NEW DELHI | CHENNAI: India may have to offer electronic manufacturers additional sops such as cheap credit and incentives for export along with infrastructure support in order to boost production and help the sector compete with China, Vietnam and Thailand, according to a top government official.
These incentives, over and above the proposed reduction of corporate tax to 15% for new manufacturing units, are vital for India to successfully attract companies looking to relocate manufacturing facilities.
“While the tax announcements made last week send a very good signal, in order to help attract investments, we will need additional initiatives,” the official told ET, pointing out that Indian electronic manufacturers incur 8-10% higher costs compared with other Asian countries.
Sops that are similar to the incentives for export under the existing Merchandise Exports from India Scheme (MEIS) are what the industry requires, the person said.
MEIS gives tax credit in the range of 2-5%. An interest subvention scheme for cheaper loans and a credit guarantee scheme for plant and machinery are some other possible measures that will help the industry, the official added.
“This should be 2.0 (second) version of the electronic manufacturing cluster (EMC) scheme, which is aimed at creating an ecosystem with an anchor company plus its suppliers to operate in the same area,” he said.
Last week, finance minister Nirmala Sitharaman announced a series of measures to boost economic growth including a scheme allowing any new manufacturing company incorporated on or after October 1, to pay income tax at 15% provided the company does not avail of any other exemption or incentives. It must also commence production by March 31, 2023.
“The general understanding is that companies are looking at relocating around 20% of their existing manufacturing from China. All these measures if adopted along with the tax cuts should work in attracting the investment, especially the component manufacturers,” the official said. ET reported last month that the ministry of electronics and information technology (MeitY) has proposed fresh incentives to boost electronics manufacturing in India after three major schemes ended last year.
The proposals sent to the finance ministry include 4-6% interest rate subsidy on loans for new investments, renewal of the electronic manufacturing cluster (EMC) scheme and waiver of collateral for loans taken to set up machinery.
The three major government schemes — the Modified Special Incentive Package Scheme (MSIPS), EMC and the Electronic Development Fund — that were designed to aid India’s manufacturing push in electronics ended last year.
The electronics manufacturing industry says India needs to do more to make the country an attractive manufacturing destination. Industry leaders had also pressed for the return of lapsed incentives during a discussion with Ravi Shankar Prasad, minister for electronics and IT earlier this month. The chiefs of top manufacturing companies such as Apple, Samsung and Nokia were present in the meeting.
George Paul, CEO of the Manufacturers’ Association for Information Technology (MAIT) said that the MSIPS scheme, which provided around 25% subsidy on capital investment, significantly helped the manufacturing ecosytem in the country and there is a need for an equivalent of the MSIPS to offset more of that disability.
“It’s still needed and so are structural reforms that address infrastructure issues through measures such as manufacturing clusters which provide a plug-and-play setup that reduces the cost of the industry to set up,” said Paul.
MeitY has stopped receiving fresh applications under MSIPS by end-December 2018. “There are several applications that are currently being appraised for eligibility under MSIPS now, but there is no proposal so far for extension of the incentive,” a Meity official told ET.
An official with the Indian Cellular and Electronics Association said extension of the scheme for at least for two years would enable India to attract investments, particularly establishments looking to move out of China. According to the National Electronics Policy 2019 launched in February this year, over 200 applications totaling investments worth Rs 56,534 crore are under appraisal.
“Perhaps the government can decide to not extend it for equipment assembly but it will certainly attract investments in the components, PCB (printer circuit board), ATMP (assembly, testing, marking and packaging) industries where the value addition is high,” said Rajoo Goel, secretary general of Electronic Industries Association of India.