Addressing key disabilities: The way forward to realize a globally competitive IT-ESDM manufacturing ecosystem in India

Industry needs support through key policy measures in the spheres of ease of doing business, integrated approach to manufacturing, industry friendly tax regime, skills development and demand generation

Most importantly these developments will create many small and medium level assemblers across the country which will:
A)  Provide employment opportunities for technically skilled people, especially in rural/rurban India;

B) Spawn many small/medium scale entrepreneurs across the country to set up and manage assembly-line operations.

Industry-friendly Tax Regime to Boost Local Manufacturing, Improve Government Revenues: While Budget 2016 was good in the sense that certain duty concessions were announced to benefit local IT-ESDM manufacturing, however, some of the key issues have not been dealt with adequately. If need be, India should consider an overhaul of the Constitutional provisions to address issues related to Central versus State versus Local government jurisdictions. The long term goal must be to bring about much needed structural changes to simplify taxation laws for greater transparency, as experienced by entrepreneurs in their day-to-day dealings with petty government officials. The Government’s goal should be to not just simplify processes but also create more robust and secure processes, so that business owners and entrepreneurs are able to function in a clean and transparent operating environment. In fact, I would go so far as to say that there should be zero interface between the tax and local government authorities in the day-to-day running of businesses; all G2B processes should be automated to the highest possible extent, including resolution of tax disputes. There is a pressing need to create and maintain a stable policy environment ‘on the ground’, insulated from political shocks, bureaucratic delays and red tape.

In terms of specific measures, the Government should look into ways and means to provide a duty differential to the extent of at least 11% between direct imports and locally manufactured products for a stipulated time frame, in order to give a definite boost and bias to locally sourced IT-ESDM products.

Further, the export incentive of 5% under the Merchandise Exports from India Scheme (MEIS) should be made available for all products such as Motherboards, SMPS units, Cabinets, Monitors and all classes of populated PCBs. Clubbing of export volumes with domestic manufacturing will allow manufacturers the benefits of economies of scale and benefit the country immensely through savings in foreign exchange. This measure could be phased out over a period of three years.

Another significant demand of the IT industry is to abolish Central Sales Tax (CST) on all IT products, as this has a cascading effect and makes imported goods cheaper vis-à-vis locally manufactured goods.

By implementing these measures in totality, the anticipated growth in Manufacturing will provide an impetus for all round growth in economic activity and a parallel growth in related services, thus contributing to increase in government revenues through Service Tax.

Additionally, large scale increase in employment will increase individual spending power, further contributing to government revenues through Income Tax. Since 85% of customs and Central Excise duties are shared with states the revenue impact on the Central government would be negligible, whereas states would be compensated by enhanced consumption and VAT collections.

Skills Development, Focus on Technical Excellence: To sustain the growth of the IT and Electronics manufacturing sector in the country, it is very important that the governance structures of the Technical Education sector are simplified. Modern, industry-relevant curricula must be adopted and offered to youth at the K12, undergraduate and post graduate levels to lead to industry-ready skilled personnel being available for running manufacturing operations of high-tech plants. There may be a need to review the role of the ‘educational bureaucracy’ such as that represented by the University Grants Commission (UGC) and All India Council for Technical Education (AICTE). Setting up of a Skills Training State University and Skills Training Institutes at city/district level should be encouraged through a ‘single window’ clearance system.

To maintain quality in content and excellence in teaching outcomes, members of premier science and technology ‘think-tanks’ like the Indian National Science Academy (INSA) and Indian National Academy of Engineering (INAE) should be co-opted as leaders and mentors.

Eventually, the increased domestic demand for manufacturing professionals will lead to greater local employment opportunities, and reverse the brain drain, which is a big ‘tax’ on the economy of a developing country like India.

Demand Generation: Real demand generation will take place in India when the government takes up increasing PC penetration as a mission of national importance and brings all stakeholders on board. Currently the PC penetration in India is close to 11 PCs per 100 persons, as per MAIT estimates for CY 2015. We believe the government should aggressively fund programmes such as ‘Digital India’, ‘Skill India’, National Digital Literacy Mission (NDLM), Common Service Centres (CSCs), Sarva Siksha Abhiyaan, electrification of all villages by 1st May 2018, encourage development of rural infrastructure, growth of microfinance institutions and self help groups (SHGs), and other large scale e-governance initiatives.

Defence or Strategic Electronics is another significant area where manufacturing in India will result in a ‘Win-Win’ proposition for the government as well as industry. By designing and manufacturing more and more defence and strategic electronics systems, parts and components in India, the overall budgetary outlay for defence can be controlled and even reduced. DRDO and industry need to collaborate more closely in this area.

With high levels of local value-addition on account of manufacture of intermediate products such as Motherboards, Populated PCBs etc. within India, many global suppliers of these items would either shift their manufacturing base to India or collaborate with Indian players. This would generate ‘supply side’ demand for millions of IT and Electronics components that will have to be produced and sourced locally. With increase in indigenisation, the Manufacturing sector will further create significant opportunities for ‘non-Electronics’ industries like metals, moulds, plastics, engineering services etc. These developments will also help to create and strengthen the base for innovation and R&D, providing growth opportunities for the product design industry.

As a nation, we should aim to make the PC an affordable device so that we can achieve the desired penetration rate of 33 PCs per 100 persons by CY 2022, as envisaged in the ‘Digital India’ mission.

In this entire journey of identifying and removing disabilities and incentivizing ICT hardware production within the country, the Indian economy would be able to raise productivity and grow its GDP by generating employment in manufacturing and related services. This will help to connect the entire nation end-to-end by means of roads, railways, waterways and airways; create a more skilled workforce, inculcate a more professional work ethic and transform India into one of the most vibrant, competitive economies of the world.

Further, many social benefits and improvement in HDI factors will accrue as higher penetration of IT, better all round infrastructure and IT-enabled e-Governance / e-Commerce services will positively impact key areas of a common citizen’s life – education, healthcare, housing and employment opportunities.

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