Proposal for Extension of differential excise duty to PC-Laptops, Notebooks,
Desktops and Servers
PC Manufacturing Landscape in India: 2015
11.32
12
Total Annual Demand & Actual Production:
- 10.62 Mn Unit- IDC/MAIT-IMRB Study.
Actual Production of 2.34 Mn Units of Top PC
manufacturer (HP. Acer, Dell and Lenovo)
10.62
10
8.1
8
6
4
2.52
2
0
Figures in Mn Units
Installed Manufacturing Capacity
Annual Demand
Import
Actual Production
Manufacturing as % of total demand: - India
currently manufactures 25-30% of the
domestic market requirement.
Import to cater our demand: - An estimated
70-75 % of the demand for IT products is
met through imports
Installed Manufacturing Capacity Vs Actual
Production: - Unused manufacturing
capacity of over 80% due to availability of
cheap imports and other disabilities
Value Addition: - Less than 5 %
*All supporting documents of the statistical data with assumptions provided in Annexure A.
Disability for Indian Manufacturers
Nature of disability
Burden
Taxation related disabilityFiscal Factors
5.63%
Business environment
disability- Physical Factors
9.40%
Total Disability*
15.03 %
Duty Differential can be a Game Changer as
without any further investment, we have the
manufacturing capacity which under full
capacity utilization can meet our annual
demand and can also contribute to exports
and also help develop component eco-system
to achieve net zero import.
* Refer Annexure B for detailed calculation on Disability
Our Proposal for Duty Differential: Revenue Cost and Positive Impact
Revenue cost of such measure for the Government is
modest: INR 103 Cr. to INR 322 Cr *Refer Annexure C
32% manufactured domestically: -Present revenue after giving input
tax credit for B2B purchases (INR 325.81 Cr)-Estimated revenue
expected at Excise duty of 2% (INR 222.57 Cr) = INR 103.24 Cr.
100% manufactured domestically: -Present revenue (INR 1018.14
Cr.)-Estimated revenue at 2% (INR 695.53 Cr.) = INR 322.61 Cr
The unutilized capacity can ramp up
production and yield additional income &
consumption tax revenues of 58 Cr in 2016
and will further increase to 284 Cr and 557
Cr in FY18 & FY20 respectively accompanied
by local value addition and employment
generation. *Refer Annexure D for detailed
calculation.
While the revenue impact is modest, the fiscal benefits and the gains accruing from such a policy measure would be
substantial and will go a long way in encouraging domestic manufacture of these products in India, in line with the
“Make in India” and “Digital India” and “Skill India” program of the Government.
Phased Manufacturing: Add value addition with proposed Duty Differential
scheme: Value addition from 5% to 55%
VALUE ADDITION FROM 5% TO 55%
Phase 3 (2018-19)
% in Overall BOM: -15%
Add-On Cards, Mechanics (Plastic,
Electro-Mechanical, Metal
components), Accessories (PC
Connectivity cable, Battery Pack
and Adaptor)
Cumulative BOM Coverage: -55%
% in Overall BOM: -14%
Cumulative BOM Coverage: -40%
Phase 2 (2017-18)
LCD Monitors/ Displays &
RAM/Memory Card
Phase 1 (2016-17)
Finished PC (Laptops, Desktops,
Notebook, Thin Client, All-in One,
Hybrid) & Motherboards, SMPS
% in Overall BOM: -26%
We have not included few components as Keyboard, mouse as it will get obsolete with change in technology. Hard
Disk Drive and Optical disk is anticipated to be a dying technology and hence we have not included the same in BOM.
*Refer Annexure E for duty structure to be levied under phased manufacturing with BOM Details
Positive Impact of Policy Intervention:
Help in import substitution : Manufactring can double in first year
Develop Componenet Ecos-system-India can contribute to Global Value Chain
Increase PC Penetration from 11 PCs per 100 persons to 33 PC
Manufactuing will boost design innovation, R & D
Laptops, notebooks and PCs are creation and productivity enhancing devices
Increase investment, employment and improve balance of Trade
Socio-Economic Development riding on Demand Generators of Digital India, Skill India
Targeting 30% of Global shipment of 270 Mn Units- Bring Investments in Capex-Opex and increased Job
Manufacture of ~80 million units; implies an incremental capacity of ~70 million units. This will require capex of at
least USD ~106 million and opex of USD ~53 million annually. It will result in ~53,000 jobs in PC assembly and
~2,11,000 in component manufacturing. Assuming a multiplier effect of 3X, it would add ~7,92,000 jobs
For the Growth of country, Let’s replicate the success of mobile
device by providing duty differential for the IT hardware sector
Apprehensions
Will Duty Differential help in
full utilization of unused
capacity and the production
will gear up from first month
itself?
The Impact of DD on local
existing vendor base and
what
is
the
current
Status/Capability
of
Component manufacturing
in the country?
Justification & Impact by DD Scheme
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Why our estimated Revenue
cost calculation less than
government understanding
of loss in tune of 1000 Cr
Providing DD to PC will not
have same fate as Tablet as
neither the production nor
the investments has increase
for Tablet.
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What are the level of
investments (Capital Goods)
with
all
Top
PC
manufacturers
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Yes. Duty differential will make FG Import costlier. Roughly, duty differential for import
against local Mfg. per PC will be ~$50-75, assuming $500 Avg. cost of PC.
This will ensure that all PC requirement of India is manufactured locally.
With help of this scheme Impact in Mfg. capacity utilization will be visible from 1st month
itself, and full capacity utilization must reach within 2~3 quarters.
Local Procurement is very small % of the total BOM.
The current supplier base is very limited with only packaging materials, CDs and printed
materials, Power Chord, tags and stickers etc.
There are few component vendors as follows, but there are challenges.
Motherboard, Memory - Smartlink, APC + many others have capability to assemble
motherboard and Memory
SMPS – VMC, APC, Delta, + others
Display – LG, Samsung
Today, each OEM produces little quantity of PC locally. And that doesn’t make sense to
localize parts. Also, local parts buy is costlier than imports, due to taxation difference (CST
etc.). As the PC manufacturing gets ramped up, the component manufacturing and local
sourcing will happen and suppliers may subsequently become more competitive subject
to their meeting the exacting international quality standards and developing design and
sourcing capability.
Our estimated present revenue of the Government on Desktops/ Notebooks/ Laptops is
based on after giving input tax credit for B2B purchases and hence revenue impact is less.
If we have assumed that 32% of the market share manufactured domestically- the
negative revenue impact for government would be INR 103.24 Cr.
If we have assume that 100% of the market share manufactured domestically (import
substitution) - the negative revenue impact for government would be INR 322.61 Cr
Excise duty including Cess paid by top manufacturer is in tune of INR 650 Cr
HCL and WIPRO have shut their operation & HP is in Excise free Zone
Lenovo-130 Cr +Dell-350 Cr+ACER-150 Cr=INR 650 Cr
Tablet is predominantly a content consumption device and larger smartphones are
cannibalising the tablet market and hence its market has tapered down.
On the other hand, content creation needs to be done on PCs, which will be fuelled largely
fuelled by Government projects.
Providing DD to PC will have mobile story repeated as it will ramp us existing idle capacity
and bring new investment in the eco-system.
A differential duty regime for PCs, will therefore result in increased manufacturing using
the idle manufacturing capacity, without much waiting for greenfield investments to
happen.
DD scheme will not bring investment in initial years as there will be utilisation of existing
idle capacity.
However, there will be new investment in component eco-system and hence multiplier
effect will be observed in employment. This will help to trigger new investment as well.
PC OEMs will have to invest for mfg. of products, which they import today. It might be ~
$3~5M per OEM.
Parts supplier will also invest as all OEM will look for local buy of parts and hence the
component ecosystem will gradually develop.