4 ways to boost Domestic Manufacturing

For India to become selfreliant in the IT hardware manufacturing space, it is important to tread on the path to being a hub to serve domestic as well as international needs.

A World Bank’s report states that a 10% rise in computer and broadband penetration increases GDP by 1.38%. This is particularly relevant to emerging economies like India. Hence, the promotion of domestic manufacturing is the key for future growth. This is possible only with high scale of investments and as a nation; we have to make such propositions attractive. India is one of the largest importers of oil and electronics.

While oil imports are not in our control because of the scant natural resource, IT hardware is, provided the government handholds the industry by way of creating conducive atmosphere and enabling manufacturing by removing some major policy hurdles in its upcoming Budget 2013-14.

Slash CVD and SAD

The impact of inverted duty structure makes direct import by endcustomers or trading (ie import and sale) of computers advantageous in comparison to manufacturing of computers in India.

Thus, making the Indian manufactured goods uncompetitive for the domestic market. The prevalent rates of countervailing duty (CVD) and special additional duty (SAD) on inputs for IT hardware products result in an increase in costs of a finished product that is manufactured in India. Hence, the government needs to correct this anomaly.

CST-A Roadblock

Another deterrent is prevalence of interstate CST. As manufacturing units are located in one state, interstate sale of manufactured products attracts CST at 2%. As against this, traders/direct importers can import the goods into the state of consumption and avoid the CST cost. Hence, subsequent sales (ie resale) against Form C should be taxed at 0%, so that manufacturing is not placed in a disadvantageous position against trading/direct imports.

Cut BCD

Basic Customs Duty (BCD) on IT accessories is also proving to be a big hurdle for companies to set up a manufacturing base in India. While IT products such as laptops and IT peripherals like keyboards, monitors, printers are exempted from BCD, the duty on certain major IT accessories such as adapters, battery, laptop carry bags, speakers still continue to be levied. If the IT accessories are imported along with the IT products, the same gets classified along with the main IT product and rightly enjoy exemption from levy of BCD. However if the said products are imported independently, ie by a manufacturer, the same attract BCD. This also discourages manufacturing.

Raise MRP

Further, given the increase in rate of excise duties, sales tax, logistics/ transportation costs and dealer margins over a period of time, the government should increase the MRP abatement from 20% to 40% on IT products. While the total post manufacturing cost for account above 40% of the sale price, the abatement percentage prescribed is 20%, which is significantly lower than the costs incurred. India will be the youngest nation in the world by 2025. A large population of people under 30 will drive the consumption of IT products, the Indian market is therefore going to expand rapidly, and the challenge will be how to tap our own ready market for purposes of manufacturing in India rather than creating jobs in other economies by meeting the demand through imports. If measures are adopted to convert the opportunity into domestic IT manufacturing, India may well emerge as a strong manufacturing country. For India to attract investments, it is vital to be a market that is vibrant