A bare minimum of 1.5 per cent as remission of taxes and duties for exports is needed by the domestic electronics sector if it has to become the top exporter in the world by 2025, industry association India Cellular and Electronics Association has said.
The government recently announced a WTO compliant Remission on Duties and Taxes on Export Products (RoDTEP) scheme that replaced the earlier Merchandise Export Incentive Scheme. Effective since the beginning of the year, the government is yet to notify the rates of the new scheme. Under the old scheme, it had offered a straightforward incentive of 2-4 per cent on the total value of exported products and it had resulted in a significant surge in export of electronics from the country from $6,072 million in 2017-18 to $11,225 million in 2019-20.
"RoDTEP is critical to address India's deep disabilities vis-a-vis its competitors for boosting electronics manufacturing and making it India's number 1 export by 2025. This needs to be an ongoing exercise to address the adverse impact on India's competitiveness, of high taxes which remain unremitted. An early finalisation of RoDTEP base rate and rates of priority products needs to be our immediate focus," said Pankaj Mohindroo, Chairman ICEA.
The association has prepared a report in collaboration with IKDHVAJ Advisers LLP, which has proposed 2 per cent rate of RoDTEP for smartphones, tablets and laptops, 2.34 per cent for feature phones, 3.4 per cent for battery chargers and base rate of 1.48 per cent for battery packs. These rates are based on the minimum assumption of logistics and power costs in manufacturing.
India suffers several disabilities vis-a-vis competing destinations such as China, Vietnam and Thailand, which make India's exports uncompetitive. ICEA said RoDTEP, which replaces the MEIS Scheme, is key to ensuring that Indian electronics exports regain the competitive edge. ICEA aims to make electronics India's top export by 2025.
Globally, electronics is a US$2 trillion industry, dominated by exports from China, Vietnam, Taiwan and Japan. Electronics is amongst the largest traded commodities after oil. It provides India with a tremendous opportunity to become a global leader in exports. RoDTEP is critical since the government is targeting $1 trillion in exports by 2025 as part of the $5 trillion GDP objective. No country has reached the $5 trillion mark without exports contributing at least 18-20 percent.
The report also highlights the tremendous growth in electronics manufacturing and exports over the last three years. Electronics, which is India's ninth largest exports, has shown the highest response (85 per cent increase) to export stimulus between 2017-2020, from amongst the top 15 exports from India. The report further shows that several countries are already allowing remission of indirect taxes, levies and duties that are allowed under WTO. It identifies and unbundles indirect taxes for the purposes of remission. The rates estimated in the report identify the unremitted duties/taxes/levies at the central, state and local level, borne by exported electronics products, including prior stage cumulative indirect taxes on goods and services used in the production of such products.