Will the hike in custom duty increase local manufacturing?
Christmas arrived early for the Indian electronics industry as the finance ministry played the perfect Santa by hiking basic customs duty (BCD) on a few consumer electronics products of mass consumption. These include TV sets, settop boxes, CCTV equipment
The Electronic Industries Association of India (ELCINA) has welcomed the announcement from the Ministry of Finance to raise basic customs duty (BCD) on a few popular consumer electronics products, reassured that this move underlines the government’s commitment to promoting local manufacturing in the electronics sector. “But the catch here is that we need to guard against the existing Free Trade Agreements (FTAs) being misused to evade this increased BCD, which will enable the import of these products to continue,” says Rajoo Goel, secretary general, ELCINA.
According to Goel, the main challenge is in the case of set-top boxes (STBs), which are included in the Association of South East Asian Nations’ (ASEAN) FTA. Due to the threat of FTAs, the electronics industry has made a strong plea to the government to exclude electronics from the RCEP (Regional Comprehensive Economic Partnership), which is a mega FTA between ASEAN and six other countries, including China and India.
Goel adds that the next step towards promoting higher value addition in the Indian EMS sector is to discourage the import of populated PCBs. Therefore, ELCINA has recommended that all populated printed circuit boards (PCBs) should be subjected to the same BCD as that charged on the finished equipment they are meant for. This will promote electronics manufacturing services (EMS) and drive demand for local components, creating huge employment opportunities in the electronics manufacturing sector.
Goel concludes by saying, “The industry must not succumb to the temptation of raising the prices of these products, but should invest
in additional manufacturing capacities to increase value addition and become globally competitive.”
Talking to Electronics Bazaar on the condition of anonymity, a senior member of the Ministry of Electronics and Information Technology (MeitY) says, “In the electronics sector, once you have large scale manufacturing, you can produce cheaper goods but right now, that scale has not been achieved, so the cost of production is high. If we give manufacturers protection for a few years, the scale of production could go up. We are seeing traction and huge demand, which will help the industry to scale up in local manufacturing.”
A shot in the arm for local manufacturing
On the road towards large scale local manufacturing, the distance to be covered is very long, but the journey begins with this first step of increasing the BCD, feel the manufacturers. The custom duties, GST and the upcoming Budget can provide the strong push needed to strengthen the market and make it more organised.
The president of the Electric Lamp and Component Manufacturers Association of India (ELCOMA), Shyam Sujan points out that the LED business in India has already crossed a turnover of around US$ 2 billion; he expects this figure to cross US$ 4 billion by 2020.
Sujan says, “That’s the kind of ambitious jump we want to achieve. So far, our plans are as per the projections that we have made. Even as we demand lower GST, we are happy with the present taxation system.”
There is a sense that the LED and set-top box sectors will witness the biggest boom because of the extensive demand for these products in the market. For the last six years, the government of India has been promoting the digitisation of cable television and the use of LED lights, so there is no stopping growth in these sectors. It may be recalled that in March 2013, the government had raised the import duty on STBs to boost local manufacturing. And recently, the government repeated the move in a fresh bid to boost domestic production of STBs by increasing the import duty to 20 per cent.
Local manufacturers are also expecting favourable announcements for the electronics industry in the upcoming Union Budget, which can give a major push to domestic manufacturing across the country.
Ashwini Aggarwal, president of India Electronics and Semiconductor Association (IESA), says, “This is a clear message to the local industry that the government is supporting it. The notification is well-timed and will be received very well by the industry.”
Aggarwal explains that this move of the government is a change in mindset. He says that the government is breaking out of its earlier mindset of making just a token adjustment to the duties, and is trying to rationalise them as required by the Indian marketplace. If this move impacts some of the most demand-intensive sectors of the nation, the result will be far reaching.
When asked if it’s the first step to fulfilling the dream of extensive local manufacturing, Aggarwal replied, “This is a tipping point.”
Manufacturing opportunities ahead
Pankaj Gulati, president, ELCINA, shares that this notification is definitely going to impact the industry, especially the EMS sector, and boost local manufacturing. Set-top boxes, LED lights, energy meters and flat panel displays will witness the biggest boom.
Gulati also mentions that developments will occur in phases for now. In the first phase, more EMS firms will bring out assemblies of products. In the second phase, local procurement of base level components will start.
Manish Sharma, president, Consumer Electronics and Appliances Manufacturing Association (CEAMA), thinks that this hike in the import duty will not lead to major price hikes because the duty structure for local manufacturing remains unchanged. But it’ll create a good number of job opportunities and enhance domestic manufacturing.
As of now, while widespread local manufacturing still seems distant, it looks like a new path has been carved out to achieve this goal. The immediate impact of the higher import duty, however, has been an increase in the price of some mobile phones and television sets. Going forward, things will settle down, but price hikes have been witnessed in December 2017, particularly in the consumer electronics market.
ashwini aGGaRwal, president of India Electronics and Semiconductor Association (IESA)
Rajoo Goel, secretary general, ELCINA