Electronics Manufacturing Sector Needs Direct Tax Regime Like China

ICEA also says that attracting component ecosystems is the only way of establishing India as a global electronics manufacturing destination  
(image credits – the blue diamond gallery)

Indian Cellular and Electronics Association (ICEA) has expressed disagreement with the draft of new electronics policy saying that it is inadequate for attracting global giants. The association has also suggested for providing special incentives to electronics manufacturers in order to make India an electronics manufacturing hub. It is to be noted here that China and Vietnam rule the electronics manufacturing game in the world.

According to a report by Economic Times, ICEA sent a letter to IT secretary Ajay Prakash Sawhney, which read, “A complete change in mindset is required in the political leadership, bureaucracy, industry and trade to focus on exports and not merely import substitution.”

Faisal Kawoosa, founder techARC, in a recent conversation with EFY on TVs and smartphones segment in India had said, “I think global brands will have more impact on India’s appliances and consumers industry. They have the technology, money, scale, and above all immense support from their respective governments. We don’t find the kind of support that would help serious local players grow in a competitive manner in India.”

Need of the hour in electronics manufacturing

The letter sent by ICEA highlighting the need of the hour for growing electronics manufacturing in India read, “Companies such as Apple, Samsung, LG, Oppo, Vivo, Huawei and Foxconn will require a special plan and outreach that need to be identified as part of the vision document.”

ICEA said that the demand for electronics hardware industry in the country is likely to hit $400 billion by year 2023 – 24. It is worth mentioning here that the new draft policy has presented an aim to double mobile phone production to one billion units by year 2025. India was able to manufacture around 500 million mobile handsets in 2019. The government is hoping that mobile handset exports will account for $110 billion in 2025.

Suggestions made by ICEA in regards to the policy, as per the association, lay wider emphasis on exports. The association believes that including these suggestions in the policy will help the government in achieving proposed targets.

Indian government has already adopted a manufacturing plan aiming to provide incentives to component assembly gradually. The country currently has over 250 manufacturing plants. Not being content, ICEA feels that the ultimate focus of this phased manufacturing plan can only be achieved by making India a base for electronics exports.

Further underlining the importance of Indian economy, the ICEA letter said, “The size of the Indian economy would be approximately $4.5-5 trillion by 2023-24. World over, the electronics industry is usually 3 to 4 per cent of the total size of the economy. Therefore, the size of electronics consumption in India is expected to grow between $150 billion and $200 billion by 2023-24.”

Competitive direct tax regime like China and Vietnam

The association believes that the Indian government needs to put in place a competitive direct tax regime, like the ones existing in China and Vietnam. Indian government, at the movement is planning to replace ‘modified special incentive package scheme’ with schemes that the draft electronics policy believes will be easier to implement. Some of these include subsidy on interests and credit default guarantees.

Faisal Kawoosa, founder techARC, said, “The government has discussed about replacing or modifying these initiatives. But, the draft NPE 2018 does not specify how and what would these be replaced with. If the policy document is not clear about how to replace these initiatives to make them more fruitful, then what is the purpose of coming out with a refresh of the policy?”

It is a known fact that the global electronics industry is driven by component ecosystems. ICEA said that attracting these ecosystems is the only way of establishing India as a global electronics manufacturing destination.

The ICEA letter read, “Sadly, Brazil has failed to achieve any of the policy objectives it had originally set out to achieve. Therefore, National Policy on Electronics in India must focus on improving manufacturing competitiveness and competencies with special focus to tap export potential.”