes in demand and serviceability. This would provide additional cost saving to the operators.”
Customs duty on LCD panels
The government has announced a 5 per cent reduction in the basic customs duty on LCD panels to support indigenous production of LCD televisions.
Welcoming this proposal, Rajiv Bhalla, general manager, NEC India, says, “This will not only widen the corporate consumer base that we cater to but also make our already competitively priced products more affordable.”
As per MAIT, “The announcement of reduction in the customs duty on LCD panels and the exemption of countervailing duty (CVD) on parts and components of mobile phones is truly welcome. However, to sustain hardware manufacturing in the country, it is critical that SAD be abolished on finished goods and components or be made at par with the CST.”
The consumer electronics industry, however, is not content with the reduction in customs duty on LCD panels. Its grievance is that the elevation of input costs exceeds the duty cut announced.
According to Amitabh Tiwari, business head, home entertainment business, LG Electronics India Pvt Ltd, the cost of a module, which happens to be almost 70 per cent of the cost of an LCD TV, will be increased by almost 30 per cent, beginning from July till the end of the year. “Therefore, we are left with no choice but to pass it on to the consumers. A 5 per cent drop on 70 per cent, in reality, translates to 2 per cent on the complete LCD TV. The module price increase is stiffer than the relief,” he says.
“We increased our LCD TV prices by an average of 5 per cent from July 1, 2009 and are not in a position to roll it back immediately. The drop in customs duty will perhaps help us in absorbing some increase going forward,” he added.
Industry demands more
ELCINA also feels while the compulsions of the finance minister and high Budget deficits facing the country are appreciated, delay in providing a clear road map to electronics hardware only means that “We will continue to be deprived of utilising the huge opportunity that the rapidly growing market for electronic goods offers us. We need to enable investments and expansion of manufacturing capacity of electronic components, parts and assemblies where employment and revenues are generated and most of the value addition takes place. This has not been done by this Budget.”
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