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Expectations of Electronics Sector from Union Budget 2023-24: ELCINA

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Expectations from Union Budget 2023-24:

Electronics Industries Association of India (ELCINA) recommends that the shift in focus of the government towards export led growth of electronics sector needs to be pursued further and with greater zeal. This will achieve economies of scale and competitiveness in the globalized zero duty market for this sector. Target for Electronics manufacturing in India has been set at US$ 300 Bn by 2026. To achieve this ambitious target ELCINA has made the following recommendations. Please find the Key Pointers of these recommendations for Union Budget 2023-24 below followed by the detailed recommendations:

BUDGET WISHLIST – KEY POINTERS for Electronics Industry –Components, EMS and High Value Added Manufacturing:

Incentivizing Investments

Government should allocate US$ 10 Bn over a period of 8 years to boost manufacturing of electronic components and key modules other than Semiconductors. Semiconductors are covered under the special Rs 76,000 Cr Scheme already announced in 2022.

  1. Four-year extension to the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) with an increased outlay of Rs 16,000 crore (US$ 2BN) in the Union Budget for 2023-24. This will facilitate investments of US$ 8 Bn and targeted output of S$ 24 Bn for all components other than Semiconductors.
  2. Special PLI Scheme for Components – Allocate US$ 1 Billion per annum for next 8 Years for special Production Incentive Scheme for Components
  3. Support to EMS companies through a PLI Scheme and Capital Incentive for MSME EMS companies investing upto Rs 50 Crores.

Setup Venture Capital Fund with Income Tax benefits for investing in Electronic Component Manufacturing units which need low cost equity/capital due to high capital output ratio and long gestation period. High cost finance is one of the main hurdles for high value added component manufacturing.

Enhancing Competitiveness

Subsidizing Cost of Testing & Certification  under Compulsory Registration Order (CRO)

Provide Interest Subvention as well as support for Market Development Fund under MeitY.

Promoting R&D

Reinstatement of Sec-35(2AB) IT relief to promote R&D

CSR Obligations of ESDM companies should for allowed for utilization for supporting R&D and deep tech development by R&D institutes and Start Ups.

Export Promotion

Inclusion of selected electronic items in RBI circular no. 62/04.02.001/2015-16 on the list of goods included in the circular — Interest Equalization benefits on Pre and Post Shipment Rupee Export Credit to eligible exporters.

Mitigating disabilities for electronics exports – RoDTEP is providing barely 1% nemefit to exporters. We recommend to provide 5% benefit to exports of components and 2% to EMS companies to successfully access the huge opportunity in export markets.

Specific Tax Recommendations

Import Duty on Washing Machines (Over 10 kgs) and Cloth Dryers is 7.5% and 10% respectively. Recommended to raise to 15% on both these products as these are manufactured locally.

Reduce GST on LED TV’s between 32 and 55 inches to 18%

Make IGCR Rules simpler and easier for use by importers of inputs for component manufacturers as per Cus Notif 25/99.

Reduce documentation for approval of per diem allowances for employees on official travel. Upto INR 2000 per day for domestic travel and INR 6000 per day for international travel may be allowed without documentation. Documentation may be required for expenses only above these limits.

Detailed Recommendations

  1. Incentivizing Investments
  1. Recommendations for SPECS Scheme : The Electronic Industry Association: ELCINA has requested the government for five-year extension to the Scheme for Promotion of Manufacturing of Electronic Components and Semiconductors (SPECS) with an increased outlay of Rs 16,000 crore in the Union Budget for 2023-24.
  • ELCINA has given recommendation for including certain raw materials and components (omitted so far in SPECS Scheme). These may be included to ensure that entire set of components are supported and essential/key raw materials for components are also included.
  1. Special PLI Scheme for Components : ELCINA has requested the government for Special PLI Scheme for Components- Allocate US$ 1 Billion per annum for next 8 Years for special Production Incentive Scheme for Components.
  • The target for Electronics manufacturing in India has been set at US$ 300 Bn by 2026. As per industry input and ELCINA estimate going by a typical “E-BOM” based calculation, this will require USD 120 Bn of components (40% of production value of US$ 300 Bn). India’s existing components production is USD 10.7 Bn. Thus there is a “huge” demand-supply gap.
  • Target is to achieve atleast 50% of this demand for components which works out to US$ 60 Bn.
  • Recommending Employee Linked Incentive (ELI) in addition to PLI making the scheme a tool for inclusive growth for all.
  1. Incentives for EMS Sector :Domestic EMS players should be provided a reasonable production linked subsidy (PLI). This subsidy may be in the form of CGST refund or PLI benefits. Recommended that a PLI may be sanctioned for a period of 5 years in turnover slabs – 5% for up to INR 250 Crs.; 3% for INR 251 Crs. to 500 Crs. and 2% for INR 501 Crs. to max 1000 Crs. This will be a boost for domestic MSMEs and also incentivise the larger EMS Companies.
  • Scheme for incentivizing Capital Investment for MSMEs in the EMS sector on similar lines to the SPECS policy.

As per study by ELCINA, the EMS Industry is suffering with a disability cost of 6-8%. To mitigate this disability it is recommended that MeitY may introduce a special scheme for EMS sector providing 25% Capex subsidy on the lines of SPECS scheme. To support MSME’s to invest in EMS, the minimum investment threshold may be INR 5 crores. Maximum limit may be Rs 50 Crores to provide limited incentive to larger investments as well and max capital incentive would be limited to Rs 12.5 Crores at @25%.

  • Special support for promoting PCBA of Mother Boards for Servers is recommended as these are complex and high value and have a security implication.
  • Special recommendation for duty Import of PCBA’s – There is lack of clarity on the HS Codes applied on imported PCB Assemblies (Populated PCB’s) and their end use is not clear. Often the wrong HS Code is applied and applicable Customs duty is not charged or lower duty is charged. ELCINA had recommended that End Use certification/IGCR procedure should be required for allowing Duty Free import of PCBA’s under ITA-1 or under FTA’s. This will ensure that only bonafide and eligible PCBA’s are imported duty free.
  1. Venture Capital Fund:for Electronics Manufacturing:
  • ELCINA recommends that a Venture Capital Fund exclusively for investing in Electronics Manufacturing units may be established and coordinated by an SPV in a PPP (Public Private Partnership mode).
  1. Enhancing Competitiveness
  2. Subsidising Cost of Testing & Certification: Cost of testing & certifications (as per international standards) are very high and suitable incentives should be offered by government or subsidized facility available for domestic MSME companies to mitigate these exorbitant costs. There is urgent need for excess capacity to be created for testing of electronic components & assemblies. This will also enable MSME’s to comply with certification under Compulsory Registration Order (CRO) under which list of items included is being expanded.
  3. Interest Subvention: ELCINA recommends that the electronics industry be provided interest subvention as well as support for market development which was a dire need for MSMEs. The Ministry of MSMEs provides an Interest subsidy of 4% for Khadi Industries under Interest Subsidy Eligibility Certificate (ISEC) Scheme. Similarly, as interest rates are much lower in competing countries, the Electronics Industry should be provided a simplified Interest Subvention of at least 5% on their Term Loans and Cash Credit.
  4. Duty free clearance of SEZ to DTA for FTA notified Items: Goods cleared from SEZ to DTA are treated as imports and all duties which are applicable on imports are charged in such cases. ELCINA recommends that SEZ to DTA clearance should be considered as imports from FTA countries, and this may be applicable for FTA Notified items only. This will avoid the disadvantage our SEZ’s have vis-à-vis imports from countries with which we have FTA’s.
  5. SKILL: The government is committed to and has a clear vision for skill development. It is actively supporting the skill development of the youth through various policies and programs. Electronics Sector Skills Council of India (ESSCI) hopes that the government will maintain its policy of skill development and support for the electronics sector.
  • Promoting R&D
  1. Reinstatement of Sec-35(2AB) IT relief: The government of India has been progressively reducing the 200 percent IT relief that was available under this head, and there is talk of it being phased out completely. The Task Force called for the reinstatement of this relief subject to necessary guidelines to be followed by those claiming this benefit
  1. CSR Obligations of ESDM companies should for utilisation for R&D: Electronic Design and Manufacturing Companies should be allowed to fulfil their CSR obligations by using these funds in R&D. These funds may also be allowed for use in Innovation/R&D Centers of Technical Institutes & Labs which are developing new electronics technologies, products and processes. This will augment resources that are required to fund R&D efforts and create products designed and developed in India with IPR in India.
  1. Export Promotion
  1. Inclusion of electronic items in RBI circular no. 62/04.02.001/2015-16for Interest Equalization benefits: The RBI circular no. 62/04.02.001/2015-16, offers Interest Equalisation on Pre and Post Shipment Rupee Export Credit to eligible exporters on the list of goods included in the circular. Based on the inputs of our members, we are giving below a list of electronic items which may be recommended for inclusion in the subject circular of RBI for availing Interest equalization benefits:

S.No         HS CODE        Item Description

  1. 85043100 Switching Transformers
  2. 85389000 PCBA for Heating Systems
  3. 85044090 Power Supply Module
  4. 85371000 Electronic Assembly for Washing Systems
  5. 96139000 Electronic Sub Assembly for Oil Ignitor
  6. 8541 Semiconductor Components
  7. 8532 Film capacitors

ELCINA recommends that these items are included in the subject Circular as these items have huge export potential.

  1. Mitigating disabilities for electronics exports: With the cessation of MEIS Scheme and implementation of RODTEP Scheme, government has tried to make a WTO compliant mechanism for incentivizing exports. Unfortunately, the RoDTEP rates offered on the exports of electronics items are very low and do not match the erstwhile MEIS benefits. A higher Export incentive is essential to provide ESDM industry a level playing field in international markets.

It is recommended that a 5% benefit to exports should be provided to exploit the huge opportunity in export markets that has emerged after the shifting of supply chains and developed countries looking for new sources under their China+1 policy. This opportunity needs to be addressed jointly by the Industry and the Government of India. Government needs to play a major role in expanding exports and engage with Indian missions across selected countries where there is a high export potential.

  1. Specific recommendations by ELCINA on Taxes & Procedures have also been provided separately.

 

For More information, please Visit  www.elcina.com

 

 

 

 

 

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