Small intervention makes big impact

By Dr Ajay Kumar, joint secretary, DeitY

ajaykumarWednesday, December 17, 2013: The TV production in the country saw a big boost this year, especially after the carrying colour LCD/LED TVs as free baggage allowance was disallowed by Government. A small intervention made a big impact. This highlights the need for interventions beyond MSIPS to promote the sector.

Taxes are an instrument which can make a huge difference. Automotive sector is a vivid example of the same. Unfortunately, the scope of levying import tax is limited in the electronics sector due to the Information Technology Agreement, to which India is a signatory. Further bilateral agreements further restrict ability to provide any tariff protection. Even if Government cannot provide tariff protection to ITA products, it should not provide tariff protection to imported products. Unfortunately, it is this unfortunate reality which plagues the electronics sector. A few of these are mentioned below.

 CST is a cascading effect on domestic manufacturers but does not apply for importers.
 Import duty on consumables and inputs required for manufacture of ITA items also put domestic manufacturers to a disadvantage. Hundreds of small and big inputs (components, materials etc.) and consumables (chemicals, gases, etc.) go into manufacture of any typical electronic products. Several of these are dual use, i.e. apart from being used for manufacture of ITA items; these are used for other uses as well. Therefore, despite best intentions, the domestic manufacturers end up paying import duties on these.
 Another complexity is the dynamic nature of electronic products and the inputs which go into these products. With new technologies and product versions emerging on regular basis, the list of inputs and consumables is a dynamic list. This makes it even more difficult for the manufacturers to continuously update the list of their inputs and consumables.
 Another issue is the import duty on several capital equipment and tools required for ITA items. These add to capital costs of a domestic manufacturer as compared to this competitor in China or Thailand.
 There are product specific unique circumstances which account for this inversion. For example, Set Top Boxes face 12 percent inversion because of the business model which most service providers adopt. The Set Top Box is provided as a service by the service provider thereby avoiding payment of VAT on an imported STB. On the other hand, VAT needs to be paid, when the service provider buys these devices from a local manufacturer.

As a result, manufacturing of ITA items has practically got wiped out. There is no industry which would take up these issues with Government and make a case of resolving this inverted duty situation. We need to correct this inverted duty situation.

And then there is the world of electronics which is still not under the ITA commitment. Some prominent product categories include consumer electronics, medical electronics, automotive electronics, LED, industrial electronics (inverters etc.). A tariff strategy for these product verticals need to be worked out. One big problem that these products figure under their respective product categories and may not have clear HS classifications where these are distinguished from their non- electronic components. For example medical thermometer is not separately classified from a non-electronic thermometer. There is need for clear HS delineation of these products in all verticals and thereafter duty notifications which provide necessary incentives for greater value-addition in these product verticals.

Several other issues also exist. The subject is complex and dynamic. Business as usual will not work for electronics sector. A Joint Working Group o Department of Revenue, Customs and department of Electronics and IT could help. Tariff provides an instrument for fostering the electronics sector which can be very effective. Automotive sector has demonstrated this. Recent decision on color TVs has also confirmed this. We hope to see more active use of tariff strategy for the benefit of the electronics sector in the country.

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