Imports are eroding component supply base in India in consumer electronics

A commendable decision with a motive to curb black money caused significant liquidity issues within the economy. For a sector which still operates 80 percent on cash took a toll in its sales in the aftermath of the decision, 40 percent to be exact. The move has affected the sector in the second half of the third quarter and might have withdrawal effects too. However we expect the government to address this issue and implement relevant measures to minimise the impact of demonetisation. 

We anticipate the budget to reach on a consensus over some of the issues that have slowed ACE industry’s growth for a sizeable amount of time. An industry which is a significant contributor to the economy is anticipated to register almost a 2X growth over the global growth average as reported by Frost & Sullivan in its Skilling for Durable India report 2016. ACE market is expected to reach Rs 192,847 crore in 2021 growing by a CAGR 10.1 percent from 2015. 

Mobile handsets that are a key element to the industry is also facing limitations. First and foremost there is no clarity on the GST rates on mobile handsets which raises the question whether ‘Make in India’ initiative would still enjoy patronage under the GST regime as well. We hope the budget is able to shed some clarity over the issue and expect it to reduce the CGST rate to 0 percent applicable without input tax credit for domestically manufactured mobile handsets. Further, SGST at 5 percent should be applicable at each stage which should be creditable (as under the present regime).

Additionally, in the previous GST council meeting the government elaborately placed the refrigerators, washing machines and other electronics of daily use in the 28 percent slab rate under the goods and services tax. We expect the 2017 budget to thoroughly look into this decision and place the appliances under the 18 percent slab and mobile phones under the 12 percent slab rate, because an augmented GST rate will increase the tax burden on the goods which would be inflationary. Consumer durables and mobile handsets have become things of necessity rather a luxury. 

Currently appliances such as microwave ovens, air conditioners, televisions, washing machines and refrigerators enjoy a BCD (Basic Customs Duty) rate of 10 percent. To further elaborate the notion, these goods can also be imported as completely built units from ASEAN and SAFTA countries like Thailand and Japan at concessional rates of BCD ranging from 0-6 percent. The practice has resulted in the erosion of the component supply base in India, since there was not enough domestic demand to be catered to by the component manufacturers and they could not reach economies of scale. 

We are counting on the budget committee this time around to augment the BCD rate on ACE goods from 10 percent to 20 percent so as to discourage the import of these commodities and promote the idea of ‘Make in India’. China has emerged as the world's largest producer and supplier of manufactured goods and components. China’s scale of production is almost 7-10 times as compared to the level of production in the Indian market, they have also devalued their currency by almost 12 percent in the last few months. The government of India previously increased the BCD rates within the automotive sector as well which further resulted in the increase of exports and global investment numbers.

Lastly we are counting on the government to formulate on its decision on the imposition of SAD (Special additional duty) on populated PCB’s and mobile handsets alongside phased manufacturing. This will help in promoting local electronic manufacturing in the country, thereby achieving the government’s objective of ‘Make in India’. Although the timeline for imposing the duty needs to be calibrated, we expect the duty to be withdrawn for a period of one year as lot of investments have been made in the interim period. 
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Manish Sharma is the president of Consumer Electronics and Appliances Manufacturers Association (CEAMA)