Even as the country's software and biotechnology sectors have expressed "disappointment" over the 2006 budget announced by India's Finance Minister P. Chidambaram Tuesday, many in the IT industry are elated over the attention this budget has showered on the country's IT manufacturing sector.
"For the first time ever, the (Indian) budget has given a focused attention on IT hardware manufacturing in the country," said Vinnie Mehta, executive director of the country's IT hardware lobby, the Manufacturers Association of Information Technology adding that "Budget announcements are indeed terrific."
Interestingly, the Indian budget has achieved this not by providing any extra sops to domestic manufacturing but by re-imposing an excise duty (imposed at the point of sales) at 12 percent while allowing local hardware makers to get tax credit for their inputs to negate its impact on the final price.
Two years back, the Indian government had exempted fully built computers from excise duty to boost the use of computers in the country but in an anomalous duty structure had retained the 16 percent excise duty on input components. Consequently, local hardware manufacturers which depend heavily on components were unable to compete with imported hardware since they were not allowed to offset the taxes on their input components.
"But now that anomaly has been removed," said Mehta. The budget has imposed a 12 percent excise duty on computers and simultaneously has removed components like DVD drives, flash drives and combo drives from the excise duty gambit, "that not only makes imported hardware more expensive but by allowing by allowing local manufacturers to avail a value added tax credit, makes locally made hardware more competitive and also encourage manufacturing of high-end products such as notebooks and servers."
But the good news for local hardware does not end there.
"I wish to promote India as a preferred destination for hardware manufacturing," said the Finance Minster, "for which the Ministry of Information Technology has been instructed to come out with a new policy for manufacturing of capital intensive hardware products such as Semiconductors, Assembly, Testing and Packaging of Semiconductors, LCDs, and storage."
"The budget then has several pointers that would lead to creating an eco-system for manufacturing," said P. Balaji, president of the Telecom Equipment Manufacturers Association of India who is also the vice president of the Indian operations of the global telecom equipment manufacturer Ericsson. "The finance minister's pronouncements on a manufacturing policy, boosting e-governance projects, and lowering of duties on hardware would in due course lead to this."
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