Tech Hardware Industry Seeks Changes to Import Duty Structure.

NEw Delhi: India’s $16 billion technology hardware industry has asked the finance ministry to change the so-called inverted duty structure that makes it cheaper to import finished goods than to assemble them locally. The duty structure is acting as a dampener on government efforts to turn India into a hub of electronics manufacturing, its critics say.

Companies lack an incentive to assemble electronic products locally, said Alok Bharadwaj, senior vice-president of Japanese camera and printer maker Canon Inc.’s India unit.

“Why will companies take the trouble of importing individual components and assembling them here when they can import finished goods for less,” said Bharadwaj, who is also president of the Manufacturers’ Association for Information Technology (MAIT), the hardware industry lobby that has asked the finance ministry to change the duty structure as part of recommendations for the national budget to be announced on 16 March.

According to an executive at a multinational technology company, the inverted duty structure had nearly forced a leading hardware manufacturer to shut its factory in the country. “As it is, there is so little electronics manufacturing happening in the country,” said the official, who didn’t want to be named. “If the government is serious about attracting companies to set up shop here, then this duty has to be removed as the first step.”

Electronics demand in the country is projected to grow at an annual 22% to $125 billion (Rs 6.15 trillion) by 2014 and to $400 billion by 2020.

According to government estimates, India will be importing over $300 billion worth of electronics by 2020 if local manufacturing is not incentivized. The cost of importing electronics may end up exceeding the crude import bill.

The department of information technology is working on a comprehensive national electronics manufacturing policy that includes sops for setting up semiconductor fabrication units and preparing a blueprint for creating industrial clusters with the requisite infrastructure for manufacturing electronics.

It will also specify standards for electronics imports to stop spurious goods from entering the country.

The Union cabinet also recently approved a proposal to reserve 30% of all government electronic procurement for companies that can add at least 25% of domestic value to products.

The current countervailing duty (CVD) on most components of importance for the industry, such as processor units, cabinets, memory modules and graphic cards, is 10.3% and the current rate of special additional duty (SAD) is 4%, which makes for an effective duty of 14.73%.

While some finished goods attract zero per cent duty, others are taxed, with the upper limit being 10.3%. MAIT has also asked the finance ministry to clarify whether packaged software should be treated as goods or services.

“If the same is considered as service, directions should be issued to state VAT (value added tax) authorities to exclude levy of VAT on software transactions,” its statement said.

In its other recommendations, MAIT suggested schemes to finance personal computer (PC) purchases, including bank loans at low interest rates, subsidizing broadband access in rural areas, and provision of solar power backup to village council offices to run PCs and log onto the Internet. MAIT has also called for a policy to replace all old CRT (cathode ray tube) monitors, PCs and printers that are more than five years old to cut energy consumption.

Source : livemint.com