Information technology (IT) industry has played a key role in putting India on the global map and has over the years emerged as one of the most significant growth contributors for the Indian economy. While the Indian electronics sector has been witnessing a consistent growth in terms of market size, India lags behind in electronics hardware manufacturing capabilities due to myriad challenges including high cost of power and finance, high transnational costs, prevalent tax structure, getting permits & licenses,absence of component ecosystem and poor base of supply chain.
Over the past two years, the Government of India has implemented a host of reforms which has been reflected in the World Bank’s annual Doing Business 2017 report which recognized India’s achievements in implementing reforms in four of its ten indicators – Trading Across Borders, Getting Electricity, Enforcing Contracts and Paying Taxes. GST will herald a new regime of indirect taxation and iron out the intricate tax issues that will simplify operational constraints of running business in India thereby improving the country’s rank on ‘Starting a Business’ and ‘Paying Taxes’.
However, if India needs to break into the top 100 countries on the World Bank’s index from its current rank of 130, government should focus on ease of running business and market acceleration of IT products, as it can help digitization while improving communication, social inclusion, economic activity and productivity across sectors. The best way to reap demographic dividend in our country is by digitization. Digitization has improved communication, social inclusion, economic activity and productivity in key sectors such as agriculture, health, education and finance.
The Government of India has been making significant efforts towards achieving its agenda of ‘Make in India’ and ‘Digital India’. Policy of ‘net zero imports by 2020’ through electronic manufacturing is one of the key pillars under Digital India. In the past couple of budgets, the specific agenda of the government has been to encourage domestic manufacture of electronic equipment such as mobile phones, tablet computers and consumer premise equipment (CPE) by way of duty differential scheme.
The initiative of the government has culminated into investments into India for the purpose of setting up of manufacturing facilities and overall growth of the sector. NITI Aayog’s paper ‘Make in India strategy for electronic products’ has taken the discussion to next level towards exports oriented strategy. This calls for reorientation of trade policy & infrastructure to ensure that the industry becomes competitive in export markets and hub for global manufacturing.
With Goods and Services Tax (GST) being on the horizon, the industry eagerly anticipates that the significant initiative of Make in India enjoys patronage under the GST regime and the concessions provided to encourage and sustain indigenous manufacturers.
To give boost to electronics manufacturing in India, it is, therefore, necessary to propose extension of concessional excise and customs duty exemption benefits to all ITA goods especially desktops, laptops, and servers. One of the key reasons for extension of duty differential schemes to personal computers is the relevance and importance of it in making the real digitization happen by enabling maximum productivity for users. Out of all technological devices Personal Computer has an advantage as it can help in content creation as well as creating job, gaining skills, help in education and earning livelihood.
If we want make Digital India and Skill India a reality, it is imperative that every urban household is empowered with a multi-functional device such as personal computer which is an ultimate device for evolved and engaged citizen. Duty differential scheme will remove the existing disability and reduce the ownership cost and eventually lead to broader penetration.
While all the efforts of the government from policy and reform perspective are laudable, government should incentivise manufacturing for exports so that India become a strategic node to cater to the needs of global & domestic market taking advantage of lower cost of manufacturing & recent duty differential benefits.
Furthermore, in addition to supporting electronic manufacturing it is essential to build the required ecosystem that is components for manufacturing of electronics and IT goods in India as the ecosystem is nonexistent. Requirement of a robust infrastructure in terms of connectivity and bringing down the cost of logistics is a must.
While the lead time for procurement of components by sea is huge, the cost of importing components by air is exorbitant. Additionally the cost of warehousing in countries like China, Hong Kong, and UAE is huge. In India, the cost of warehousing is comparatively very low. Therefore, in line with building a viable eco-system for electronics & IT hardware manufacturing, it is recommended that a concept of ‘Component Hub’ be formulated as a viable solution to build manufacturing ecosystem in India.
Given that SMEs form the backbone of India’s economy, the vision of Make in India campaign can be effectively met by ameliorating the state of SMEs in India. If we want to be self-sufficient in electronic manufacturing and propagate more local value addition, we should engage and empower SMEs.
Lastly, India being a federal structure, there is a need of regular and mutual coordination between the states and the centre for setting up a robust infrastructure, integrated supply chain and various regulatory and compliance ease. We need to develop an eco-system that will simplify and reduce the cost of doing business to help India compete with the global counterparts. There is also a need for the integration of human resource and skill development for the growth of electronics sector.
Thus, in line with the agenda of the government, which intends to encourage manufacturing capabilities in India, we need to have more inclusive approach towards developing ESDM (electronics system design and manufacturing) ecosystem that will enhance India’s appeal as an attractive investment as well as manufacturing destination.
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