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High-tech industry asks India to delay tariff cuts

Posted: 01 Mar 2002 ?? ?Print Version ?Bookmark and Share

Keywords:computer hardware? telecommunication? electronic? india? world trade organization?

India's high-technology industries are pressing their government to delay the planned elimination of import duties by two years, to 2005.

India is committed under World Trade Organization (WTO) rules to eliminate tariffs no later than 2005. The nation's computer hardware, telecommunications, and electronics manufacturers had voluntarily agreed to implement an accelerated zero-duty regime, setting a deadline of 2003, on the condition that the government correct such problems as the disparities between the duty rates levied for finished goods and those charged for imported components. But the tech segments now say that the government failed to act on those conditions and that they, thus, want to revert to the original date of 2005.

"The original voluntary offer from the computer hardware industry to advance the zero-duty regime to 2003 was conditioned upon the government's exempting all input components, including dual-use items, from customs duty, and maintaining a minimum differential of 10 percent with the duty on finished goods," said Vinay Deshpande, chairman of the Manufacturers' Association for Information Technology (MAIT). "Since not all of these [prerequisites] have happened yet, it is necessary to roll back the date to 2005 in order to give industry more time to strengthen itself to face the competition from fully finished goods imported into the country."

The Telecom Equipment Manufacturers' Association (TEMA) went so far as to say that failure to push the zero-duty requirement back to 2005 would "have a devastating effect on the indigenous telecom equipment manufacturing industry." TEMA is adamant that "India's duty reduction commitment under [WTO's] Information Technology Agreement-I, which commits zero duty on information technology [including telecom] products by 2005, should not be moved ahead to the year 2003."

"We believe that holding to the originally agreed date of 2005 would provide an opportunity to rationalize the duty structure and other tariffs," said Bala K. Chandran, a TEMA representative and managing director of Krone India, a telecommunications components manufacturer.

ITA-1 covers 217 items, including all telecom equipment, but excludes other items needed to manufacture equipment. Hence, accelerating the zero-duty schedule would create damaging anomalies, Chandran said.

Harmful results

The industry that makes copper cable would be badly hit, for example, if zero duties came into effect next year, since the materials needed to manufacture the cable are taxed at 35 percent. With zero duties, it would be cheaper to import copper cable than to manufacture it here. Chandran said the plan would thus harm efforts to establish a manufacturing infrastructure in India.

In the fast-growing Indian telecom market, where the total number of lines added in the last five years is one and half times the total number of lines added over the preceding 50 years, local manufacturers worry they would lose out if imported raw materials and finished equipment are not equitably taxed.

Tema argues that local manufacturers need time to improve their operations before they can compete in a duty-free import environment. Without the requested government reforms, if the zero-duty regime begins in 2003, "the entire local manufacturing base will become totally nonviable," Chandran said.

While customs duties on finished telecom products have been gradually reduced over the years, analysts said there have not been similar reductions in duties for components and raw materials. "The current basic rate on all finished telecom products is 15 percent, whereas input [components and materials] duties vary from 15 to 35 percent. The domestic manufacturing industry is suffering because of this anomaly," TEMA said.

Members of the Electronic Components Industries Association (Elcina) also want to delay tariff elimination. "With no proper hardware policy in place, advancing the zero-duty regime to 2003 would be bad news for the electronic components industry," an Elcina spokesman said.

"Hardware manufacturing would become highly unattractive because of the distortion in duty structure," the spokesman said. "This would make component manufacturing nonviable in India but would also send negative signals to existing manufacturers and to new investors." That could lead to a "loss of foreign direct investment, which in any case has been bypassing us" because of regulatory uncertainties.

Call for time

MAIT's Deshpande said the computer hardware industry needs more time to gird for a duty-free market "since today those that are manufacturing within the country [including multinational companies] are at a disadvantage compared with those who import fully assembled equivalents."

Wipro, one of the few Indian names in the computer hardware industry, agrees. "The Indian market needs a push from the government toward increasing the domestic market as well as helping the domestic industry grow. Advancing the zero-duty regime would not be in line with those objectives," said Anil Jain, head of marketing and business development at Wipro Infotech.

Wipro and other manufacturers want the government to encourage local manufacturing, creating employment and boosting India's profile in global electronics manufacturing.

"India has a very low PC penetration, among the lowest in the world. This country needs domestic manufacturing rather than multinational companies to increase penetration and grow the market," Jain said.

The key question now is whether the government, which historically has done little to boost high-technology manufacturing in India, will risk backtracking on its pledges to WTO.

"Obviously, we must give domestic industry time to strengthen itself," Deshpande said. "Every single component required for domestic manufacturing of IT products must also be importable at zero duty, lest domestic manufacturing continue to be at a disadvantage."

A government decision is possible later this week when India's annual plan for 2002 to 2003 is scheduled to be announced. Hopes are that the rollout of the zero-duty regime would indeed be delayed, since the minister in charge of communication and information technology had recommended such a move.

? K.C. Krishnadas

EE Times

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