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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