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Electronics

Introduction: 
 
A nationwide survey conducted by India’s Department of Information Technology in association with Electronics Industries Association of India (ELCINA) in 2011 has found that two-thirds of domestic electronic components demand is met through imports. Moreover, India’s electronics hardware production constitutes only around 1.31% of the global production. The global electronics industry is one of the fastest growing in the world and demand in the Indian market is expected to touch US$ 400 billion by 2020. Since India’s domestic production is projected to account for only US$ 100 billion, the electronics sector provides very a good opportunity for investment. The size of the manufacturing opportunity lies in the gap between the expected demand in the country and the rate of domestic production. 
 
In order to encourage domestic manufacture, the Indian government in February 2012 instituted a policy that will grant preferential market access in government procurement to electronic goods manufactured in India. The preferential market access policy stipulates that there must be 25% to 40% value addition. Manufacturing has been recognized as the main engine for the country’s economic growth and an ambitious target of taking the share of manufacturing from 16% to around 25% of GDP by 2025 has been set by the National Manufacturing Policy. The growth and development of the electronics systems and design manufacturing (ESDM) industry is expected to play an important part in realizing this target. 
 
India’s electronics industry is expected to grow at 22% per year, which is 7 times the global rate. The primary demand drivers are sectors like telecom, defense, IT and e-governance, automotive, consumer electronics, and energy. There are over 120 million internet users (as of Dec 2011), 13 million broadband subscribers (as of Dec 2011), and 919 million mobile phone users (as of March 2012, with 10-12 million subscribers added every month). With large pan-India government projects such as the national optical fiber network, the national knowledge network and e-governance programs in the works, the move is expected to open up huge opportunities for domestic production and foreign investment in the electronics sector. Moreover, the cable TV digitization, mandated by the government, is expected to spur demand for Set Top Boxes as well as High Definition Television sets. Demand for low cost innovative products such as touch-screen tablets for education and medical devices are other demand drivers. 
 
The government has also recognized the importance of the semiconductor industry and is seeking companies that can offer technology expertise and investment for setting up semiconductor-wafer fabrication units in the country. Setting up of a semiconductor fabrication plant is seen as an important piece of the electronics manufacturing ecosystem. The government has also set a goal of attracting investments of between US$ 7-10 billion in the coming months. In June 2012, the Department of Electronics and Information Technology (DeitY) selected Accenture to review investment proposals from global technology providers and investors interested in building semiconductor fabrication units, or fabs, in India. 
 
In 2011, the Indian government released the draft National Policy of Electronics which envisages creating a globally competitive Electronics Systems and Design Manufacturing (ESDM) industry including nano-electronics to meet the country’s needs and serve the international market. Some of the major strategies proposed in the draft policy include:
 
Providing attractive fiscal incentives across the value chain of the ESDM sector through Modified Special Incentive Package Scheme (M-SIPS).
Creating a 10 year stable tax regime for the ESDM sector.
Setting up of Semiconductor Wafer Fab facilities and its eco-system for design and fabrication of chips and chip components.
Developing an India microprocessor for diverse applications/ strategic needs.
Setting up a specialized Institute for semiconductor chip design.
Providing Preferential Market Access for domestically manufactured electronic products including mobile devices, SIM cards with enhanced features, etc. with special emphasis on Indian products for which IPR reside in India to address strategic and security concerns of the Government consistent with international obligations in procurement.
Providing incentives for setting up of over 200 Electronic Manufacturing Clusters with world class logistics and infrastructure. This proposal has already received Cabinet approval. 
Creating an “Electronic Development Fund” for promoting innovation, R&D and commercialization in ESDM, nano-electronics and IT sectors including providing support for seed capital, venture capital and growth stages of manufacturing.
 
For more information, visit: http://mit.gov.in   
 
Incentives: 
 
Special schemes are available for setting up Export Oriented Units for the Electronics Hardware Sector. Various incentives and concessions are available under these schemes. The salient features of EOU, EHTP, STP and SEZ schemes are tabulated here.
 
Duty Exemption and Remission Schemes: These schemes enable duty free import of inputs required for export production.
 
Duty exemption schemes consist of:
Advance Authorization scheme
Duty Free Import Authorization (DFIA) scheme
 
Duty Remission Scheme enables post export replenishment / remission of duty on inputs used in export product. Duty Remission Schemes consist of :
Duty Entitlement Passbook (DEPB) Scheme
Duty Drawback (DBK) Scheme
 
Details of these schemes are available in Chapter-4 of India’s Foreign Trade Policy and Procedures and could be accessed from:
 http://pib.nic.in/archieve/ForeignTradePolicy/ForeignTradePolicy.pdf .
 
Export Promotion Capital Goods (EPCG) Scheme: The Zero duty EPCG Scheme is available to exporters of electronic products. It allows import of capital goods for pre-production, production and post-production (including CKD/SKD thereof as well as computer software systems) at zero% customs duty, subject to an export obligation equivalent to 6 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled in 6 years reckoned from Authorization issue-date.
 
The concessional 3% duty EPCG Scheme allows import of capital goods for pre-production, production and post-production (including CKD/SKD thereof as well as computer software systems) at 3% customs duty, subject to an export obligation equivalent to 8 times of duty saved on capital goods imported under EPCG scheme, to be fulfilled in 8 years reckoned from Authorization issue-date.
 
The capital goods shall include spares (including refurbished/reconditioned spares), tools, jigs, fixtures, dies and moulds. Second hand capital goods, without any restriction on age, may also be imported under the EPCG Scheme. The export obligation can also be fulfilled by the supply of ITA-1 items to the DTA, provided the realization is in free foreign exchange.
The details of the EPCG scheme are available in Chapter-5 of India’s Foreign Trade Policy and Procedures, which could be accessed from: 
 http://pib.nic.in/archieve/ForeignTradePolicy/ForeignTradePolicy.pdf 
 
Electronics Hardware Technology Park (EHTP) Scheme/ Export Oriented Unit (EOU) Scheme: The details of EOU/EHTP schemes are available in Chapter-6 of India’s Foreign Trade Policy and Procedures and could be accessed from: 
http://pib.nic.in/archieve/ForeignTradePolicy/ForeignTradePolicy.pdf 
 
Special Economic Zones (SEZ) Scheme: As per the “Special Economic Zones Rules, 2006”, notified by the Department of Commerce, in case a SEZ is proposed to be set up exclusively for electronics hardware and software, including information technology enabled services, the area shall be ten hectares or more with a minimum built up processing area of one lakh square meters. Details pertaining to SEZ scheme are available in Chapter-7 of India’s Foreign Trade Policy and Procedures and could be accessed from: 
http://pib.nic.in/archieve/ForeignTradePolicy/ForeignTradePolicy.pdf 
 
Deemed Exports: Deemed exports refer to transactions in which goods that are supplied to the end users do not leave the country and the payment for these supplies is received either in Indian currency or in foreign exchange. The following categories of supply of goods by the main/ sub-contractors are regarded as “Deemed Exports” under the Foreign Trade Policy, provided the goods are manufactured in India:
Supply of goods against Advance Authorization/Advance Authorization for annual requirement/DFIA
Supply of goods to Export Oriented Units (EOUs) / Software Technology Park (STP) units / Electronic Hardware Technology Park (EHTP) units / Bio Technology Park (BTP) units
Supply of capital goods to Export Promotion Capital Goods (EPCG) Authorization holders
Supply of goods to projects financed by multilateral or bilateral Agencies/Funds as notified by the Department of Economic Affairs, Ministry of Finance under International Competitive Bidding (ICB) in accordance with the procedures of those Agencies/Funds, where the legal agreements provide for tender evaluation without including customs duty
Supply of capital goods, including in unassembled/disassembled condition as well as plants, machinery, accessories, tools, dies and such goods which are used for installation purposes till the stage of commercial production, and spares to the extent of 10% of the FOR value to fertilizer plants
Supply of goods to any project or purpose in respect of which the Ministry of Finance, by a notification, permits the import of such goods at zero customs duty
Supply of goods to the power projects and refineries not covered in (f) above
Supply of marine freight containers by 100% EOU (Domestic freight containers - manufacturers) provided the said containers are exported out of India within 6 months or such further period as permitted by the customs;
Supply to projects funded by UN agencies
Supply of goods to nuclear power projects through competitive bidding as opposed to ICB.
The benefits of deemed exports shall be available under paragraph (d), (e), (f) and (g) only if the supply is made under the procedure of ICB.
 
Benefits for Deemed Exports: Deemed exports shall be eligible for any / all of the following benefits in respect of manufacture and supply of goods qualifying as deemed exports subject to the terms and conditions as given in the Chapter-8 of Handbook of Procedures (Vol.I), 2009-2014 of the Department of Commerce, Ministry of Commerce & Industry:
Advance Authorization/Advance Authorization for annual requirement/DFIA
Deemed Export Drawback.
Exemption from terminal excise duty where supplies are made against ICB. In other cases, refund of terminal excise duty will be given.
The details of “Deemed Exports” scheme are available in Chapter-8 of India’s Foreign Trade Policy and Procedures and can be accessed from: 
http://pib.nic.in/archieve/ForeignTradePolicy/ForeignTradePolicy.pdf
 
Important Links: 
 
Department of Electronics and Information Technology: http://mit.gov.in/
Ministry of Commerce & Industry: http://commerce.nic.in/
Electronics Industry Association of India: http://www.elcina.com/
Manufacturers Association of Information Technology: http://www.mait.com/