The advanced digital era is here. People are shifting from digitalization to remote connectivity. This means the use of automated controls between connected devices (via the Internet of Things) and equipment that’s driven by data intelligence and AI. This is happening in multiple sectors including those integral to public security, such as defense, energy, agriculture, transportation, and others.
India’s capability to successfully meet this shift requires high-technology management and, particularly, for the country’s national security. India can no longer depend solely on shipped telecom equipment and control devices as the backbone of its critical digital infrastructure.
At the same time, the country must guarantee that the Regional Comprehensive Economic Partnership (RCEP) — a proposed free trade agreement between the 10 member states of the Association of Southeast Asian Nations and its six FTA partners — remains intact. So, the government must approach trade negotiations with caution and in line with its Make in India and Digital India initiatives.
Make in India aims to create a global manufacturing hub in India by encouraging foreign and domestic companies to manufacture products in the country. Digital India ensures government services are available to citizens electronically by improved digital technology and connectivity.
What’s more: the government has a target of reaching net-zero electronics imports by 2022.
Incentives & tax considerations
India’s Finance Minister, Nirmala Sitharaman, recently announced a decrease in corporate tax rates, which is good news for many in the country as it will boost profitability for businesses. However, new manufacturing companies that set up shop after October 1, 2019, will see an additional benefit. This is because they will only be expected to pay 15 percent in taxes.
For white goods businesses — which include heavy consumer durables, such as refrigerators and stoves, which used to be painted only in white enamel finish — the new tax rate is also rewarding. It provides an incentive to manufacture merchandise locally and means less of a reliance on imports. This should result in lower costs of finished goods.
New joint ventures will likely take place to take full advantage of the tax rates. For example, the government will allow any new domestic manufacturing company that’s consolidated on or after October 1st, to also pay the 15 percent income-tax rate. Also, such businesses will not be required to pay minimum alternate tax (MAT).
Currently, several entry- to mid-level white goods are manufactured in India. However, premium products are still made in other countries, such as South Korea (which has a tax percentage of 25 percent). With the new tax incentives, India is expected to attract major players from South-East Asia and become a viable option for new manufacturers.
Kishan Jain, director of Goldmedal Electricals, believes the low tax rate will encourage local manufacturing. “These proposals will aid the domestic generation of energy-efficient solutions, such as LED lighting, and immensely help companies operating in this space,” he said.
Although India has long been a target market from a sales viewpoint, it now stands to gain major traction as a manufacturing hub. Kamal Nandi, business head & EVP with Godrej Appliances, and president of CEAMA (Consumer Electronics and Appliances Manufacturers Association), predicts a rise in foreign direct investment (FDI) inflow in the country. He pointed to the Finance Minister Sitharaman’s statement that international companies in a joint venture with Indian businesses (with offices in the country) will also get tax privileges.
Although there are concerns that foreign companies will be given extra privileges in the Indian market. Ravi Saxena, MD with Wonderchef, expects the government to offer a level playing field to all local manufacturers.
The government expects demand for electronic products to reach USD 400 billion by 2023 or 2024. The demand would be a valuable foreign exchange outflow, which could widen the trade deficit with other countries. Therefore, the government is pushing local electronics manufacturing to reduce potential import costs.
The Ministry of Electronics and IT has published a draft electronics policy, which aims to create a USD 400 billion turnover in the electronics manufacturing environment by 2025. However, the strategy is strongly based on the success of mobile phones and related components. Case-in-point: the policy aims to double the target of cellular phone manufacturing from 500 million units in 2019 to one billion by 2025.
Many believe there should be recommendations and benefits for other electronics manufacturing sectors, too — and there is hope. For example, the draft policy includes direct tax benefits for manufacturers establishing new facilities or renovating existing ones. The administration also intends to promote a forward-looking tax rule, which includes investments in different segments of electronics with a sunset clause. Plus, it’s considering increasing income tax benefits on investments relating to R&D in the electronics sector.
As per the draft, the government also plans to end certain modified incentive schemes and implement a more straightforward plan, including credit subsidies and credit default guarantees, among others. The modified different incentive package scheme (M-SIPS) was first launched in India in 2012, running until 2018, and provided a capital subsidy of 25 percent for the electronics industry in the non-SEZ area and 20 percent for those in the SEZ zones.
Overall, the government aspires to make India an export center for electronics goods, which means all local manufacturing will likely benefit for the next few years.