Wednesday, July 16, 2014: The electronics industry had pinned all its hopes on to the Budget 2014. It believes that India is poised to become the next electronics manufacturing hub, and proper government support can take the industry to the next level. “The electronics industry can create an ecosystem in India, including high tech manufacturing of electronics subsystems, electronics manufacturing clusters, semiconductor fabs and ATMP units, all of which can provide employment to 27 million people in the next 10 years,” says M N Vidyashankar, president, India Electronics & Semiconductor Association (IESA). Budget 2014-15 spells out the new government’s vision, which is to remain committed to driving growth in the manufacturing sector in the coming years.
Let’s find out if finance minister Arun Jaitley has lived up to the expectations of the electronics industry.
Commenting on the Budget, Rajoo Goel, secretary general, ELCINA Electronic Industries Association of India, says, “It is heartening to see that the new government has given substantial attention to the electronics industry, which is of paramount importance for the growth of our economy. We welcome the Budget and hope that the few critical recommendations which have been omitted will be taken up in the near future.”
KEY BUDGET PROPOSALS FOR THE ELECTRONICS INDUSTRY
Commitment to the growth of electronics manufacturing
It is good that the new government has recognised the importance of the electronics hardware industry, as the finance minister in his Budget speech highlighted its role in the growth of India’s economy. He has also tried to make some imported electronic products more expensive, and realised that it is time that India started its own defence manufacturing. He also said that the government plans to revive SEZs—another step to boost manufacturing. The finance minister has said that the government will provide an investment allowance of 15 per cent for three years to manufacturing companies that invest more than Rs 250 million in plant and machinery.
Welcoming the government’s commitment to the growth of the electronics manufacturing sector, Arun Gupta, global CEO, NTL Lemnis, says, “This proposed investment allowance is a good step. It will propel growth in manufacturing.”
Tax on imported telecom and IT products: Dependence on imports will reduce
To create a level playing field to the domestic electronics manufacturers, FM Arun Jaitley has imposed taxes on some imported telecom and IT products. This initiative will encourage the local manufacture of VoIP phones and some telecom network equipment, for which demand is increasing.
“To boost domestic production and reduce our dependence on imports, I intend to impose basic customs duty (BCD) of 10 per cent on the import of specified telecommunication products that are outside the purview of the information technology agreement (ITA),” Jaitley said in his Budget speech. He proposed to “exempt all inputs/components used in the manufacture of personal computers from 4 per cent SAD (special additional duty)” and “impose an education cess on imported electronic products to provide parity between domestically produced goods and imported goods.”
Says N K Goyal, chairman emeritus, Telecom Equipment Manufacturers Association, “The government signed the ITA 1 in 1997 and India was committed to allowing the duty free import of 217 items. However, several items which were not covered under ITA 1 were also imported, duty free. So now, this has been corrected by levying an import duty on non-ITA-1 items.”
According to ELCINA president Subhash Goyal, this step will encourage the domestic manufacture of telecom products. “However, it is not clear why SAD has not been removed from all electronic components and ICT products. SAD is a regressive tax and does not serve any purpose. It should be removed from all electronic components and ICT equipment,” he says.
Customs duty exempted from CRTs: Domestic production of CRT TVs may go up
With Arun Jaitley proposing to exempt colour picture tubes from basic customs duty to make cathode ray TVs cheaper, it seems that domestic production of televisions will grow significantly. He also proposed to reduce basic customs duty to zero from 10 per cent on LCD and LED TV panels of 48.26 cm (19 inches) and below. This will not only create more jobs, but manufacturing of panels and other components for LCD/LED panels will increase in India, giving more opportunities to domestic companies.
CEAMA general secretary Suresh Khanna says, “Removal of duty on imported picture tubes of CRT TVs would help small manufacturers, as CRT TVs is primarily manufactured by the small players and sold in rural areas. This market was shrinking in the recent past. It would make CRT TVs cheaper by Rs 150 to Rs 300.”
FDI in defence raised to 49 per cent: Investment scenario will improve
Opening the doors further for foreign investors in the defence sector, Arun Jaitly has raised the level of FDI (foreign direct investment) to 49 per cent from the existing 26 per cent. “Increasing foreign participation with management control, indigenous manufacturing in the defence sector is sure to have a percolating effect on the rest of the electronics manufacturing industry,” says T Vasu, director, Tandon Group.
Rs 5000 million for solar power projects: Domestic manufacturing will go up
The solar power domain has received much deserved attention in the Budget. Highlighting the importance of solar power, Arun Jaitley said that the government has set aside a sum of Rs 5000 million for solar power. “We will launch a scheme for solar power driven agricultural pump sets and water pumping stations to energise 1 lakh pumps. I propose to allocate a sum of Rs 4000 million for this purpose,” said Arun Jaitley.
According to Raghunandan, VP, Kotak Urja, the Budget creates a good balance between the pro-dumping and anti-dumping factions in the solar energy market. “Instead of restricting the imports, which would have pushed up the prices of solar products, the Budget has proposed a wise way of strengthening the domestic market in order to fight against imports by reducing the duties on raw materials,” he says.
GST by year end: Uniform tax rate across country
Arun Jaitley said that the Goods and Services Tax (GST) will be approved by the end of 2014. Once GST comes into force, it will simplify and streamline the indirect tax regime. GST will bring in uniform rates of tax on different commodities in all states across the country. Approval of GST will streamline tax administration, avoid harassment of businesses and result in higher revenue collection, both for the Centre and the states.
Smart cities and 7 industrial cities to push ICT deployment and ICT device penetration
Rs 70,600 million has been allocated for smart city projects. Besides, the government is planning to set up seven industrial cities across India to boost the manufacturing sector. This will give domestic manufacturing a major overhaul, and will significantly push ICT deployment and ICT device penetration. The focused development of industrial corridors will also generate higher domestic employment and result in economic upliftment.
Rs 100,000 million fund to boost startups and SMEs
The Budget has also proposed a Rs 100,000 million corpus as venture capital to encourage start-ups and entrepreneurs in the micro, small and medium enterprises (MSME) sector. The fund will promote financing in the form of equity, quasi-equity and other forms of risk capital. Though there wasn’t any dearth of funds in the past, but what is more important is how the government will ensure that these funds reach the SMEs at the right time. The SMEs face a number of challenges in accessing these funds, hence they prefer not to avail of them.
