The industry has pointed out that the current tariff system, with its multiple rates and surcharges, is detrimental to the sector’s competitiveness. The letter suggests a nil duty on parts and inputs for sub-assemblies and components, a 5% duty on certain components, and a 15% duty on finished goods.
To delve into the electronics industry’s budget wishlist, CNBC-TV18 spoke with Rajeev Khushu, Chairperson of the Board of Directors at IESA, and Pankaj Mohindroo, Chairman of ICEA.
Edited Excerpt:
Q: We were referring to a letter you wrote to the Finance Ministry. And I’ll ask that in the context of the target that we’re looking at. The Prime Minister has given the Indian industry a target of $500 billion by FY30. A basic calculation will tell you we’re looking at a CAGR of over 27%. The numbers, however, tell us that we’re not quite there yet. How do we make up this gap? What can the budget do to help us bridge that gap and help the industry beat that 27% target of CAGR?
Mohindroo: The important thing is that this $500 billion can be achieved if we track exports of $180-200 billion. So, the domestic industry will grow to about $250-300 billion. And the exports have to grow at about 45% CAGR. Currently, the exports are about $30 billion. They have to go to $180-200 billion. Now, this is something unprecedented. Although, as far as mobile phones are concerned, we have grown 2,200% in the last eight years, from about $2.5 billion to $55 billion of output. And exports are at a historic high. This year, we will clock nearly 2 lakh crore of mobile phone exports.
So, how will we do it? Now, one is that we have to fire on all cylinders, which is that the final products must be assembled here and exported out of here. We must get more competitive by bringing in foundational industries, sub-assemblies, and components here. Wherever there is maturity and competitiveness that is getting hurt because of tariffs, we have to reduce the tariffs, for example, after the scale achieved in mobile phones of $50 billion-plus. We are advocating that we reduce duties selectively on certain products where the duty is meaningless, neither creating manufacturing nor useful for any revenue collection.
We have even asked for duty increases in certain areas, such as washing machines and certain other products.
We also have to see that the global value chains (GVCs), which will form the bulk of this volume and value, find India the most competitive and easiest place to do business.
Q: Of the recommendations that you’ve given for the budget, one thing that was conspicuous by absence was a demand for the PLI for components. We’ve seen the conversation over the last 12 to 18 months, and the industry expects PLI to come forth. Why is that missing? What is your pitch for the budget? Would you want to see this as well? And what is a good quantum of that outlay you would wish to for this PLI component scheme?
Mohindroo: It’s quite settled now that the scheme is in its final architecture. The final product output is about $115 billion from last year, for which we are targeting $500 billion. Some good schemes have been rolled out about two years back to foundational industry work, such as semiconductors.
Now the middle, which is the PCB and other important sub-assemblies and components, there is a complete understanding and realisation that a solid stimulus for that is required to the tune of about ₹40,000 crores. And I carefully articulate that this is not a subsidy or anything. This is an investment which the nation is making into a sector which the government trusts because the PLI for large-scale electronic manufacturing has had scintillating results in terms of employment, in terms of exports. And despite the tremendous geopolitical challenges which the world is facing, we have delivered on that. So, the nation and the government have confidence that this industry, which has delivered unprecedented results, 2,200% growth in mobile phone manufacturing and about 400% growth in electronic manufacturing, can walk the talk.
That is why I think it’s a situation where we understand, the industry understands, that it is only time now that this scheme is rolled out.
Q: When we look at the semiconductor space, incentives are not something that the industry is short of — offered by the Centre, by the state governments. So, from that perspective, what are the industry’s expectations when you look at this latest upcoming budget? What can the government do to stimulate further growth?
Khushu: We have really moved in the right direction in terms of incentives. We have seen many announcements — whether it is Tata or Micron — for their fabs and ATMPs. But then, this momentum has to be continuous, so we cannot just stop at $10 billion, which will get consumed in maybe a few quarters from now. So, we will need to top it up, which means that we are expecting that the next budget on the [India Semiconductor Mission] should at least be $15-20 billion.
At the same time, India has to transform into a product nation. Today, we hardly have any products owned by India. For example, most of the mobile phones and other products which are getting manufactured, which we are exporting and consuming. But then, we lack the ability to build the products locally. I think that’s where this budget has to address it, which means design-linked incentives … for the semiconductor products, which will ensure many semiconductor startups will come into the country because all of us must understand that India as a country is very strong in semiconductor design. So today, there’s hardly any semiconductor company which does not have a design centre in the country.
So if we push that, we will see many people coming out of their cushy jobs in their multinational companies. Because of these incentives, they will come out and start their own fabless companies. And for fabless companies, the government has democratised it by giving incentives in terms of tools, which was the big bottleneck that was addressed in the previous budget. So, I am sure that will continue.
So, we should focus on our strengths. Design is our strength. So, we need to basically push and probably have at least ₹10,000 crore for semiconductor and products which are designed in the country.
Watch the accompanying video for the entire discussion.
