A fillip to electronics industry in Budget can transform India into a manufacturing hub
The Union budget 2017 comes in the background of a huge shift in the form of demonetisation. Demonetisation may have caused some upheaval particularly in the MSMEs, but we are enthused by the government’s efforts to clean up the existing system and welcome this initiative. Post demonetisation, we hope to see certain measures in both the supply and demand aspects. Relaxations in the form of corporate tax concessions could result in companies with reduced corporate tax to be able to expand faster. Reduction in corporate tax would also mean that the prices of products will ultimately come down.
In terms of the demand aspect, a reduction in income tax could mean an increase in the purchasing power of the consumer, which would in turn go a long way in increasing the demand in the Electronic System Design & Manufacturing (ESDM), Aerospace and Defence space.
The corporate sector is also looking forward in a big way to the implementation of the Goods and Service Tax (GST) in April 2017. GST will usher in an element of certainty across the board. Today, we have 29 different taxation rates and rules in 29 different states. Once this is replaced by a uniform mode of taxation, investors will come forward to convert their investments into the entrepreneurial space. Since GST payments are expected to be 100 percent online transactions, this will result in zero manual interference and thus much less corruption. More importantly, there are very specific timelines allocated for action within the GST regime which should be of solace to OEMs and investors.
One way to bring in a cashless economy and encourage digital payments is to do away with the transaction cost irrespective of whether it is borne by the seller or customer. Transaction cost is an impediment to providing the kind of infrastructure support needed for ensuring ease of digital payments whether it is last mile connectivity or power. It all boils down to the people, and the major issue that is stopping people from going digital is the Indian mindset. Security is another vital aspect that people are worried about which in turn also needs to be relooked for digital transactions.
For a country which boasts of a predominantly young population, the need of the hour is to boost employment. One way to create jobs is to provide a lot of job-related incentives which will go a long way in people getting into a mode where they start recruiting. Increased capital investment leads to a concomitant increase in the labour sector. If the policy dispensation is in favour of giving more jobs instead of adopting a purely capital intensive approach, a business owner will look at options available for job creation.
Another very important aspect according to me is the ease of doing business in any country. In many fast growing economies like Taiwan, Korea, Thailand, etc., there is a dispensation of deemed approvals. What this ensures is when someone is looking to start a business, there is a clear deadline to get all the necessary approvals and therefore, the person knows that he can start his work on the specified date. Contrast this to the situation in India where once the application is filed, the files just move from desk to desk, one department to the other, the applicant is made to run around, pay an exorbitant amount in bribes, and finally the application may or may not be approved. I am sure that bringing in a system of single-window clearance and a regime of deemed approval will make India a much more investor friendly nation.
The ESDM sector can prove to be the sunrise sector in transforming India into a manufacturing hub. We have already seen a huge increase in investments in the manufacturing sector in the current fiscal year. To be exact in rupee terms, “Electronics and IT Minister Ravi Shankar Prasad today said foreign direct investment (FDI) in electronic manufacturing has touched an all-time high of Rs 1.23 lakh crore in 2016 on the back of enabling policies of the government and its Make in India initiative.” Design-led manufacturing and a robust ESDM ecosystem are the two key criteria which will prove crucial in giving a leg up to both the ESDM and Aerospace and Defence sectors. Japan, Taiwan, Singapore, Israel, United States are the few countries that the government and the industry would watch out for. Partnership with these countries will be highly beneficial for the growth and up-gradation of the ESDM industry in India.
However, we believe the market for India to export electronic products will be its neighbouring SAARC regions and Middle East and Africa, with UAE being a major importer of Indian goods. Companies are planning to expand their local manufacturing in India and make the country an export hub specifically to cater these markets. We may observe a similar trend starting from 2017.
Therefore, in summary, the industry is looking forward to the union budget with anticipation in terms of various incentives to provide a fillip to the ESDM industry. We also hope that there will be policy changes that will provide a boost to employment and transformation into a cashless economy.
(The writer is currently serving on the board of various industry & academia committees, the major ones being AMSI, IIIT-B, and CEO of KIADB)
For full coverage of Union Budget 2017 click here.