Electronics Industry

Government is targeting Net zero imports in electronics by 2020

A growing middle class, rising disposable incomes, declining prices of electronics and a number of government initiatives have led to a fast-growing market for electronics and hardware products.

The government is set to bring out a new policy to spur domestic electronics production by March 2018 in a bid to boost its flagship ‘Make in India’ programme and curb the country’s trade deficit.

The government had first unveiled an Electronics Manufacturing Policy in 2012, which included schemes such as Modified Special Incentive Package Scheme and electronic development fund.

The new policy is likely to take a re-look at the utility of these schemes which have either ended or will expire soon.

Innovation, R&D: the revised National Policy on Electronics will strive to increase the competitiveness of the electronics manufacturing industry; innovation, R&D and start-ups; promoting research in emerging technologies and India-specific initiatives and strategies to promote/ incentivise exports in electronics system design and manufacturing.

Key Fact: Domestic consumption of electronic hardware in India was $63.6 billion in 2014-15. Imports stood at $36.9 billion, as per NITI Aayog.

Of the country’s total demand for electronics, between 50-60% of the products and 70-80% of the components are imported. India’s imports of electronic goods grew 31% between April and October 2017 to $29.8 billion.

A report by Deloitte Touche Tohmatsu states that expenses on electronics imports could surpass those on oil imports by 2020.

Moreover, the industry has the potential to provide millions of jobs, directly and indirectly

India’s share in the global electronics market was a minuscule 1.6% of the market in 2015 that is currently valued over $1.75 trillion.

Between 2000 and 2015, hardware production in India increased from Rs31,100 crore to Rs1.02 trillion. Meanwhile, information technology (IT) services revenue increased from Rs37,750 crore to Rs8.4 trillion.

First is the inverted tax structure for electronic goods. Due to a limited base of local component suppliers, manufacturers are dependent on importing parts. Under the World Trade Organisation’s information technology agreement of 1995 (ITA-1), tariffs on 217 IT products were set at zero.

However, the positive custom duties on the components (or parts) used in electronic products make it expensive for domestic manufacturers to compete with foreign competitors who can access the components at lower prices. The solution is to bring the duties on components down to the level of the product.

Second, foreign direct investment (FDI) in electronics is less than 1% of the total FDI inflow because of onerous labour laws, delays in land-acquisition and the uncertain tax regime have kept investors at bay.

Third, the procedures for cross-border trade work against the competitiveness of Indian producers as shown by the Doing Business rankings—India ranks 146 in the category of trading across borders due to the high costs of compliance.

The numerous forms, fees, inspections and the associated time discourage domestic producers from exporting and keep them out of the international supply chain.

Government has listed the electronics industry as a priority sector under its Make In India campaign.

The Centre has increased customs duty on several electronic items including televisions, mobile phones and microwaves

The duties have been hiked to make the import of these goods more expensive and thus lending a fillip to its ‘Make in India’ programme.

The move is viewed with twin objectives of increasing revenue as well as to encourage more manufacturing and value addition in India.

There are various government schemes to encourage domestic manufacturing which provide tax and tariff concessions, investment subsidies, preferential market access in government procurement and export subsidy