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Electronics industry keeps its fingers crossed

Fakir Chand in Bangalore

The beleaguered Indian electronics industry, which has been in the dumps over the years, is desperately looking for a breather in the Union Budget for the next financial year (2001-02), as well as in the ensuing Export-Import (Exim) Policy on March 31, 2001.

Smarting under gross discrimination suffered at the hands of the authorities and at the expense of its counterpart, the blue-eyed software industry, the electronics industry has been reeling in crisis due to economic recession, lack of investments, heavy dose of taxation, and onslaught of competition from reckless imports.

Acknowledging that the electronics industry had not only been neglected, but also its pleadings for a level-playing filed ignored, Gautam Soni, advisor to the Union ministry of information technology (MIT), told rediff.com in Bangalore that the industry should be getting some of its grievances redressed in the Union Budget for the financial year 2001-02.

"Based on the memorandum submitted by the industry, the MIT has made far-reaching recommendations to the Union finance ministry for giving the much-sought concessions and exemptions which will enable the industry to step up investments and face global competition from this April when the quantitative restrictions (QRs) will go on its products as per the WTO agreement, to which India is a signatory," Soni disclosed.

Some of the MIT recommendations have been based on the report prepared by the IT Task Force for hardware, set up by the Prime Minister's Office two years ago. Though the report is yet to be accepted by the government, tax reliefs and lower duties for the industry are likely to figure in the budget proposals, when Union Finance Minister Yashwant Sinha tables them in Parliament on February 28th.

Expectations are running high among thousands of entrepreneurs of the small and medium industries (SMIs) as well as of the small-scale industries (SSIs) on the duty structure for import of raw materials and capital goods as the electronics and the component manufacturers have not

been able to compete with imported goods due to thin margins, thanks to increasing cost of finance, power, transportation, labour, and other taxes being levied at the state levels too.

Admitting that the hardware industry lacked the kind of lobbying or clout its high-profile software industry has in the corridors of power, especially in Delhi, the nerve centre of all policy decisions, Soni said the government was committed to back the former fully as any imbalance in the entire industry would have a cascading effect on the economy itself as the industry was getting increasingly driven by convergence of technologies.

"It is not just the regulatory framework and taxation problems the electronics industry is facing. There are a host of others such as lack of an efficient infrastructure, speedy clearance of goods at customs, bottlenecks at port of call, and mass of paper work which are stifling the growth of the industry. We need to address all the issues across the board," Soni asserted.

According to Consortium of Electronic Industries of Karnataka president Jawad Basith, the rationalisation of tax structure in the last budget (2000-01) in four slabs made things difficult for the industry as what was being levied earlier at 8 per cent and below had been reclassified in the third slab of 9-16 per cent, which has virtually doubled the cost inputs.

"It is not just the taxation and infrastructure problems the Indian electronics industry has been facing over the years, but the very step-motherly attitude of the government towards simplifying procedures, amending outdated laws, and providing a level-playing field," Basith said.

In stark contrast to the phenomenal growth of the software industry during the last 5-6 years, the growth of the hardware industry has been stagnating around 10-12 per cent due to declining investments in the recent past, except in the consumer electronics segment.

"Even in the case of exports, the trend has been in the negative on account of high cost of inputs, lower capacities and production volumes, high tariffs, and the absence of custom bonding houses as in the case of software exports," lamented Basith.

As a result, imports into the country have gone up to 56 per cent, and will only go up further from the new financial year when QRs will be totally lifted. "There is no point in blaming China or Taiwan for targetting the huge Indian domestic market as they are not only able to make quality goods cheaper, but are also ready to dump them below our prices."

Without mincing words, Componex Electronics India chief organiser and editor of Electronics Today journal S Sawaran blamed the government for the present fate of the industry despite tall proclamations from roof-tops.

"While the federal government has set an ambitious target of achieving $50-billion software exports by 2008, and is doing everything to succeed, no efforts are being made to achieve the $10-billion target set for hardware exports by the same year.

For the policy makers as well as the officials, IT means only software, and that too the part of software which fetches the precious foreign exchange by exporting the intelligent labour (read computer programmers)."

With the hardware and the software being the two sides of the same coin, the industry is hoping against hope that the government will begin to address the serious problems plaguing the electronics industry to make up for the lost ground and keeping in view the global competition.

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