SPOTLIGHT ON INDIAN ELECTRONICS Spotlight on Indian Electronics | Page 77

NET ZERO IMPORTS
# Particulars Net gain to PC manufacturer
- 12.5 % represents the present excise duty on PCs,- 2 % represents the differential duty for PCs without the provision for input tax credit, and- 0 % represents the non-availability of any input tax credits.
2 If a differential duty regime at 2 % of Central Excise duty is also introduced for key components such as populated PCBs and SMPS, assuming that:- PCBs and SMPS constitute 15 % of the cost of the PC- CVD applicable at 12.5 %,- Zero import substitution of such key components initially, Then the net gain for PC manufacturers would be( 12.5 %-2 %) –( 12.5 % x 15 % of total cost)
3 If a differential duty regime at 2 % of Central Excise duty is also introduced for key components such as populated PCBs and SMPS, assuming that there is full import substitution of such key components and all such components are domestically procured Then the net gain to the PC manufacturers would amount to( 12.5 %- 2 %) –( 2 % x 15 % of total cost)
8.625 %
10.2 %
In the above example, we see that the net gain to PC
Increased domestic production would result in additional
manufacturer( or reduction in revenue cost to the government)
domestic value added, which in turn would yield additional
due to introduction of a differential duty regime for PCs is
income and consumption tax revenues to the governments.
reduced marginally from 10.5 % to 10.2 % due to the
These so called multiplier effects( i. e., additional value added
simultaneous introduction of a differential duty regime for
in the economy) would vary in the short term and long term.
some key components. Such reduction in revenue cost for the
In the short term, there would be substitution of domestically
government will also be accompanied with greater value
assembled / manufactured finished products for imports, with
addition and job creation within the country. In due course of
no increase in the domestic production of components and
time, as economies of scale are built up, the differential duty
parts. The quantum of additional value added from such
regime could be extended to more components, encouraging
substitution would be modest, as assembling of imported
further value addition and job creation within India.
products generates domestic value addition of only 5.5 % of
Positive revenue impact of multiplier effects
total output value of finished products. The value addition( and
The degree of substitution of domestic products for imports
the resulting multiplier effects) would be much larger if the
could vary depending on the nature of competition between
policy measures also result in increased domestic production of
the two. It would be unrealistic to assume that domestic
components and parts.
manufacturers would be able to capture 100 % of the domestic
The short-term improvement in value addition is estimated to
market. For illustrative purposes, we have shown revenue cost
be modest, even assuming that imports of finished products
assuming there is 100 % reduction in imports.
are reduced to zero. The longer term improvement in value
A limited survey of major producers in the country suggests
addition would be much larger.
that they do have substantial unutilized capacity, and would be
The table below provides some possible scenarios in terms of
able to ramp up production very quickly to at least double their
additional employment, income and tax revenue generation.
share in the domestic market.
# Description A
Units
FY15( est.)
DEMAND
Total demand( est.)
Mln nos.
10.60
11.21
12.33
14.80
17.76
21.31
FY16( est.)
FY17( est.)
FY18( est.)
FY19( est.)
FY20( est.)
- Domestic production Mln nos. 2.50 2.68 6.17 11.10 15.98 21.31- Import Mln nos. 8.10 8.53 6.17 3.70 1.78 –
B
EMPLOYMENT
Assembly – average employment per million units
Nos. 658
Employment multiplier for
No.
2
2
3
3
4
4
component mfg.
Total employment( est.)
Nos.
4,935
5,292
16,227
38,944
46,733
56,079
- Assembly Nos. 1,645 1,764 4,057 9,736 11,683 14,020
- Component manufacturing Nos. 3,290 3,528 12,170 29,208 35,049 42,059
Spotlight on Indian Electronics 2016 | 77