SPOTLIGHT ON INDIAN ELECTRONICS Spotlight on Indian Electronics | Page 73

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NET ZERO IMPORTS
therefore encourage value addition and create employment in
duty regime is discontinued under GST , the incentives could
the component manufacturing ecosystem . In due course of
take the form of cash refunds as is currently done under the
time , as economies of scale are built up , the differential duty
VAT system at the state level .
regime could be extended to more components , to further increase value addition and generate employment .
Thus , the following tax treatment needs to be considered for providing relief to the industry on an early basis :
1 . Extend the following duty structure , currently available to computer tablets and mobile phones , to desktops , laptops and servers :
7.2 Phase II – Priority action areas
Phase II focuses on disability areas that need attention in next
6-12 months . Key recommendations are
1 . Extension of Modified Special Incentive Package Scheme
( MSIPS ): Extend the applicability period for MSIPS applications from July 2015 to end of 2020 . Include products with high domestic demand forecast such as LED
Ÿ
Option of concessional rate of excise duty of 2 per cent
lights , solar cells , smart cards under MSIPS scheme
( without availing CENVAT credit on inputs and capital goods ) on the finished goods ( desktops , laptops , and servers or alternatively , the option of standard excise duty rate of 12.5 per cent with full CENVAT credit .
2 . Express custom clearance : Implement express custom clearance processes for electronics manufacturing components . Currently custom clearance in India takes 3-4 days on average , increasing the landed cost of components
Ÿ
Extend differential duty structure to key components / inputs of desktops , laptops and servers such as populated PCB and SMPS . These components should be subject to CVD
@ 12.5 % and SAD @ 4 % when imported . However , the manufacture of the components in India should attract
7.3 Phase III – Next wave of changes
Phase III focuses on some of the structural changes that might need more time to be implemented . Some of the key recommendations for this phase are :
excise duty of 2 %. The duty differential will incentivize
1 .
Express clearance of refund claims : Government needs to
accelerated production in India in line with the ‘ Make in
put in place a SAD , service tax refund process where the
India ’ vision of the government . The enhanced production
claimant has high visibility of its claim status . Guidelines on
will create additional employment opportunities .
supporting documents need to be revamped to make the
Ÿ
Exemption from payment of customs duty and excise duty on procurement of all goods ( parts , components ,
claim submission process easier for claimant . Lead time of clearance needs to be reduced
accessories including sub-parts for manufacture of parts ,
2 .
Amendment in MSIPS to cover capital as well as
components and accessories ) required for use in
operational expenses
manufacture of the goods eligible for the differential duty
3 .
Deemed export status to domestically manufactured ITA1
regime .
products
2 . CST exemption for any inter-state purchase of components or raw
4 .
Introduction of interest subvention scheme to address the
materials : As per current CST act , any inter-state purchase of
issue of high cost of finance : Reduce interest cost based on
goods for subsequent purchase is taxed at 2 %. This adds to
the domestic value add by the manufacturer
the disability of domestic manufacturers
3 . Under GST regime : The benefits requested above should be continued under the GST regime also . In case the differential

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Impact of policy interventions
A . Impact on industry
The policy interventions to address the disabilities of the IT electronics sector will have the following key benefits :
1 . Help in immediate import substitution : Today IT products manufactured in India are valued at USD1.3 billion , whereas the market is valued at USD5.8 billion . Manufacturing in India can double in the first year itself as several companies have idle capacity . The policy intervention and development of an eco-system in India will help reduce prices and hence increase demand for consumer sales .
2 . Provide competitive incentives for export of IT products from India : An exports led approach provides an additional base of volumes to attract investment in the component ecosystem , which will pave the way to fulfil future domestic demand . India ’ s close proximity to markets in the Middleeast , Africa , and Eastern Europe make it a logistically superior location compared to other parts of Asia . This aspect , when combined with the provision of export incentives , will make India a more competent hub for manufacturing than other countries in the region .
3 . Attract component manufacturers : The increase in volumes and a boost to exports will increase the demand for components used in manufacturing in India , thus providing a base for component manufacturers to establish their presence and invest in India , thereby paving the way for India to become a genuine player in the electronics manufacturing arena .
Industry estimate
Targeting 30 % of global market will involve manufacture of ~ 80 million units ; implies an incremental capacity of ~ 70 million units .
This will require capex investments of at least USD ~ 106 million and opex of USD ~ 53 million annually
4 . Phased Manufacturing to achieve Net Zero Import by 2020 : As per industry estimates , from the current value addition of 5 %, the industry can achieve 40 % value addition by 2020 . The table below projects four-tiered manufacturing that is expected to take place in India with the proposed duty differential scheme :
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