Union Budget 2021-22 Expectations for Electronics Manufacturing: Can the Indian Government create a greater impact through the forthcoming Budget?
By Sandeep Dasgupta
Budget 2021 Expectations for Electronics Manufacturing: In sync with the Indian government’s “Make in India” vision and its aim to boost an export-led electronic manufacturing strategy at a global scale the Government has been taken significant steps to attract large investments in mobile phone manufacturing and specified electronic components, including assembly, testing, marking and packaging units. The EMC 2.0 scheme entails a financial assistance for setting up electronic projects and common facility centers with an estimated outlay of 50,000 crores by the Ministry of Electronics and Information Technology and is complimentary to Production Linked Incentive Scheme (PLI Scheme) with a budget of around Rs 40,951 crores and the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) with a budget of Rs 3,285 crore and
The EMC 2.0 scheme is indeed a significant one considering with COVID-19 still making some headlines and global supply chains in disarray. Additionally, the aim of making India a manufacturing hub by building new ventures and partnerships is an explicit fallout. Be that as it may, the EMC 2.0 scheme will contribute immensely to the growth of Digital Economy. With the emphasis on migrating to 5G network alongside the telecom equipment manufacturing impetus, the scheme in tandem with the others is expected to invite a lot of global multinationals to invest in India. The intent of incentivizing development projects in existing tech parks is expected to provide the desired coalition between electronic unit manufacturers and component manufacturers, thereby paving the way for a sustainable Indian electronics manufacturing ecosystem for meeting indigenous demands.
The unprecedented magnitude of COVID-19 disrupting global supply chains and the growing thought process of the international community of moving away from concentrating production facilities in China, has put the EMC 2.0 scheme on a strong pedestal to emerge as a global electronics manufacturing hub. The success of this scheme in tandem with allied PLI Scheme and SPECS could well change the landscape of global electronics manufacturing and supply chains. However, it is extremely important to note that while these schemes promise a lot in fine print, the success of these schemes eventually boils down to ease of implementation thereof and associated tax friendly implications.
In recent times and in the backdrop of Covid-19, the government has embarked on a series of reforms including single window clearances for starting new businesses, reduction of headline corporate tax to only 15% for new manufacturing companies, which is one of the least tax rates in the world and certain tax compliance relaxations to spur economic growth and ease of doing business. These reforms aim at improving transparency, speeding up investment facilitation, and introduction certainty for businesses. While the Government has been working towards simplification of Indian corporate tax laws by a two-pronged approach of reducing tax rates and curtailing on tax deductions, the Government may do well to introduce tax holidays for enterprises being part of EMCs. Besides, incentives for new employment generation and export duty incentives may encourage concentration of businesses in EMC. It may be worthwhile to consider that giving wings to the EMC success shall be a priority till electronics manufacturing assumes maturity. Hence well thought tax policies is an important economic imperative for success of the EMC scheme. It cannot be ignored that India faces stiff competition from various Asian countries and therefore needs every bit to balance this economic priority.
Given the unprecedented times, the emphasis for every Company has been shifted to Cash Flow Management. Schemes such as In-bond manufacturing not only provide relief but also help stabilize the working capital requirements. The pro-active approach of the Government encouraging manufacturing units to opt for the scheme makes the option more alternative viable and beneficial option on multiple parameters of reduced compliance, cash flow management, deferred of payment of taxes etc. While there are representations made to extend the depreciation benefit on the goods bonded on clearance, given other multiple benefits, the scheme has brought traction among manufacturers especially those who have robust compliance, inventory and delivery management.
Can the Indian Government create a greater impact through the forthcoming Budget? Yes. The Government could consider conceiving of and implementing a Global In-house Manufacturing Centre (GIMC) Regulations to lay down a deeper and comprehensive framework about the registration, operation and associated incentivization of the EMC 2.0 participants, in a way complementing the EMC 2.0 and allied electronics manufacturing schemes. A special panel comprising of empowered Group of Ministers, economists, professionals could be constituted to suggest a roadmap to the Government for aiding and accelerating the implementation of EMC allied electronics manufacturing schemes.
The current confluence of shared political and economic interests among strategic economic partners may be leveraged to India’s advantage especially in relation to potentially sensitive sectors, such as technology and electronics manufacturing to foster a rejuvenated business climate through bilateral or multilateral economic arrangements.
(The author Sandeep Dasgupta is Director with Deloitte Haskins and Sells LLP. Views expressed are personal.)