The task force chaired by Jaswant Singh had, in its report submitted to the prime minister on November 3, 1998, recommended that status quo be maintained on import tariff and excise on components be reduced to eight per cent.

Another task force recommendation that has been given a go-by pertains to reduction of import duty on capital goods. The Government has retained the duty level at 25 per cent. The industry has been calling for zero duty import of capital goodsand this view has been endorsed by the IT task force. They further point out that the duty on capital goods is higher than that levied on finished products.

Electronic component manufacturers, under the umbrella of Electronic Component Industries Association (Elcina), felt that the reduction in protection level by 8.5 per cent, at this stage, would not only discourage new investment in component manufacturing for the local market, but also put margins of local manufacturers under severe pressure.

More importantly, the Government appears to have given a short shrift to public sector units such as Semiconductor Complex of India, Bharat Electronics and Meltron engaged in manufacture of components such as semiconductors.

These PSUs, already operating with thin margins, would have to strive very hard to keep their heads above water. "Our profitability has been eroding due to the reduction in prices," said a senior executive of the public sector unit.

Elcina argues that the Government could have easilybrought down the excise tariff to eight per cent without fear of losing revenue. "A reduction in the excise tariff would not have affected the Government revenues as duty paid on components is Modvatable," an Elcina spokesperson said. A drop in excise would, however, benefit local manufacturers, the association stated.On the other hand, the Government would lose about Rs 250 crore from the reduction in import tariff, Elcina pointed out.

Elcina, nevertheless, acknowledges that India is bound to bring down the import tariffs on components to a level of zero per cent ultimately, as the country is a signatory to the Information Technology Agreement. "We need not have reduced the protection to the local industry at this stage."