Budget 2019: The first budget of Modi 2.0 to provides opportunity to finance minister Nirmala Sitharaman to announce measures for long term revival of manufacturing.
India Budget 2019: In his first term, Prime Minister Narendra Modi set an ambitious target of increasing the share of manufacturing sector in the country’s GDP to 25%. He also launched his flagship initiative Make in India in September 2014 with the aim to increase the share of manufacturing in the country’s GDP to 25% by 2022 when India completes 75 years of its independence. However, the share of manufacturing in India’s GDP continued to stuck in the range of 16-17% during his first tenure. Industry has high hopes from the first budget of Modi 2.0 government to revive the sagging manufacturing sector.
Modi government had announced phased manufacturing programme (PMP) in the Union budget of 2015-16 to increase the manufacturing of mobile handsets and other components in the country. In 2018 budget, then finance minister Arun Jaitley extended the tax relief to companies with a turnover of less than Rs 250 crore. The corporate tax rate was cut from 30% to 25% on these companies and the same relief was extended to new manufacturing companies without any turnover limit.
However, according to industry bodies, raising import duty on cheap foreign imports, particularly from cheap Chinese imports will be much more effective way in supporting the domestic manufacturing rather than lowering the income tax on the companies below a certain threshold of income.
“We have good progress in terms of mobile manufacturing. We have also made good progress in terms of producing mobile components valued at around Rs 50,000 crore or so. But where we lack is that we continue to import telecom equipment from other parts of the world, especially China,” said NK Goyal of Telecom Equipments Manufacturers Association of India.
It is important for the country to check the rising imports of electronic and telecom equipment including mobile phones as India’s trade balance, the difference between the import of electronic items and telecom equipment and their export has sharply deteriorated in the last two decades to reach to the alarming level of $45 billion in 2017-18. The import of electronic goods has become the second largest merchandise import of the country with record import of $51.5 billion in 2017-18.
According to a study conduced by the Reserve Bank of India about the trends in India’s merchandise trade of electronic goods showed that the production of mobile handsets in the country has gone up from $4.4 billion in 2013-14 to $ 20.5 billion in 2017-18, a jump of nearly five times.
The study also revealed that the import of mobile phones registered a decline in October 2014 following the announcement of Make in India policy by the government in September 2014. However, it led to increase in the imports of mobile phone components that suggests that changes in the import duty and other policy initiatives made it cheaper for the handset manufacturers to import critical mobile components and assemble handsets in the country rather than producing them here, which was the objective of Make in India policy.
For example, the import of printed circuit boards (PCBs) increased after June 2017 when the basic custom duty on other telecom components was increased while leaving PCBs out of its ambit.
It suggests that mobile manufacturers in India were importing this critical component and just assembling handsets in the country by using imported PCBs.
In order to deal with this problem, the government imposed 10% custom duty on the import of PCBs in April 2018 that led to decline of import of PCBs but it led to increase in the imports of integrated electronic circuits, a critical component used in manufacturing of printed circuit boards (PCBs), as basic custom duty on the import of integrated electronic circuit was not imposed.
It suggests the tendency of mobile manufacturers to continue to import critical components wherever they can take advantage of gaps in the custom duty structure of the country. It helps them continue to import critical components to assemble bigger components and mobile handsets rather than developing the manufacturing base for these products in the country.
Industry bodies like TEMA feel that checking the influx of cheap foreign imports of electronic and telecom equipment is the only way to revive the manufacturing of these products in the country.
“The government should impose 100% duty on import of telecom and electronics item,” NK Goyal, chairman Emeritus of Telecom Equipments Manufacturers Association of India, told Financial Express Online.