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Creating a Bargain Position for India in Hardware Recommendations for Budget 2002-03

Why Focus on IT Manufacturing

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Creating a Bargain Position for India in Hardware Recommendations for Budget 2002-03

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    1. Creating a Bargain Position for India in Hardware Recommendations for Budget 2002-03

    2. Why Focus on IT Manufacturing & Hardware IT Manufacturing governs and determines the competitive of a nation IT/Electronics exports account for 47% of S’pore GDP and 65% of Malaysia China’s hardware exports: USD 26 Bn in 2000 Will help build bargain position Shield India from the vulnerability of Sanctions from countries controlling technology and production Huge potential for employment generation for unskilled labour Hardware focus essential to remain competitive in software Estimated cumulative hardware requirement by 2008 in the India to meet software exports target of USD 87 Bn: USD 160 Bn will be a significant drain on forex reserves if everything is imported The future is in embedded systems and applications - hardware knowledge is critical to build this competence

    3. The Challenges for hardware Industry in India Indian IT Industry faced with zero duty regime as per our commitment under ITA WTO Non IT Inputs may continue to attract duty while end product would be at nil rate: Inverted Tariff Structure Fast changing Technology environment - Convergence will throw out of gear the existing products Falling share in terms of global scale: less than 1% of Global Fast depleting manufacturing base Lack of Government support to hardware manufacturing Velocity of doing business: very slow; high turnaround time: No exports Poor/ marginal investments in manufacturing - just about Rs. 1,300 crs.since liberalisation Frequent policy changes have eroded investor confidence; Industry cannot do long term planning

    4. The Challenges of Globalisation... India Need to build strategy around technology Domestic market: increased Grey market and piracy High price sensitivity of the market coupled with high local taxation has stymied IT penetration PC penetration in India – 6.2/1000; World average: 26/1000

    5. What we aim to achieve: A Bargain position in Hardware Vibrant manufacturing base for Hardware Creation of Indian IPR through focus on hardware and firmware designs and creation of High end technology Increased IT penetration in the country through ‘affordable IT’ and ‘Killer hardware applications’

    6. Strategy for Creating a Bargain position in Hardware

    7. What we need from the Ministry of Finance ITA - WTO implementation: 2005, not 2003 ‘Concomitant’ to the phase out the Government had committed: Nil customs duty on Capital Goods for Electronics manufacturing Phase out customs duty on all input/raw materials including items of dual usage: Customs duty on inputs varies from 0% to 35% Reduction in transaction/turn-around time to international levels for exports and imports The above is yet to be implemented Follow India’s commitment to WTO on duty Phase out: Year 2002-03 2003-04 2004-05 2005-06 Peak Rate 15% 15% 10% 0%

    9. What we need from the Ministry of Finance

    10. What we need from the Ministry of Finance Rationalisation of Customs Duty: Correction of inverted tariff structure Customs duty on all Capital goods for Electronics manufacturing including tools, dyes, moulds etc. should be brought down to nil from existing 25% Customs duty on input raw materials including dual usage items eg. Steel, Plastics, Chemicals etc. should be reduced to nil as finished goods in most cases are already at nil rate A list-based exemption or a special scheme for hardware manufacturing may be considered Uniform Excise duty on all IT products (HSN 8471; 8473.30) at 8% Essential for combating Grey Market: 35% of PC market is grey through excise and sales tax evasion (Total unorganised market is 53 % of PC market) Essential to bring down the price of IT products Loss of revenue in initial two years will be more than offset by volumes generated in the third year

    11. Remove 4% Special Additional Duty (SAD) Increase the rate of depreciation on IT products/PC (HSN 8471) to 100% from existing 60% This will enable Small and Medium Enterprises to invest in IT and stay competitive Businesses can donate used IT products to schools/colleges as book value after one year will be nil What we need from the Ministry of Finance

    12. Simplification of procedures for exports and imports Clearance time for imports (from landing to physical clearance) and exports (from bonded premises to vessel) should be reduced from existing average 7 days to 6 hours Self declaration based clearance for all IT/electronics products for exports and imports Customs to work 2 shiftsX365 in at least 4 metros (airports and seaports) and Bangalore, Hyderabad and Goa Cooling off period of 24 hours to be discontinued for exports6. What we need from the Ministry of Finance

    14. Simplification of procedures for Excise Duty Set the rules for transaction value concept for assessment, as currently there is tremendous interpretation issues with different authorities. Monthly payment of Excise duty in place of fortnightly payment. No Bond (of exports value) in case the exporter has received advance payment for exports or has confirmed LC. The bond is not lifted even after the export obligations are met and the export realization is completed. The Bond is lifted only after the closure of advance licenses.  There should be time limit to close all assessments and appeals say 2 years There should be settlement commission for excise Follow the Income tax model What we need from the Ministry of Finance

    15. Create Manufacturing Zones: Island of Infrastructure Excellence Option –I: DTA Scheme: ICT Habitats Permit duty free import of: Raw materials including dual usage items All Capital goods No restrictions on Sales into DTA or for Exports Nil Corporate tax for 10 years to encourage IT manufacturing Existing units should be allowed to freely convert to new scheme or Option –II: Modification of EHTP to encourage manufacturing and exports: No NFEP and Export performance (EP) conditions No physical bonding; all clearances on basis of self declaration Unlimited DTA access on payment of full applicable duties What we need from the Ministry of Finance

    16. Encouraging indigenous R&D Corporate Income Tax exemption on royalties from licensing of Technology and Intellectual Property Amend bilateral treaties for removal of withholding tax on Technology exports/imports: Germany - 10%; USA-15%; Japan - 20% popularise products developed in India by exempting them from all local levies Nil Sales tax (local and Central) on all IT/electronics products for at least two years Encouraging IT Maintenance industry No Service Tax on AMC (Annual Maintenance Contact) What we need from the Ministry of Finance

    17. Banking and Finance Related: The banking appraisal process should take into account the latest audited results of the company, whether half year, or quarterly or yearly along with results of the previous two financial year Currently results of only the last financial year are taken into consideration. Margin money paid on LC or BGs should be given the same rate of interest as that of cash credits operated with the same bank. Alternatively, the banks can mark a lien to the extent of margins on the customer’s cash credit accounts. In cases where importers have to take a constructed bill of entry from customs; LC opened by the authorized dealer should be accepted as proof of payment already made against the original Bill of Entry.

    18. Improving IT penetration: Increased Government spend on IT consumption Government purchase/price preference for IT products made/assembled in India irrespective of the origin of the company Ensure Central and State Governments actually spend 3% of their Budget on IT Sales of IT products to educational institutions should be exempted of all local levies Permit PF loan/withdrawal for purchase of PC (at least one per individual)

    19. Create a conducive Investment Climate for IT manufacturing Permit 100% foreign equity for investment in IT manufacturing currently limited to designated schemes Aggressive Industry-Government collaboration to market India and attract Investment - set annual targets Permit 100% exports remittance to be banked in foreign currency

    20. Net Impact: 2005 PC volumes will reach 10 million from current 1.8 million PC penetration will be 26 per 1000 from current 6 per thousand at par with the existing world average of 26 /1000 Excise Duty and sales tax collection in 2005 will more than offset the cumulative revenue loss due to nil rate in 20002-03 and 2003-04 The industry will reach a critical mass: entire value chain will flourish Volumes will lead to ancilliariasation Consumption of basic raw material produced in India will increase Increased employment opportunities for semi-skilled: 5 million new jobs Confidence of the manufacturing industry will soar - more exports focus: Target USD Bn 5 in hardware and designs

    21. A High-Tech perspective of a new direction to an old system ……….

    22. Impact of 8% Excise and Nil Sales Tax Under Current duty structure: Excise Duty: 16%; Sales Tax: 4%

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