Union Budget 2020: What do the Associations expect?

There is a week left for the Union Budget 2020, and speculations over what Finance Minister Nirmala Sitharaman may deliver this time around are reaching feverish pitch. Can she deliver a major set of policies on electronics? Will there be a tweak in Telecom sector? ELE Times has shortlisted a few expectations on the Electronics front, taking into account all the pulls and pressures the government will be dealing with in this annual exercise.

Commenting on the expectations for Budget 2020, Sandeep Aurora, Vice President – Business Development & Govt Affairs, IESA said,  “The intelligent electronics & semiconductor ecosystem would like to see – Sustained incentives to promote local manufacturing which not only fulfills the local demand but also enables India to become an export hub for electronics. It is thereby imperative to create value addition based taxation, for e.g. more than 30% value addition should enable 1-step lower GST rate applicability to encourage local manufacturing. Speedy approvals & tax holiday for infrastructure developers creating manufacturing infrastructure for companies to set up operations in India, this will help in attracting manufacturing investments into India as more & more companies look at plug & play facilities. Funding support for Start Ups in Embedded design and Chip design would further build the start-up community in the country. With 5G becoming a priority for “Make in India“, it is necessary to imbibe strong incentives with defined goals for local manufactured ecosystem around 5G. A Budgetary allocation for India High and New Technology Enterprise (HNTE) Program would be highly beneficial.”

Highlighting the expectations for Budget 2020, Nitin Kunkolienker, President-MAIT said, “India, the second large populous country of the world, the country with one of the largest pools of technical manpower and a design centre to the world is a net importer of Electronics. India has an Electronics import bill of over 64 Bn dollars in 2019.

When India has such inherent strengths then why are we in this situation, while geographies like China and ASEAN countries have grown leaps and bounds?

It is a matter of aspiration, vision and excellence in execution. With India’s capability, it should aim to become the next global hub for electronic manufacturing and set a goal of cornering at least 20% of the Global market.

The MAIT report on “Enhancing the Export Competitiveness of India’s Electronic Hardware Manufacturing Ecosystem” highlighted the need for the country to shift its strategy from import substitution to export-led manufacturing.

The Report projects that the country is facing an import bill of 65 Bn$ just in the sub-sectors of PC, Servers, Mobiles and Datacom. If the overall electronics sector is considered, it will amount to approximately 125 Bn$, making it the second largest import bill after Oil.

Today we have economies competing to attract manufacturing into their geographies. India is at a cost disadvantage of up to 18% with respect to China, Vietnam, Taiwan and other SouthEast Asian countries. And the reason for the same is both the inherent infrastructure namely lack of component ecosystem, logistic inefficiencies, Ease of doing business and also the grey incentives offered by these economies.

Due to these, India is not the preferred manufacturing destination for global supply chain players.

In India today we have the manufacturing plants of all major PC & Server brands which command 95% of the global TAM.  However, the manufacturing and exports of these products are near zero. The study highlights the need for GOI to offer a production linked incentive of a minimum of 8% to the electronic manufacturing sector.

If we take these and other recommended interventions to turn India into an export led manufacturing country, we will become net foreign exchange positive at INR 104, 551 crores by 2015. The Electronics industry needs a bold budget that gives India manufacturing a level playing field with competing global economies.

Ease of doing business is another critical factor requiring bold reforms. There is an urgent need for States and Center to work closely and seamlessly to eliminate irritants and bring consistency between central policies and its execution by the states. It includes timely pay-outs of incentives, tax rebates by the state authorities. States to provide land, electricity, water connections at concessional rates. We must not forget that other countries are also trying out red carpet to attract manufacturers.

India needs to immediately re-negotiate the existing FTAs which are being misused by other economies, both in terms of value addition criteria and country of origin criteria.

To summarise India has an opportunity to become a global hub for electronics manufacturing in the sub sectors of PC & Servers, Mobiles, Datacom and Automobile electronics & Medical electronics. Generate employment and become a net foreign exchange positive in this sector.”

Speaking on the expectations for Budget 2020, Amrit Manwani, President-ELCINA and Rajoo Goel, Secretary General-ELCINA said, “Indian Electronics Industry is facing 10-12% disability in comparison with their international counterparts such as China, Vietnam etc. This is well identified disability and have a mention in government policy documents also. In this Budget Government need to address this disability and help the ESDM sector through following measures:

  1. Incentives for Capital Investment in Electronics Manufacturing

Scheme in line with the erstwhile MSIPS is required for Components (including Semiconductors), PCB’s & ATMP of Semiconductors by providing direct investment subsidy. It is important that the Scheme is simple to implement through a professional Financial Institution required for enhancing competitiveness. The recommended Capex benefit should be differentiated with higher benefits to MSME’s.

2. Electronic Component Manufacturing Fund:

A dedicated fund for the development of Component Manufacturing ecosystem should be floated on the lines of a Venture fund with Income Tax breaks on its earnings; thus provide low cost capital for high value added electronics manufacturers. Huge investments are required to achieve the target of Net Zero imports in electronics and output of US$ 400 Bn by 2025, envisaged at USD 100 Bn (INR 7 Lac Crores). This needs a mega pool of low cost funds to be invested in ESDM manufacturing and research.

3. EMC Scheme:

Promote Electronic Manufacturing Clusters by inviting State Governments to take ownership of smooth operation and success of Clusters; provide Plug & Play facilities to the interested manufacturers on attractive Lease agreements; reduce investment in land and infra and emphasis on sale of land; manufacturing is incentivized by availability of land for manufacturing at a low operational cost and the Cluster.

4. Opex subsidy/Working Capital Subsidy:

This provision was introduced under the MSIPS Scheme vide notification of 3rd August 2015 including high value added items such as semiconductor wafering, logic microprocessors, IC’s and components such as PCB, discrete semiconductors fab, Power Semiconductors Fab and ATMP etc.

It is recommended this Production Subsidy (OPEX) should be provided to Electronic Components by either of the two options below:

Production subsidy of 6% of consignment value should be provided to component manufacturers. This should be done on automatic basis with one time approval of the project by MeitY. The subsidy should be available for a period of 5 years and 3% for next 5 years.”