Budget fails to even come close to fulfilling promises made in National Electronics Policy

The budget, especially the allocations it makes, is the best indicator of judging whether the government is putting its money where its mouth is. The obvious test will be to see whether the budgetary allocations for 2013-14 set the ball rolling towards the long and hard catch-up game the Indian electronics industry is playing.

Three specific budgetary announcements by Finance Minister P. Chidambaram have been highlighted in the media. The first is the move to impose a five per cent import duty on set-top boxes.

The second, and apparently contradictory, move is the hike in excise duty on mobile phones priced above Rs. 2,000.

Even the first move has proved divisive within the industry.

While domestic manufacturers (and component suppliers) have welcomed it, importers, who are eying opportunities that would arise from the nationwide rollout of compulsory digital TV transmission, have criticised the move.

No import duty

But by far the most important announcement, which unfortunately, most sections of industry and the media have failed to recognise, lies in the Finance Minister’s announcement of a nil rate of import tariff on all equipment that would go into the country’s first-ever venture into chip fabrication.

Barely two weeks before the budget, Ajay Kumar, Joint Secretary, Department of Information Technology, said in Bangalore that the government would announce the name of the company or consortium that would establish such a facility in the country by March-end.

But, as is usually the case with budgets, what is not in it is as much an indicator of the government’s indication. The point is that the budget does not even move in the direction of fulfilling the array of promises made in the National Electronics Policy 2012.

Cost estimation

Aninda Moitra, president and managing director, Applied Materials India Pvt. Ltd., the Indian arm of the U.S. company that supplies equipment to the global semiconductor industry, estimates that a “high-end fab” that would focus on making chips for the server market would involve an investment of about $7 billion to 8 billion.

It is more likely that a facility with a wider range of applications would call for an investment of $4 billion.

Going by the “thumb rule” that equipment would account for about 60 to 70 per cent of the total investment, Mr. Moitra reckons that the size of the investment that may qualify for the zero import duty proposed by Mr. Chidambaram would be about $2.4 billion to 2.8 billion.

But the point is that there is nothing else in the budget that provides an account of what the government is going to spend in the form of incentives to attract the likes of a Samsung or an Intel.

At first glance, the allocation for telecommunication and electronics industries appears impressive — almost 50 per cent more than the revised estimate for 2012-13. But, on closer examination, it turns out that this is just Rs. 1 crore more than what Mr. Chidambaram’s predecessor had allocated for 2012-13.

Nor has Mr. Chidambaram fixed the “inverted imported duty structure,” which results in lower barriers to the imported finished goods than on the components that go into making products.

‘Strategy needed’

Most observers of the industry are of the view that India, a late starter in the hardware game, has to adopt a concerted strategy in which the government is to be a key actor, not merely as a provider of incentives, but as an actual participant. This is how it happened in the case of “success stories” such as Taiwan, Korea, Japan and Singapore. “There ought to be rule-based and time-bound support from the government,” observes Mr. Moitra.

Mr. Chidambaram’s failure to back the promise of the National Electronics Policy with a clear assignment of financial priorities delays India’s quest to play catch-up in an industry that offers considerable strategic advantages through their all-round linkages to the wider economy.