Niti seeks tax holiday on $1 bn investment in electronic manufacturing

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New Delhi: In a bid to attract large firms into India, Niti Aayog has suggested a 10-year tax holiday for companies investing over USD 1 billion in electronics manufacturing activities.

"We would also want to provide for the ten-year tax holiday on investments of USD 1 billion or more that also create 20,000 jobs. This would help bring some large foreign firms into India," the Niti Aayog said in its draft report on 'Make in India - Strategy for Electronic Products'.

The government think tank has also asked to devise an export-oriented strategy for the industry, saying the domestic market at USD 65 billion remains small in relation to the world market, which is in excess of USD 2 trillion.

"Big success requires operating in the large world market, which amounts to more than USD 2 trillion compared with only USD 65 billion in the case of the domestic market. Therefore, we must reorient our policy to ensure that the industry becomes competitive in export markets," the report added.

India's domestic consumption of electronics hardware in 2014-15 was USD 63.6 billion, while imports accounted for 58 percent of this figure, according to the report.

Niti Aayog said the country needs to forge free trade agreements (FTAs) to create duty-free market for electronic goods and, at present, India's approach with respect to FTAs is defensive because it is a much larger importer of electronic products than exporter.

"But a switch to export-oriented strategy would convert FTAs into an opportunity. What we need to ensure that we can quickly develop electronics industry on a large scale so that we are globally competitive and can capture the markets of our FTA partners. Export orientation should allow us to eventually sign the Information Technology Agreement 2," the report said.

The think tank in its strategy paper has also suggested setting up coastal economic zones (CEZ) which may be up to 200 to 250 kilometres wide from the coastline, approximately equal distance in length and encompassing a modern deep dredge port.

"It would have minimal red tape and relatively flexible labour and land-acquisition laws. It will also allow easy entry and exit of firms. It will be authorised to take swift decisions on applications for environmental clearances. Goods moving into and out of the zone through the port will face minimum barriers," the report said.

As per the report, the contribution of electronic industry to GDP is significant as it contributes 15.5 per cent to GDP in Taiwan, 15.1 percent in South Korea and 12.7 percent in China, but in India, this proportion is only 1.7 percent.