The four electronic hardware industry associations on Thursday made a forceful plea for zero customs duty on capital goods and basic inputs and raw material that go into making the various finished goods like computers and consumer electronic items.

Coming together for the first time, Consumer Electronics & TV Manufacturers Association, Electronic Component Industries Association, Manufacturers Association for Information Technology and Telecom Equipment Manufacturers Association of India, also formed a joint council to liase with the government vis-a-vis their demands.

The associations have demanded that the government, which had earlier announced that it would prepone the zero duty regime to 2003 as against the WTO commitment of 2005, should revert back to 2005.

"There really is no need for the government to prepone the deadline to 2003 on its own when it is not required to do so. It had taken this decision in 1998 when many computer hardware companies were importing finished products.

But since then, every PC company has set base in India and it affects all of us," said MAIT secretary Vinnie Mehta.

At the basis of this argument is International IT Agreement of World Trade Oraganisation that India is a signatory to. It pertains to only 217 electronic components and finished goods, but capital goods and certain non-electronic raw materials are not included in it.

This means that import of these items will continue to attract higher customs duty, whereas finished goods (end products like PCs and TVs) would become muchcheaper due to zero duty, thus sounding a deathknell for the domestic electronic manufacturing industry.

Requesting the finance minister to take a holistic view, the four associations said a special domestic tariff area scheme should be set up for the electronics hardware sector comprising IT, telecom and consumer electronics as list-based exemption may prove to be tedious in implementation.

The scheme should comprise nil customs duty on all capital goods and all input raw material and components for the three sectors, nil corporate taxfor 10 years (on the lines of IT software sector) and no net foreign exchange positive (NFEP) or export performance condition.

The last condition would mean conferring the deemed export status to all supplies including capital goods, raw materials and components to the hadrware sector.

"Alternately, the government may consider modification of EHTP scheme on lines of these lines. What is important to understand here is that we are not askingfor any incentives linked to exports," said ELCINA president BS Sethia.

Many capital goods and raw material/inputs that go into making IT and electronic goods fall under a customs duty slab of 20-25 per cent.

The associations also demanded CENVATable concessional 8 per cent excise duty on all IT, electronics and telecom products, especially for indigenous productsof mass consumption and also on low-value electronics products of mass consumption such as low-cost PC, black and white TVs, transistors and radios.

TEMA executive director SK Khanna pointed out that the government had set itself a target of providing 9-10 million phone lines over the next few years. "Thistarget cannot be achieved unless the government also takes steps to boost the domestic manufacturing industry. Or else, the nation should be prepared to anaverage per line outgo of Rs 20,000 in precious foreign exchange on account of imports and kiss goodbye to the domestic companies," he added.

The global hardware manufacturing presents an opportunity worth $1,000 billion and growing at 8 per cent per annum. Indian electronics hardwaremanufacturing industry has grown at an average of 11 per cent in the past few years and is expected to clock revenues of Rs 33,000 crore this fiscal.

The growth is, however, expected to slow down to around six to seven per cent under the current recessionary circumstances. The PC industry for instance is expected to log in a negative growth of 8-12 per cent at the end of the present fiscal in March 2002.

Though particularly slow due to the current slowdown, the demand for their products will rebound to a 20 per cent growth, the associationsclaimed.

"Of India's total hardware, about 40 per cent, or Rs 13,000 crore comes from consumer electronics. In comparison, China's CE industry is worth Rs 200,000crore and that of the US worth Rs 500,000 crore. With a policy structure not conducive to manufacturing, the hardware industry has witnessed erosion of theexisting manufacturing base and disinterest of foreign investors in manufacturing in India," said CETMA vice-president SK Malik.

"The electronics industry has been the driving force in developing economies, for example in Japan (in earlier stages of development), Taiwan, Korea, Malaysia, Thailand and the latest being China. This sector should be given priority as it has many advantages over other sectors, such as least capital-to-output ratio, maximum job opportunities for unskilled and semi-skilled workers, especially for women, and it is non-polluting. Should the policy environment be friendly, the consumer electronics industry is confident of exceeding Rs 100,000 crore per annum from the existing level of Rs 13,000 crore per annum," added CETMA president Rajeev Karwal.

Pressing the need for a special sectoral treatment for the components manufacturing, ELCINA's Sethia claimed that the disability factors in India add to about 16-20 per cent, which was a significant proportion of the manufacturing cost.

"These can only be overcome by a progressive policy that can help reduce the transaction costs through simplified procedures. A strong component manufacturing base is of utmost criticality for a thriving hardware industry in India, otherwise nothing can stop us from ceding this position to countries like China."