IESA presents budget recommendations to government

INDIA: The India Electronics and Semiconductor Association (IESA) presented its recommendation to the Government of India for the Union Budget 2013-14. The IESA’s recommendations cover two primary areas, namely, electronic system design and manufacturing (ESDM) and semiconductor design.

“For India to achieve self-sufficiency in electronics, the  Government of India needs to focus on: policies that enable India to become self-sufficient in making globally competitive electronics products. Given the talent in the country, I see no reason why India cannot become a global leader in electronics in the near future,” said Dr. Satya Gupta, chairman, India Electronics and Semiconductor Association (IESA).

PVG Menon, president, IESA, said: “The ESDM industry presents a $400 billion opportunity by the year 2020. Semiconductor content is increasing in the Bill of Materials (BoM) of electronic products. India has emerged as one of the leading countries in the semiconductor design, with 23 of the top 25 MNCs having their design centres in here. The semiconductor design industry generated revenues of $8.8 billion in the year 2011 and has witnessed a robust growth of 17.3 percent since the year 2009. Hence, we urge the government of India to take proactive steps to encourage this sunrise industry,”

In proposals relating to ESDM, the IESA has made the following recommendations:

Encouraging domestic electronics manufacturing and product development - Building the domestic electronics industry is a very important item for national agenda, from security, self-reliance as well as future business potential. There is an urgent need to take actions to stimulate the domestic electronics industry and build brand India by encouraging locally designed products for local and global markets.

The following proposals have been submitted:

Correction of anomalies in taxes and duties
i) Speedy implementation of GST: Urgent implementation of GST. Rationalised indirect tax structure of 12 percent GST (8 percent excise + 4 percent VAT) on the electronics manufacturing value chain.

ii) Correction of inverted duty structure: Anomalies in inverted duty structure should be removed. Import of finished electronic products should be subject to mandatory inspection and certification.

iii) Preference must be given to domestically manufactured electronics products in government purchases, to encourage local manufacturing. Aggressive targets should be set for domestic procurement, so that companies – both Indian and foreign – are encouraged to setup high-value add manufacturing units within India.

iv) Total exemption from service tax for SEZ and EMCs: Total exemption from service tax for SEZ has been restricted to only those services rendered inside the SEZ. Services rendered outside SEZ come under the scheme of refund by the Government. In order to obtain the refund, there is a cumbersome procedure and slow process, under which one has to submit all original supporting documents to the concerned authorities. It is suggested that units in SEZ as well as the proposed electronic manufacturing clusters (EMCs) be totally exempted from service tax.

Status of physical exports to locally manufactured ITA-I products sold in India
With signing of the ITA-I agreement, customs duty on 217 tariff lines were brought to zero between 1998-2005. Industry suffered on account of incidence of inverted duty structure for a prolonged period. This has resulted in severe erosion of ICTE manufacturing in the country.

Supply of ITA-1 products by DTA units into the domestic market should be made eligible for physical export benefits, and should be extended the following benefits to promote domestic electronics manufacturing:
* Refund of duties suffered
* Incentives under the Focus Products Scheme and
* Income Tax benefits.

Creation of fund to reduce disability cost
High cost of finance, power, logistics and procedural transactions add to disabilities. This discourages investments in electronics manufacturing, which require large and long term investments necessitating a supportive fiscal and infrastructural environment.

The IESA suggests that a fund be created to provide 4% interest subvention for working capital and term loan requirement of the ICTE sector. The IESA also recommends that procedural delays should be reduced to reduce transaction costs.

In the proposals for semiconductor design, the IESA has made the following recommendations:

Incentives for R&D
The Indian semiconductor design sector needs to be extended fiscal and regulatory support to grow. Semiconductor fabrication entails large capital investment of the order of few billion dollars, depending upon the technology node, which can only be looked at by large corporates, with requisite support from the government.

Currently, there is no state-of-the-art chip fab facility in the country, which can cater to commercial applications exposing India to both strategic and supply chain risks.

The IESA proposes that R&D benefits under Section 35(2AB) of the Income Tax Act be extended to the semiconductor design companies and that the current condition that this benefit be available only to the in-house design centres of manufacturing companies may be waived

These measures will immensely benefit the establishment of a large number of semiconductor design companies, which will help realize the important objective of NEP-2012 to achieve the turnover of $55 billion in semiconductor design by 2020.