India should have specific benchmarks on direct tax on the lines of China and Vietnam if it wants to create a globally competitive electronics industry, India Cellular & Electronics Association (ICEA) has said. The electronics body suggested that verticals other than mobile phones should also be given a push.
The ministry of electronics and IT has released a draft electronics policy, which aims to create a $400 billion turnover in the electronics manufacturing ecosystem by 2025. However, as the majority of the amount is linked to mobile phones, experts feel that momentum should be created in other verticals also.
“The draft policy recognises the progress made in the mobile phone and related component ecosystem in the last three years. It lays down almost complete responsibility of achieving $400 billion by 2025 on mobile phones and components. We have to create a huge momentum in other verticals also while consolidating the mobile phones segment and that is a correction which has to be made,” chairman of ICEA Pankaj Mohindroo told Business Standard.
He further said the government needs to benchmark more specifically in direct taxes with geographies like Vietnam and China. “We cannot establish a globally competitive electronics industry without these benchmarks,” he added.
In the draft policy, the government has proposed to provide suitable direct tax benefits for setting up a new manufacturing unit or expansion of an existing unit. The policy also proposes to promote a forward looking and stable tax regime, including advance intimation to the industry to plan investments in the form of phased manufacturing programme (PMP) in various segments of electronics, with a sunset clause.
It has also been recommended to increase income tax benefits on expenditure incurred on research and development (R&D) in the electronics sector. However, of the $400 billion turnover in the electronics manufacturing ecosystem, $190 million is slated to be achieved from mobile phones. The proposed policy aims to double the target of mobile phone production from 500 million units in 2019 to 1 billion by 2025 so as to meet the objective.
According to the draft, the government plans to end the modified special incentive scheme with plans that it will find easier to implement such as interest subsidy and credit default guarantee, among others.
Modified special incentive package scheme (M-SIPS) was launched in 2012 and provided for capital subsidy of 25 per cent for the electronics industry located in the non-SEZ area and 20 per cent for those in the SEZ areas.
“The government expects demand of electronic products to reach $400 billion by 2023-24. This would be a huge foreign exchange outflow, which may further widen our trade deficit with other nations. Hence, the government plans to push local electronics manufacturing to cut down on their import bill,” said Hanish Bhatia, senior analyst, Devices & Ecosystems, Counterpoint Research.
Production of mobile handsets, TVs and LED products (such as light bulbs) has gone up significantly in the recent past, primarily due to adoption of a robust duty structure in conjunction with PMP and incentivisation of local manufacturing through schemes such as M-SIPS.
“The new draft policy touches upon the industry pain points and attempts to address them. For instance, exemption of duty and easier passage on capital equipment/machinery in India will encourage global firms to set up their manufacturing operations in India. Similarly, the government wants to boost the component supplier ecosystem by incentivising via investment-linked deductions and subsidies,” Bhatia said.
The government also wants to make India an export hub for electronics goods, targeting African and SAARC nations as key markets.