ELECTRONICS HARDWARE

FICCI's recommendation to Mr. Dipak Chatterjee, Ministry of Commerce & Industry on August 24,2004

Promoting Electronics & IT Hardware growth in a zero duty regime

IT Hardware and Electronic Components will be subject to zero duty from April 1, 2005. Similarly, Colour Televisions and Colour Picture Tubes would also be subject to zero duty by 2006. Given the cost disability that the entire manufacturing sector faces in India vis-à-vis more competitive locations particularly in china and South East Asia, this is too short a time period for this industry to face this policy change.

The cost economies for IT Hardware, Electronic Components and consumer durables industries in India is no difference from that faced by other manufacturing segments that are subject to zero duty regime, local manufacturing will come to a halt. Like other manufacturing segments, this industry too needs a positive rate of protection i.e. duty on finished products being higher than on raw materials and components.

For nurturing local manufacturing and value addition in this industry, FICCI requested to consider the following measures:

1. Manufacturing of Zero Duty Electronics & ITA Products to be treated as Export

Items under 1TA -1 and other electronic products facing zero duty are allowed 100% DTA access since these are treated as deemed exports. These should be treated as physical exports since domestic production is substituting imports at zero duty. Treating [production of zero duty items as physical exports will confer income tax exemption on existing units and convert them to EHTP units. This will also allow DTA sales at 50% of Excise duty.

2. Virtual SEZ for Zero duty Telecom Products

Manufacturing of all zero duty Telecom equipment including cell phones should be allowed SEZ status irrespective of their location (Virtual SEZ).

Supplies from DTA sources will be given exports benefits, hence this will encourage local value addition in the country.

3. CTV & CPT to be Deleted from THAI FTA

Colour Television and Colour Picture Tubes are placed in the early harvest scheme of FTA with Thailand. Thailand exported 9 million Colour TVs last year. Currently India has a total market demand of around 9 million sets. India's manufacturing environment is less favorable than that of Thailand. Thai manufacturers enjoy flexible labour laws, no cascading effect of taxes, lower energy costs including those of petroleum products as also lower cost of finance than Indian manufacturers.

Against this background, it is desirable that these two items are removed from the list of 82 items of early harvest scheme of FTA with Thailand.

It may be noted that at present there is no trade taking place in these two items between Thailand and India.