VAR ANALYSIS

FDI( Foreign Direct Investment) inflows in electronics and computer hardware and software grew by 156 per cent in FY2015-16 to reach $ 6.1 billion from $ 2.4 billion in FY2014-15, thanks to government incentives such as M-SIPS, withdrawal of Basic Customs Duty( BCD) and Special Additional Duty( SAD) and duty advantage to local manufacturers

Total FDI inflows in electronics and computer software and hardware sector grew by 156 per cent in FY2015-16 to $ 6.1 billion from $ 2.4 billion in FY2014-15. The increase in FDI inflows is due to government driving forward reforms in the IT and electronics sector through initiatives like Make in India and by creating favourable policies. All these policies help local manufacturers as they are being offered a lot of incentives.

The Electronic System Design & Manufacturing Sector( ESDM) is projected to grow at a CAGR of 24 per cent from $ 70 billion in 2014 to $ 400 billion by 2020. The government is targeting net zero imports by 2020 and so has embarked on several initiatives to promote manufacturing in the country.

To increase FDI in the electronics, computer software and hardware sector, the government has announced several incentives like M-SIPS, withdrawal of Basic Customs Duty( BCD) and Special Additional Duty( SAD) and duty advantage to local manufacturers for Make in India.

The government has developed an M-SIPS scheme to boost manufacturing and attract investments in the electronics sector. The M-SIPS scheme was modified in August 2015 by extending the scheme to 2020 and has also added 15 new product categories like smart cards, liquid crystal modules, consumer appliances, Internet of Things( IoT), multifunctional electronic devices and optical fibres.

The government has received 235 M-SIPS applicants worth Rs. 1.26 lakh crore from global OEMs, ODMs and component manufacturers in various segments. The Ministry of IT and Electronics( MeitY) has approved 75 applicants worth Rs. 18,000 crore from companies like Tata Power SED, Continental Automotive, Samsung, Bosch, Nidec, Tejas Networks, Motherson Sumi Systems, Nippon Audiotronix, GE BE, Philips, Flextronics, Sterlite, Giesecke & Deverient, LG, Lava, Haier, Mitsubishi, Delphi, Schneider Electric and Wipro GE Healthcare.

To provide fiscal incentives to Indian manufacturers, the government has also withdrawn Basic Customs Duty( BCD) and Special Additional Duty( SAD) to importers of mobile handset components such as chargers, adaptors, batteries and wired headsets and need to pay only the countervailing duty of 12.5 per cent. The government has also given 10.5-per cent duty advantage to manufacturers of mobile speakers and batteries and 8.5-per cent duty advantage to local manufacturers of routers, set-top boxes and CCTV cameras.

Even medical devices and semiconductor sectors have received a fillip through the correction of the inverted duty structure by reducing BCD to 2.5 per cent along with full exemption from

FDI in Electronics & IT Sector Sector- FY2014-15($ bn)- FY2015-16($ bn)

Computer Software & Hardware 2.3 – 5.9 Electronics 0.097 – 0.208 Total 2.4 – 6.1

SAD on raw materials, parts and accessories for manufacture of medical devices. BCD and SAD have been exempted for assembly-test-mark-pack for semiconductor wafer fabrication and LCD fabrication.

The government has given a go-ahead to 38 new mobile manufacturing units with over 21 million units per month capacity have been set up and these units will generate 38,300 employment opportunities.

India has still a long way to go and should now focus on getting mobile handset component ecosystem and IoT / M2M devices manufacturing locally. The policy-makers should also see to it that Indian manufacturers focus on exports in a big way as this will be a big advantage to Make-in-India players. This step will help Indian manufacturers get economies of scale in a big way and we can see the faster manufacturing of components in India, thereby reducing our dependency on China. •

Pravin Prashant pravin @ varindia. com

New mobile handset manufacturing units established in India during Sep 2015- till date.

Source: MeitY

www. varindia. com November 2016

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