Facing challenges like inverted duty structure and infrastructure bottlenecks, IT hardware industry has urged the new government to take corrective measures to bring back growth in the sector that has been witnessing flat growth in the last few years.
Faced with a double whammy of increasing input costs and growing preference for smartphones and tablets, the sector has seen big players like HCL Infosystems, Wipro and Samtel exiting the segment.
The existing players are now hopeful of positive changes coming in as the new government headed by Prime Minister Narendra Modi settles down to tackle issues affecting economic growth of the country.
“Inverted duty structure makes domestically manufactured goods uncompetitive. The government should look at exemption of SAD (special additional duty) on all components used by the IT manufacturer,” Intel South Asia Director (Marketing and Market Development) Sandeep Aurora told PTI.
Inverted duty structure is one where duty on finished goods are reduced and lower duties are imposed on raw materials like components.
Besides, there is an urgent need to upgrade facilities for encouraging component manufacturing in the country. There is a need to also work on the ease of doing business in India, he added.
Issues like high inflation and soaring prices due to rupee fluctuation is also a constant worry for the industry, PTI reported today.
The players believe the sector still has a lot of potential as the PC penetration in India is below 10 per cent compared to 40-50 per cent in countries like China, Russia and Brazil.
However, manufacturing of electronic hardware in the country has suffered on account of high cost of power and finance, high transactional costs and poor base of supply chain, thereby increasing dependence on imports.
Acer India Chief Marketing Officer S Rajendran said the Compulsory Registration Order (CRO), which makes 15 electronic products including video games, laptops and microwave ovens subject to safety standards, though a good initiative is leading to delays in introducing products in the market.
“Already the industry follows so many guidelines and then there is sluggishness in sales. With CRO our products get delayed and by the time they come through the technology has already advanced. This is a double whammy for us as the cost of operations goes up significantly,” he added.
Rajendran suggested that the government can pass the products with a self-declaration from the manufacturer and can randomly pick up samples from the retail market to check them.
IT hardware industry body MAIT’s Executive Director Anwar Shirpurwala said the lack of infrastructure like roads, ports, high cost of electricity, is affecting productivity as well as competitiveness.
Special Additional Duty of Customs (SAD) on components and exempting the same on import of finished goods and levy of cess on sale of goods which is not available as credit has led to adverse taxable concerns, Shirpurwala added.
At present, around 65 per cent of the current demand for electronic products is met by imports and the remaining, mainly low-end products are manufactured locally.
According to IESA-Frost & Sullivan’s Indian ESDM Market report, the ESDM (Electronic System Design and Manufacturing) industry was estimated to be USD 68.31 billion in 2012 and by 2015 it is expected to touch USD 94.2 billion.
Imports are likely
to grow from USD 28 billion in 2011 to USD 42 billion in 2015 in the absence of intervention.
value added manufacturing is likely to be restricted to less than 7 per cent in 2015. This represents a cumulative opportunity loss of USD 200 billion between 2011 and 2015 in the absence of intervention.
Intel South Asia Director (Corporate Affairs) Ashutosh Chadha said lack of technology is one of the most important factors contributing to low level of competitiveness in Indian electronics and IT hardware industry.
“Due to low level of technical research and development, Indian industry is dependent on technical know-how of advanced countries like USA, Germany and Japan,” he added.
Shirpurwala suggested: “While there will be a large export market, it is critical that we enhance local market growth in the country by widespread usage of technology across education, healthcare and e-governance services besides other areas.”
Additionally, accelerating domestic end-user consumption will ensure that there is a robust need, he added.
Congratulating the new government for its clear mandate on increasing manufacturing, Rajendran said: “I see three things as priority; work on the inverted duty structure, the rates of abatement for products covered under MRP valuation and CRO.”
Shirpurwala said in the long term there is a need to develop a component logistics hub in the country, which works in tandem with the developing technologies globally and produces products that can help the domestic sector stay competitive.
Intel’s Aurora suggested giving incentives to homegrown tablet or laptop and drafting policies that can help in increasing PC penetration in the country through soft loans and programmes to increase digital literacy in the country.