Elementor #2185

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26 Nov 2019

Electronics manufacturing is amongst the nine pillars of the Digital India Initiative, which also has an in-built ambitious vision of Net Zero Electronics Import by 2020. At present, more than half the demand continues to be met through imports. India’s share in global production is only about 2.5%. The sector presents a huge opportunity for manufacturing in India, if certain constraints are eased.

Compensation of Disabilities

ICTE manufacturing in India suffers disadvantages as compared to its international counterparts, on account of the high costs of finance, power and logistics. The disability increases with value addition and is estimated to be about 10% for 50% value addition. While such high costs impact the entire manufacturing sector, it is a matter of serious concern for the ICTE sector which is the first industry in the country to face elimination of duty on account of India signing the ITA-1 agreement. The industry is finding it difficult to compete with imports at zero duty.

CII requests the Government to allow weighted deduction of the cost of power, finance and inland transportation as captured in the audited balance sheet from the taxable corporate income.

Making Manufacture of ITA-1/ Zero Duty Products Competitive

DTA sales of ITA-1/Zero Duty electronics products manufactured in the country need to be given the status of physical exports and extended all benefits of export schemes as per provision 2.1 (b) in the NPE 2012. This would help in the development of a tier-2 industry.
Inverted duty on account of FTAs impacts domestic manufacturing, and needs to be corrected to encourage ‘Make in India.’
Income Tax holiday for domestic manufacturing of ITA-1 products.

Correction of Inverted Duty

The inverted duty structure on LED televisions wherein the key input which is the Open Cell (which constitutes almost 65% of the total cost of the material) attracts a basic customs duty of 5%+ surcharge, whereas the finished product attracts a duty of 0% under the ASEAN FTA, resulting in large imports. CII calls for reducing the duty on Open Cell to zero, and reduction in duties on other imported parts of back light units for domestic manufacturers.

Development of Components Base

Extension of Modified Special Incentive Package Scheme (M-SIPS) for components for another 3 years: The M-SIPS was notified on 27.7.2012 to offset disability and attract investments in electronics manufacturing. The scheme is available for both new projects and expansion projects. There is a need to extend the M-SIPS for components for another 3 years.
Several electronic components (resistors, capacitors, EM components) have been covered under the ITA-1, and the BCD has been reduced to zero. A number of these components are also used for manufacturing non- ITA-1 products. It is suggested that ITA-1 should include only those electronics components specifically used for ITA-1 items. In this context, the list of components covered under ITA-1 list needs to be reviewed.
Investments in components to be considered towards discharge of defence offset.

Ramping-up Exports

To encourage exports, and to meet the ambitious vision of Net Zero Trade in electronics, it is recommended that 100% income tax exemption be given on export income to ICTE manufacturers in the DTA.

Need to have a single entity to address DTA/export markets.
Sign FTAs with consuming regions such as the EU, the Middle East and South Africa.
Encourage large manufacturers to set up regional manufacturing hubs in India with an attractive built-in exports clause.

Development of Demand

The scope of the PPO may be extended to also cover State Government purchases.
Government purchase organizations may be advised to give periodic compliance reports with respect to their purchases.
Implement national projects such as Digital India, Smart City projects, etc with domestically-manufactured products.

Encouraging Design-led Manufacturing and R&D

R&D lab facilities should be made available to the ICTE industry for R&D activities. To encourage the use of domestically-manufactured components in the final product, it is important that the design is also done in the country. There is a strong need to incentivize ‘Designed and Manufactured’ in India.

Restore incentives on in-house R&D and extend these to outsourced R&D too.

R&D units are unable to raise working capital for the exploitation of their inventions. A separate fund for supporting these should be created by the Government.