10-Oct-2013
To encourage domestic manufacturing of information technology (IT) products and reduce India’s import dependency, the government may impose customs duty up to 17.5% on certain wireless telecommunication equipment used for third and fourth generation mobile networks.
India is a signatory to the first Information Technology Agreement (ITA-1) under the World Trade Organization, under which customs duty was abolished on many technology products.
According to the finance ministry, however, the government believes certain telecommunication equipment was not covered under the agreement, and that it can levy customs duty on these.
Experts say while it may be possible for India to circumvent the ITA-1 restrictions, levying customs duty on such products will increase telecom rates for customers while doing little to encourage domestic manufacturing, at least for now. However, domestic manufacturing remains essential to curb India’s high dependence on electronics imports.
An inter-ministerial subcommittee in a meeting held last month identified telecommunication products such as dense wavelength division multiplexing, ethernet switch routers, gigabit packet optical networks and packet transport nodes for higher customs duty, according to an internal department of telecommunication (DoT) memo reviewed by Mint.
The ITA was first signed in 1996 by 29 WTO members to completely eliminate duties on IT products covered under it. India joined the group a year later but has refused to join the ongoing discussions for ITA-2, saying ITA-1 has not helped Indian manufacturing. Further, ITA-2 intends to cover non-IT products such as consumer durables as well.
In a meeting held in the finance ministry in September, the IT department suggested the imposition of 10-12% customs duty to encourage domestic manufacturing of such equipment, according to the minutes of the meeting reviewed by Mint.
The telecom department, however, had said the commitment under the WTO should not be breached and that due care should be taken in identifying products to levy duty. It also expressed concern that higher customs duty on telecom equipment would push up call rates, affecting consumers, the minutes show.
The commerce department said in the meeting that the IT products identified by the inter-ministerial sub-committee did not exist in 1997 when India signed ITA-1 and, therefore, customs duty could be imposed on these products without any fear of retaliatory measures. It suggested that duty on such products be imposed at 17.5%.
The revenue department has urged the IT department to take a legal view on the matter, according to the minutes.
Attempts to contact the telecom and IT ministries were unsuccessful.
Abhijit Das, professor and head of the Centre for WTO Studies under the Indian Institute of Foreign Trade, said the key question will be on the description and scope of the products included under ITA-1. “If the scope and description of the products do not extend to the identified products, we may impose customs duty on them,” he said.
Mohammad Chowdhury, leader-telecom, PricewaterhouseCoopers India, said levying customs duty on the products identified could result in higher tariffs for telecom customers.
“Indian operators typically operate on very thin margins, leaving very little room to absorb additional costs. While they may be able to insulate themselves from short-term increases in costs, like the rupee depreciation, longer-term costs like increased customs duty could have an impact (on rates), depending on the specific equipment and the proportion of the total capex that is being used for that equipment,” he said.
Chowdhury added that the manufacturing of such products in India may not be possible due to high capital investment requirements and the need for the technology transfer, among other reasons. “But domestic assembly is possible, as could be seen with the auto industry and mobile handsets that are assembled in India,” he added.
Currently, India imports $33 billion of electronic goods, behind only oil and gold. India’s electronics import bill is estimated to touch $320 billion by 2020, possibly exceeding that of crude oil, if domestic manufacturing is not encouraged at this stage, Kapil Sibal, minister of communications and information technology, said in January. Domestic demand for electronics is estimated to touch $400 billion by 2020.
According to US-based Ovum Research, the requirement of 3G (third-generation network) equipment is expected to be worth Rs.10,127 crore, and of 4G equipment Rs.12,659 crore in 2015-16. The demand for telecom equipment in India was Rs.76,940 crore in 2012-13.
The government has over the past two years introduced several measures to boost electronic hardware manufacturing under the National Electronics Policy 2011. The policy includes sops for setting up semiconductor fabrication units and industrial clusters for manufacturing electronics, apart from specifying standards for electronics imports to curb the entry of spurious goods into the country.
The cabinet last month gave in-principle approval to a proposal for setting up two semiconductor manufacturing facilities to reduce India’s dependence on import of electronic products, especially electronic chips. The investment envisaged for the two units is around Rs.25,000 crore and the level of government support for these units will be decided through negotiations with chip makers.
Source:- livemint.com
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