India IT hardware manufacturers suffer fiscal disabilities estimated at 6.47% and disability on account of physical infrastructure and business environment estimated at 9.40%, aggregating a crippling 15.87%: MAIT Study

  • Urgent steps to address Fiscal and Market anomalies can enable doubling of IT hardware production in one year to US$ 2.6 billion, help to achieve the vision of ‘Net Zero Imports’ of ICT and Electronics hardware products by 2020, establish India as a global ESDM supply hub 
  • Favourable duty differential regime can potentially generate 10,56,000 jobs in India IT manufacturing and related services, if estimated annual demand for21 million PCs by 2020 is fulfilled entirely through domestic production and the country garners a 30% global market share

NEW DELHI, India – May 18, 2016 – ManufacturersAssociation for Information Technology (MAIT), India’s premier ICT hardware industry association today hosted an exclusive press meet-cum-industry briefing to unveil the report, “Policy Interventions for Achieving ‘Net Zero’ Imports – IT-Electronics Sector“.

The launch of the report featured an opening address by Mr Nitin Kunkolienker, Vice President, MAIT and Director, Smart link.

Speaking at the event, Mr Kunkolienker stated, “We have suggested to the Government of India some key policy and market interventions to achieve the vision of ‘Net Zero Imports’ and ignite a culture of domestic ICT and Electronics product manufacturing in the country. Within the manufacturing sector, the growth of the IT-ESDM industry is critical for realising the goals of ‘Make in India’ and ‘Digital India’ launched by the Government, and help establish India as a worldwide PC market by 2020.”

With the right measures there is potential to ramp up IT hardware production to US$ 2.6 billion within a year and put India firmly on the path to becoming a global ESDM supply chain hub,” Mr Kunkolienker added.

The study seeks to highlight that compared to other low cost jurisdictions, India poses some disabilities for IT-ESDM manufacturers. The cost of manufacturing is estimated to be higher in India vis-à-vis other global hubs. These are on account of physical factors such as higher costs of power, real estate, logistics, additional expenses on account of freight, as well as fiscal factors. India has a multitude of taxes and duties imposed by both the Central and State Governments. Because of their flawed structure, these taxes often discriminate against domestically manufactured products.

Therefore, the current study was designed to analyze in-depth the state of the IT hardware manufacturing sector in India, with special emphasis on desktop PCs, laptop PCs and servers, identifying inherent drawbacks when compared with China, Taiwan and other East Asian countries. Further, the study findings propose tax policy interventions in the immediate and short term that can lower the disabilities, reignite the growth in this sector and help it to contribute to India’s vision of ‘Make in India’ and ‘Net Zero Imports’.

The event also featured brief sessions by industry stalwarts Mr. Krishnakumar P, Vice President, MAIT and Vice President-Consumer and SMB, Dell India; Mr. Sandeep Aurora, Director-Marketing and Market Development, Intel India/South Asia; Mr. Rahul Agarwal, Managing Director, Lenovo India, and Mr. Priyadarshi Mohapatra, Country General Manager-CCG, Microsoft India.

MAIT Delhi event pic

Domestic IT Market: An Investment Opportunity Waiting to be Tapped India has a large and growing market for IT products and ESDM hardware. Due to various disabilities impacting domestic manufacturers, a large part of this market is being served by imported products, mostly from China. In 2015, we believe the share of domestic manufacturers was only 45 per cent of the total ESDM market of US$ 31.6 billion. For the IT products market of US$ 5.8 billion this proportion was even lower at around 22 per cent.

The ability of the Government of India to address some of the controllable factors such as tax rates will make manufacturing in India more competitive. This will increase the capacity utilisation of existing players and also attract investments from other players, who are currently importing their products into India and not manufacturing locally. This strategy has already shown results in the case of Smartphone and Tablet vendors, and serves as a strong signal that the PC industry has the potential to go the same way,” surmised Mr Krishnakumar of Dell.

Improving Access to Technology

Intel has been committed to making technology accessible to the citizens of India. As a part of its Digital India programme, which aims to bridge the digital divide in our country, the Indian government should definitely look at all opportunities that make this accessibility to technology in general, and PCs in particular, possible for the end consumer. Achieving this feat would require effective policy making and implementation, and collaboration with technology players who can create solutions that fit into this policy framework, to ultimately benefit the citizens,” stated Mr Sandeep Aurora of Intel.

Trigger for Growth in Content Generation and Innovation

Notebook PCs and Desktop PCs continue to be the primary mode of content generation and knowledge creation for youth in India. As young people gear up for employment, PCs are the primary mode of acquiring employment-ready digital skills. PC penetration in India is at a mere 9%, while Sri Lanka is at 12% and China at 50%. With the Government prioritizing initiatives such as ‘Digital India’ and ‘Skill India’, making technology more accessible is an imperative. That is the only way we can create a future ready workforce. We believe an impetus to PCs will help transform India into a digitally empowered society and a knowledge economy,” stated Mr Priyadarshi Mohapatra of Microsoft.

India is emerging as a design hub for a number of component suppliers. Co-location of design centres and manufacture of Notebook PCs and Desktop PCs can help drive a virtuous innovation cycle driving sustained growth for India’s digital economy.

Employment Generation Potential

It is estimated that for every million units of production, approximately 660 people are employed directly on the assembly side and another 2,640 in components manufacturing. Further, a multiplier effect of 3X can be safely assumed for related Services jobs that the sector would add. Thus, increase in local manufacture of PCs and domestic production of components will result in a significant impact on employment opportunities. With the right policy measures now, it would be possible for India to supply the 21 million units estimated domestic demand for PCs in 2020 entirely from local manufacturing. In addition, India-based firms would be able to scale up production to an aggregate of 80 million units to capture a 30% global market share. This can potentially help to generate approximately 53,000 direct jobs in PC assembly, 2,11,000 jobs in components manufacturing and an estimated 7,92,000 jobs in related services, all aggregating to a total of 10,56,000 jobs over the next five years.

Revenue Impact versus Benefit

Policies aimed at neutralizing the manufacturing disadvantages are the need of the hour to meet the goals of ‘Make in India’ and ‘Digital India’. Duty Differential policy for PC manufacturing can go a long way in utilizing hitherto unutilized capacities, and further creating a sustainable IT hardware manufacturing ecosystem for the long-term. The success story of Smartphone manufacturing can be replicated for PCs and servers in this manner,” summed up Mr  Rahul Agarwal, Managing Director, Lenovo India.

We hope Government will give consideration to our proposals on a priority basis, keeping in view that the benefits that would accrue out of this proposal will far outweigh the perceived revenue loss,” Mr Nitin Kunkolienker of MAIT concluded.

Notes for Editors:

  1. Calculating Overall Disability: For the purpose of this study, the overall disability has been considered to be the difference in the selling price of an IT product (Notebook PC, Desktop PC, Server etc.) manufactured in India and the price of the same/similar product when imported, including all import taxes, as a percentage of the selling price of the product manufactured in the country.  The disability on account of fiscal/ tax factors for the IT hardware segment (notebooks, desktops, servers etc.) is estimated at 6.47% while the disability on account of physical/ business environment factors is estimated at 9.40%. Thus, the total disability that the Indian IT and Electronics sector has to suffer is 15.87%.
  2. Proposed Policy and Market Interventions: To address this concern and to encourage domestic manufacturing of IT products, the industry is requesting that the differential excise duty regime introduced by the Government in 2015 for Mobile phones and Tablets be extended to Notebook PCs and Desktop PCs. The differential duty regime requires the excise duty on Notebook PCs and Desktop PCs to be brought down to 2% without any facility for input tax credits, and an exemption from excise duty for parts, components and sub-assemblies, which go into manufacture of PCs. This will provide a level playing field for domestic manufacturers of these products and allow them to serve a larger share of the Indian market. The manufacturers of these products are operating well below their capacity and would be able to ramp up their production very quickly without any gestation lag associated with new greenfield investments. The increased scale of domestic production will facilitate development of the ecosystem of production of components and parts.

MAIT has brought to the attention of government policymakers, key issues that need to be addressed on priority, to improve the business environment in the country and to attract more investment in manufacturing of IT and Electronics goods.

Please click here to read the summary of ‘Policy interventions for “Net Zero Imports”- IT Electronics Sector-Extension of Duty Differential to Laptops, Notebooks, Desktops’

Please click here to view MAIT’s presentation on ‘Policy interventions for “Make in India”                                 

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About MAIT

MAIT was set up in 1982 for purposes of scientific, educational and IT Industry promotion, Representing Hardware, Training, R&D & Hardware Design and other associated service segments of the Indian IT Industry. MAIT’s charter is to develop a globally competitive Indian IT Industry, promote the usage of IT in India, strengthen the role of IT in national economic development, promote business through international alliances, promote quality consciousness in the IT Industry and transform the Indian IT Industry into a world-class industry.  MAIT is recognized by both Govt. and Industry for its role in the growth & development of the IT Hardware industry in India and has emerged as a strong & effective mouthpiece of the industry.

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