In a boost for the hardware industry, the government may allow free movement of finished goods into the domestic market from the special economic zones meant for exports. As per the present stipulations, only 25 per cent of the export volumes from units set up in these zones are allowed to be sold in the domestic market.
This will result in bringing down the cost of operations of most Indian hardware manufacturing companies.
At present, if a company wants to produce goods for export as a bonded unit and for the domestic market, it is required to set up two separate units for the two markets.
According to government sources, finance minister Yashwant Sinha is likely to extend this facility to the hardware industry in the forthcoming budget. This move by the government is expected to be the first step towards moving to a zero-duty regime for the IT hardware sector as required by the World Trade Organisation.
As per the present regulations, companies or manufacturing units operating in the special economic zones or bonded units can source components from international and the domestic market without paying sales tax or import duty. These companies are also allowed to ship finished goods from the bonded units for export with out paying any levies.
Besides, if the companies or their manufacturing units operating in these zones procure goods by paying levies from the local market, the government refunds the levies once the goods area shipped out of the premises.
If the restrictions on movement of goods go, the companies will be able to sell their entire output using components sourced without paying local taxes in the domestic market.
One of the most important aspects of this would be a drastic reduction in the prices of finished goods.
With the restrictions gone, companies will also be able to manufacture products for export and for the domestic market from the same production line, bringing down capital investment.