A Central Excise department amendment, introduced last July, is threatening to harm the growth potential of the estimated Rs 130-crore Indian smartcard industry by making business very tough for local smartcard manufacturers.
Till 2007, smartcards (including proximity cards and tags) used to invite import duties (inclusive of all excise and customs) of 32.13 per cent on raw material (PVC materials), 19.65 per cent on integrated chips or IC, and 19.65 per cent on recorded/finished smartcards.
The amendment removed the duties on recorded smartcards; wherein unrecorded (locally manufactured) smart cards continue to attract the duty. Integrated Circuits, which are not manufactured in India, so far constitute almost 80 per cent of the smartcard’s cost.
Consequently, 90 cent of finished smartcards are imported from China, Taiwan, Singapore and Europe. In the last quarter (April-June), imports from China exceeded three million cards. The Indian smartcard industry (excluding mobile SIM) is growing at a rate of 25 per cent compounded annual growth rate.
“Domestic smartcard manufacturing industry is unable to compete with importers. Most players thus resort to trading, thereby reducing innovation opportunities and leaving the industry at the mercy of cheap imports, which hampers quality and reliability of the project being executed. What China makes, may not be 100 per cent suitable for India,” explains Ashok Chandak, senior director, global sales, NXP Semiconductors and president of the SmartCard Forum of India.
Sources believe it’s a mistake on the government’s part. The reason for granting exemption to recorded smartcard was that many in the industry believed that recording/personalisation of smartcards does not amount to manufacture and hence there should not be any excise duty on the same.
Currently, there are about 20 smart cards units in the country awaiting new business opportunities.
Pradhyumna Venkat, CEO, Gemini Traze, notes: “The move is deterring local manufacturing in times when smart card consumption in India is increasing. We are one step above the value chain as besides manufacturing smart cards (and also RFID), we supply raw material to local manufacturers. This has helped us neutralising the effect....but small players are finding it tough to survive.”
S Swarn, an analyst and organiser of SmartCards Expo 2008, concurs that this anomaly encourages import of finished products and hits directly the domestic manufacturing industry.
The government, says Chankak, should look at providing 100 per cent rebate on duty to the Indian manufacturers on import of raw materials like core and overlay as well as the modules and charge 19.65 per cent duty on the finished cards imported into India.
Local manufacturers, meanwhile, are challenging this exemption and there have been various representations that have been made to government and revenue officials on the disparity.
The newly-announced government policy to allot a ‘safe guard duty’ (Directorate General of Safe Guard) on imported items that have affected the local manufacturers remains one hope for the local smartcard manufacturers.
