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The government has decided to review the proposed Preferential Market Access (PMA) policy in electronic goods, which seeks to favour domestic equipment makers for government procurement. However, the revised proposal, if accepted, would also not be too favourable to foreign electronics goods makers.
In a note for the Cabinet, reviewed by Business Standard, the ministry of communications and information technology has also proposed that the government approve the part of the policy that reserves 30 per cent of its procurement for domestically manufactured electronic goods.
On July 5, the Prime Minister's Office (PMO) had decided to keep PMA on hold, following strong protests from international trade associations. The US-India Business Council (USIBC) and 37 other associations of foreign telecom firms and electronics product manufacturers, including entities from across Europe, Australia, Asia and the US, wrote to Prime Minister Manmohan Singh, protesting at the draft notification for a PMA policy.
The Information Technology Industry Council, which represents major foreign technology firms such as Alcatel-Lucent, Cisco, Ericsson and Motorola, had also opposed the policy.
The cabinet had approved a PMA policy on February 2, 2012, to give preference in procurement for domestically made electronic products where there could be security implications for the country and in procurement for government use.
According to the new ministry note, the extant policy shall not be applied to electronic products having security implications and a "separate framework" shall be developed for procurement of these products. However, all other provisions on procurement of electronic goods for government use will remain unchanged. The policy will also apply to the defence sector.
The note argues that PMA was mooted to incentivise domestic manufacturing in the country, which presently depends on large-scale imports to meet its demand for electronic goods. The policy is one of the many initiatives taken by the government in the past two years to get an electronics manufacturing ecosystem going.
J Satyanarayana, secretary, department of electronics and information technology, declined to comment on the note but said the government had stated in the past that the PMA policy would be reviewed.
According to government estimates, India imports about $40 billion of electronics items.
"We welcome the continuation of the government procurement policy, as we feel it is important to stimulate the domestic manufacturing activity," said Chetan Bijesure, director and head of the manufacturing division at the Federation of Indian Chambers of Commerce and Industry.
In April this year, the department of telecommunications (DoT) had written to the PMO that the suggestion of a moratorium on PMA implementation was similar to a "chicken and egg story", after the PMO had suggested the issues of security and manufacturing be de-linked.
The then DoT had said linkage of local manufacturing, development of intellectual property rights for new technology and security was justified. Under PMA, there was "no distinction" between an Indian company and a foreign company and all companies manufacturing in India are judged on value addition criterion to qualify as domestic, the DoT replied to the PMO.
Meanwhile, the Department of Telecommunications was planning to add 23 new products in the reviewed list of products that would be included in the PMA list. The department is expected to add six new products in the PMA list for government procurement for 2014-15.
As part of the earlier proposal for PMA, even private telecom operators or licencees had to give preference to domestically manufactured telecommunications products that could have security implications. However, in the case of electronics, only government agencies had to reserve 30 per cent of their procurement for goods that had a stipulated percentage of domestic value-add. This percentage was supposed to go up by five per cent every year.
USIBC and other organisations had said the government's proposal for a PMA could be inconsistent with India's World Trade Organization obligations.
MARKET DEPTH
* $40 billion Government estimates of India's electronic items' imports
* $300 billion National Electronics Policy's estimate of import by 2020
* $400 billion National Electronics Policy's estimate of demand for electronic items by 2020
* 3 per cent of telecom equipment used in India are home-made (as of 2009-10), says TRAI
