It’s been over six months since Prime Minister Narendra Modi’s pet projects – Digital India, Make in India and Net Zero Imports by 2020 – were announced. These initiatives were touted to make the country self-sufficient in goods and services, lower the import bill, and develop the indigenous industry in electronics, computing and information technology (IT). However, its implementation is yet to gather steam, and this is creating a sense of discomfort for the electronics industry
By Prashant Deshpande
The Modi government, once it was settled, announced three vital initiatives for the electronics industry – Digital India, Make in India and Net Zero Imports by 2020. It said the government would make the country self-sufficient in goods and services and lower the import bill. Clearly, the focus of these three initiatives was to fully develop the indigenous industry in electronics, computing and information technology (IT).
It is been over six months since these initiatives are announced but the end results are far from satisfactory. Frankly, not much earth has moved yet and half-hearted measures mean that implementation will take long time.
All the initiatives mentioned above are huge demand generators. But in order to achieve them, the government should have supported the manufacturing sector. Though there seems to be some intent, very little has been done for the IT hardware manufacturing sector. Sadly apart from incentivizing tablet computers and mobile phones there is nothing for other segments.
Consequently, underdeveloped component industry and lack of competitiveness with global players remain the major hurdles facing electronic industry. The Union Budget 2015-16 has been a major setback towards electronics manufacturing. Taking care of inverted duty structure was the only saving grace of the Budget. However, other measures did not boost the industry and were in fact detrimental.
To encourage indigenous tablet manufacturing all imported parts, components and accessories for the purpose of manufacturing were exempted from duties such as basic custom duty (BCD), countervailing duty (CVD) and special additional duty (SAD). Mobile phones were also given similar exemptions.
Unfortunately, however, the notifications pertaining to these exemptions reveal a different story and unfold a disturbing reality. The notifications have been worded in such a manner that a prospective ‘manufacturer’ can import the tablet or mobile phone in a semi-knocked down condition. By using mere screw driver assembly process he can call it a “manufactured product” and reap the benefits of import duty exemptions.
This is worse than open arm trading because not only will manufacturing be stunted, there will also be a sizeable revenue loss to the government. Further, the component industry in India which is still emerging will lose its steam forever. Thus, instead of promoting manufacturing this well intended measure of giving duty exemptions will only serve to kill industry once and for all. This is unacceptable and unforgivable.
There are few measures which need to be taken up immediately if ‘Make in India’ has to succeed even on modest note. First and foremost, notifications of customs duty exemptions must be amended so as to keep populated circuit boards (PCBs) out of the purview of duty exemption through Customs General Interpretative Rules wherein it is clarified that the goods imported in SKD form will be denied benefits of exemptions of duties provided to the parts by invoking Rule 2(a) of the General Interpretation of Rules. By way of this measure enough of essential manufacturing activities shall start happening immediately and in due course the component industry shall also develop in the country.
The thrust should be on developing a self sustaining ecosystem of electronics system design and manufacturing (ESDM) by nurturing local talent that is struggling to create indigenous intellectual property. Supporting and encouraging domestic component industry is possible through developing clusters that synergise, create and develop markets locally that provide preferential status for locally-developed technologies and products, and incentivising exports. A well-strategised effort in this direction will put a strong foundation our indigenous electronics industry there by helping the economic growth and most importantly job creation.
Next is to aim for net zero imports through strong domestic electronic component industry. At present, the component industry is practically non-existent which means that whatever manufacturing happens is fully import dependent. Hence, to add robustness to our manufacturing eco-system and substantial value addition to the products being manufactured locally the need of the hour is to have home growth of electronic components, import substitution and innovations.
A ‘component trading hub’ must be formed immediately which will operate as an extended arm of the manufacturing industry. Here all the various components shall be stocked and shall be made available within the shortest time, with the minimum logistics. This will help trigger huge economic chain of activities and will help boost domestic manufacturing considerably.
In order to boost our exports, we need to be globally competitive for which the economies of scale shall have to be reached. Markets of Africa, the Middle East and SAARC countries are fairly nascent, and India by virtue of its strategic location is in excellent position to serve all these countries expediently. Engagement with top ESDM companies and their willingness to do investments in India has to be ensured through proactive measures.
In order to provide a boost to exports, benefits under the present Merchandise Export from India Scheme (MEIS), which is an export promotion scheme, should be extended to a few other electronic products including wired and wireless products so as to achieve economies of scale and attain net zero Imports.
Electronics imports rank third in our import basket by value and are next to only petroleum and gold. The demand for electronic goods in 2015 is projected at $95 billion and is going to touch $400 billion by 2020.
Presently, 95 per cent of electronic demand is being met through the imports and if this trend continues, our electronics imports bills could even surpass petroleum bill much before 2020. Demand for electronic devices is huge in the country. From handsets to servers and tablets to televisions or headphones to home theatres, domestic consumption is increasing briskly.
Considering the fact that this country has a potential to generate a demand twice that of European Union and four times that of Australia, it is but natural that little farsightedness is enough to embark upon programmes just as avowed as Digital India and Make In India.
As for Goa’s electronic industry, it remains in a totally embryonic stage. Withdrawal of concessional rate of 0.25 per cent CST on the IT products was the first impediment and after that there were hurdles galore. Concessional rate on CST was the only incentive provided by the state that enticed manufacturing units to invest here. Some of the top IT hardware companies had their warehouses here from where they would stock and sell. Presently, companies are no longer inclined to stay in Goa. The logistics cost to get goods into Goa and then sell is very high and a major deterrent.
The state government has announced setting up of an ESDM cluster, but there seems to be no mechanism or strategy in place to drive this. How will the 50,000 jobs be created without units coming to the state? Over and above the existing units now would feel the pinch of burden of CST and may look to either scale down operation or move out of Goa. With all around inertia in putting in place the right policies the IT hardware industry in Goa is not even budding.
(The author is the vice-president of Smartlink Network Systems Ltd, Verna)