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DGFT Throws Electronics Manufacturers A Curveball

The Directorate General of Foreign Trade (DGFT) has recently issued a notice that the additional 2 percent benefits given under the existing Merchandise Export from India Scheme (MEIS) for all sectors, including electronics manufacturing, will end on December 31, 2019. The cut in duty incentives has been announced ahead of a new export incentive scheme, Remission of Duties or Taxes on Export Products (RoDTEP), which is expected to be rolled out from 2020. With the additional benefits gone, the original incentive of 2 percent, 3 percent, and 5 percent will remain until RoDTEP is put in place. Further, the development comes at a time when the IT ministry is also in discussions with the finance ministry to find WTO-compliant ways to provide increased incentives to the electronics manufacturing industry. The RoDTEP scheme is yet to get cabinet approval.

The move has created a panic among electronics manufacturers as from the sector’s perspective, this decision by the government is not aligned with the vision of an export-led electronics manufacturing out of India. The exports of the electronics sector at this reduced MEIS rate will not only bring exports to a standstill but will also impact the existing investments as well as planned investments, and ongoing work toward the creation of value chain of electronics manufacturing. It will be prudent for the government to continue the support given to the electronics industry so as to provide policy predictability and assurances to the industry not just in India but globally as well.

Furthermore, the government is looking to reduce imports of more than 350 non-essential items such as electronic goods to give the Make in India initiative a push. Several ministries, including electronics and IT, and commerce and industry, have been asked to take action on the list of identified products. The government is also considering the suggestion to do away with global tender for government procurement in industries where domestic demand is enough. Public sector companies have been asked to mention their requirements for products and specifications for the next 5 to 6 years to assess domestic demand. The government might also announce import duty hikes on some products in the budget. The government is of the view that increasing import duties products such as television sets and mobile phones would give a boost to domestic manufacturing.

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