Finance Minister Arun Jaitley is a great orator. A very successful lawyer that he is, it probably comes naturally to him. While speaking, if he wants to emphasise on something, he repeats the word(s), again and again and again. After repeating the word ‘infrastructure’ 33 times while presenting the interim budget in July last year, he repeated his government’s favourite catchphrase ‘Make in India’ 10 times while presenting the budget this year. That he doesn’t just pay lip service to these words/phrases can be seen in the fact that in this year’s budget, while he made a permanent annual allocation of Rs.40,000 crore to road and other infrastructure development by tweaking excise duty rates on petrol and diesel, he made several reductions and a few increases in the duty rates of several items that are key to ‘Make in India’. What are these items? And more importantly, are these measures enough? Here’s presenting to you a detailed The Dollar Business analysis
The Dollar Business Bureau | The Dollar Business
Criticism from several quarters notwithstanding, it’s pretty clear that the Narendra Modi government has made up its mind about a larger share of manufacturing in GDP, via ‘Make in India’, being its primary tool to take the country on a high growth trajectory. But what do you do if several of the factors that are key to its success – from low interest rates and high global demand to a weak domestic currency – are not in your hands? You try and make raw materials/components available to your manufacturers as cheaply as possible, don’t you? And a really low-hanging fruit in your endeavour to do this is reducing import tariffs on inputs that are to be used in your manufacturing process. This seemed to be at the back of Finance Minister Arun Jaitley’s mind while preparing Union Budget 2015, as he reduced the customs duty and/or special additional duty (SAD) on several key raw materials/components, either to make them available cheaper to Indian manufacturers, address duty inversion, or address CENVAT credit accumulation, along with increasing the customs duty on a few items to make domestic manufacturing more competitive.
For cash flow
When India joined the Information Technology Agreement (ITA) in 1997, it opened up its doors for duty free imports of 217 tariff lines. While 95 of these tariff lines were made duty free by the year 2000, the same was done for the rest in the subsequent years. Such generosity, without any emphasis on domestic manufacturing, has meant that imported ITA goods have flooded the Indian market and drained our forex reserves. For, just in FY2014, India’s trade deficit in HS Codes 84 (Nuclear reactors, boilers, machinery, mechanical appliances, and parts thereof) and 90 (Optical, photographic cinematographic measuring, checking precision, medical or surgical instruments, and apparatus parts and accessories thereof) that account for bulk of ITA goods, was a staggering $23.2 billion ($18.6 billion in HS Code 84 and $4.6 billion in HS Code 90)! While addressing this mega issue will need a massive effort, most of which are probably beyond the purview of the budget, FM Jaitley has taken a first step and exempted the SAD on the imports of all components, except populated printed circuit boards (PCBs), to be used in ITA-bound goods. While this will reduce the cost of components, thereby making domestic ITA goods manufacturers more competitive, it will also address the issue of CENVAT accumulation, which will ensure better cash flows for them and reduce their working capital borrowings.
For the same reason, all inputs that are used to manufacture LED drivers and MCPCB (Metal Core PCB) for LED lights, fixtures and LED lamps have also been fully exempted from SAD and the same has been reduced from 4% to 2% for naphtha, ethylene dichloride (EDC), vinyl chloride monomer (VCM) and styrene monomer (SM) and metal scrap of iron & steel, copper, brass and aluminium. Explaining how this move to exempt SAD on components of ITA bound goods will help domestic manufacturers, Rajesh Tuli, Managing Director, Coral Telecom, told The Dollar Business, “It will help someone who imports tablets in kit form, does 5% value addition, and sells them at Rs.100, with a 5% profit margin. In such cases, you are supposed to pay Rs.12 as excise duty on a selling price of Rs.100, while you have accumulated CENVAT credit of Rs.14.4 (12% BED and 4% SAD on Rs.90 of imports), resulting in excess CENVAT credit.”
Targeting inputs
To balance trade under HS Code 85 (Electrical machinery and equipment, sound recorders and reproducers, TV image and sound recorders and reproducers, and parts thereof), in which India had a deficit of $18.9 billion in FY2014, the customs duty on Black Light Unit Module for use in the manufacturing of LCD/LED TV panels and OLED TV panels have also been fully exempted. A step towards ‘Make in India’, as it will make components/goods cheaper for domestic manufacturers, the move comes along with a reduction in duty in ethylene dichloride (EDC), vinyl chloride monomer (VCM) and styrene monomer (SM) from 2.5% to 2%; isoprene and liquefied butanes from 5% to 2.5%; butyl acrylate from 7.5% to 5%; antimony metal, antimony waste and scrap from 5% to 2.5% and several others. Manish Sharma, President, Panasonic India and South Asia, feels this move to exempt customs duty on the import of Black Light Unit Modules and OLED panels will give an opportunity to domestic manufacturers to compete with imported goods. “This step will surely create more opportunities for manufacturing the panels locally and attracting global businesses to invest in the country. Also, it will help generate employment, which will lead to an increase in purchasing power, thereby having a positive effect on economic growth and IIP.”
Explaining how this is also a good first step to increase exports, Sharma added, “For exports to improve, it is imperative to strengthen the indigenous production base. Once adequate infrastructure, environment and facilities for large scale production is achieved, exports will automatically get a boost. Without creating a viable and vibrant condition for local production to be internationally competitive in prices, it would not be possible for large scale exports.”
Inverting inversion
For a long time now, a major issue for Indian manufacturers has been inverted duty structures. An inverted duty structure is a situation wherein customs duty on the components/raw materials used for the manufacturing of an item is more than the same on the final product itself. For example, an inverted duty structure would be in place if the duty on the import of car components is 20%, while that on cars is 10%. This kind of a situation ensures that domestic manufacturers are at a serious disadvantage, while competing with imported goods. To address this issue, FM Jaitley has reduced the customs duty on metal parts for use in the manufacture of electrical insulators; ethylene-propylene-non-conjugated-diene rubber (EPDM), water blocking tape and mica glass tape for use in the manufacture of insulated wires and cables; magnetron up to 1 KW for use in the manufacture of microwave ovens; C- Block for compressor, over load protector (OLP) and positive thermal co-efficient and crank shaft for compressor for use in the manufacture of refrigerator compressors; zeolite, ceria zirconia compounds and cerium compounds for use in the manufacture of wash coats, which are further used in manufacture of catalytic converters; anthraquinone for manufacture of hydrogen peroxide; sulphuric acid for use in the manufacture of fertilisers; and parts and components of digital still image video camera capable of recording video with minimum resolution of 800x600 pixels, at minimum 23 frames per second, for at least 30 minutes in a single sequence.
For peanuts
According to Society of Indian Automobile Manufacturers (SIAM) statistics, commercial vehicle (CV) sales in India, after peaking at 8,09,499 units in FY2012, was on a downtrend for two successive years – a drop of 2% to 7,93,211 units in FY2013, followed by a collapse of 20.2% to 6,32,738 units in FY2014. Although there seems to be a pause in the downtrend in FY2015, with sales numbers plateauing, the need to do something to boost the morale of domestic manufacturers, has resulted in a hike in customs duty on the import of commercial vehicles to 40% from 20%, although the effective rate was hiked to just 20%. But the fact that only 470 commercial vehicles, valued at just $50.05 million, were imported by India in FY2014, means that the move is just tokenism and could have very well been avoided.
Little evidence
In FY2007, India had imported 4.7 MMT of metallurgical coke (traded under HS Code 27040090), valued at $889.3 million. Seven years later, in FY2014, India imported 4.2 MMT of metallurgical coke, valued at $1.1 billion. It’s very difficult to look at these figures of a negative CAGR of 1.6% (in volume) and positive CAGR of 3.4% (in value) and arrive at a conclusion that metallurgical coke, mostly from China, is being dumped in India. But that is what Indian Met Coke Manufacturers’ Association (IMCOM) has been claiming for some time now and been requesting the government to hike the customs duty on the import of met coke to 20%. Bowing to such demands, although not entirely, FM Jaitley has hiked the same to 5% from 2.5%.
While this will make Chinese met coke slightly costlier in India, thereby making domestic coke manufacturers slightly more competitive and affecting the fortunes of India’s steel makers, it is not expected to affect the import of coke from China, which is believed to have an over capacity. Validating this, Arun Kumar Jagatramka, CMD, Gujarat NRE Coke, told The Dollar Business, “The increase in import duty to 5% is an encouraging move as it proves that the government recognises the value addition done by the domestic industry, which is under the siege of cheap imports from China. However, the increase in clean energy cess on coking coal to Rs.200/- will nullify the benefit, which would have been accrued from this rate hike, to a great extent. Hence, there won’t be any considerable difference in imports of met coke from China.” At the same time, the tariff rate on imports of iron & steel and articles of iron & steel have been increased, but the effective rate has been left unaltered, thereby not making any difference to import tariffs of the product category in the short run.
To oil the roads
In order to ensure a steady flow of working capital for road and infrastructure development, the government has increased the effective rates of additional customs duty/excise on petrol and high speed diesel (road cess) from Rs.2/litre to Rs.6/litre, while reducing the basic excise duty on them by Rs.4/litre. Reacting to this move, Lalit Kumar Gupta, MD & CEO, Essar Oil, told The Dollar Business, “It is a good move to provide funding for infrastructure projects, without raising taxes by earmarking certain proportion of the excise duty for this purpose. For the last few years, road construction has slowed down in our country due to various reasons and for long term viability of projects, it was important for the sector to get an independent funding stream, instead of budgetary support.” However, he expressed disappointment that CST was not reduced in the budget.
From the heart
While they might not make a big difference to India’s trade, two other budget announcements definitely deserve a mention. Firstly, FM Jaitley has expanded the number of countries, whose citizens are entitled to ‘visa on arrival’, to 150 (in phases). Reacting to the move to expand the ‘visa on arrival’ list, Dr. Mahesh Sharma, MoS of Tourism, told The Dollar Business, “It’s a big boost to the tourism industry and I’m sure the impact of this will be rewarding and my ministry’s revenue will see multifold increase.” Secondly, artificial hearts have been exempted from customs duty and CVD. Suneeta Reddy, MD, Apollo Hospitals, while happy with the expansion of the ‘visa on arrival’ list, isn’t too enthused about the duty exemption. “Artificial heart procedures in India are already being performed at 1/10th of the same in the US. So, the customs duty exemption, which was 5% earlier, is not expected to have a significant impact on patients. However, the expansion of the ‘visa on arrival’ list will go a long way in facilitating medical tourism that showcases India’s world class health facilities while contributing foreign exchange to the exchequer,” she told The Dollar Business.
For the winner
Since the day the Modi government came to power, there is a lot of hope and enthusiasm in the Indian economy. The crash in crude oil prices had also given the Finance Minister a lot of space for maneuvering. Using that cushion to full effect, he has generously reduced the customs duty on 22 items to help ‘Make in India’. He has also increased the tariff rate on one and the effective rate on two items to make Indian manufacturers more competitive. The excise duty structure has also been tweaked. The ball is now in the court of Indian manufacturers. It remains to be seen if they score a winner or hit the net once again.
“The move to exempt ITA bound goods from SAD will encourage only low value-add manufacturing” - Rajesh Tuli, Managing Director, Coral Telecom
TDB: What do you think made the government reduce Special Additional Duty for all goods, except printed circuit boards (PCBs), for use in the manufacturing of ITA bound goods?
Rajesh Tuli (RT): This move will benefit a small fragment of domestic manufacturers, in cases where excise duty payable is lower than the amount charged on inputs at the time of imports. For, this used to result in CENVAT credit, the accumulation of which used to block the cash flow of manufacturers. But in reality, the move will help only such manufacturing units that are doing very low value addition. For example, it will help someone who imports tablets in kit form, does 5% value addition, and sells them at Rs.100, with a 5% profit margin. In such cases, you are supposed to pay Rs.12 as excise duty on a selling price of Rs.100, while you accumulate CENVAT credit of Rs.14.4 (12% BED and 4% SAD on Rs.90 of imports), resulting in excess CENVAT credit. The move is encouraging for low level assembly jobs and not genuine domestic manufacturing, with high Indian value addition. Populated PCBs have been made an exception, which is a saving grace for domestic manufacturers to promote EMS (electronic manufacturing services) facilities.
TDB: Do you think the move is enough to provide an impetus to domestic manufacturers of ITA goods and reduce India’s dependence on imports?
RT: No, this move only encourages low value addition manufacturing, which is not good for the country in the long run. This move might stimulate fabrication and EMS processing because populated PCBs are subject to higher BED and SAD. What India needs is technology and design control to safeguard national security concerns. The Union Budget should have promoted high level of domestic value addition. It should have promoted Indian brands and Indian goods, in contrast to Indian manufactured goods. Manufacturing is a low value addition business, while brand or technology ownership are higher on the economic hierarchy. The Union Budget will push India to the lower levels of the macroeconomic pyramid, while countries that are brand owners and technology owners will grow even richer.
India’s dependence on foreign technology and know how will remain as much or even more because present directions will stimulate ‘Make in India’, wherein MNCs will be promoted to set up fabrication plants with low value addition. Such moves may create jobs, but they will make India even more dependent on foreign products and technologies. I am making this point because the focus on low level manufacturing to motivate MNCs to set up factories in India will be at the cost of policies like PMA, instituted to promote Indian products and technologies with high value addition. High value addition manufacturing and design has a different set of problems that remain unaddressed. The most significant of these being ‘cost of funds’ and ‘market pull’. Nothing is done to reduce high interest cost that Indian manufacturers have to bear vis-à-vis an MNC. Focus on low value addition based manufacturing will take away the focus from policies like PMA that were oriented towards creating a market pull for high value addition Indian products.
TDB: Do you expect similar moves in the future as government attempts to realign policies with the ‘Make in India’ campaign?
RT: Yes, of course the new government is focused on promoting ‘Make in India’, but in the process, India will become a country with many MNC factories, but no products or technologies that are Indian. We lack a long-term comprehensive vision that reflects in our state policy. Excessive push and focus on ‘Make in India’ will put India in a bigger problem ten years from now, when we will have well entrenched MNC products with foreign brands manufactured in India, while we lose whatever control on technology/IPRs that India possesses today.
TDB: What incentives should the government provide to Indian ITA goods manufacturers to increase their competitiveness?
RT: Indian ITA goods manufacturers mean Indian design/technology and high domestic value addition carrying Indian brands, right? Manufacturers of Indian ITA-I items have no tariff barriers or protection and have to compete with global players. So, they need a level playing field. Provide them a level playing field, while they run with established Indian handicap of 22% – the biggest – on account of high cost of funds. If they have to compete with global players, they should be provided funds at international rates of lending. Ever since the ITA-I agreement, India has lost all its prowess in manufacturing telecom and IT products and we have been left so far behind global IT and Telecom companies that we need preferred market access, if the domestic industry has to be resurrected. Policy initiatives were made in the form of PMA policy, but its implementation on the ground has been very low and now ‘Make in India’ programme overshadows the PMA policy.
TDB: Do you think there is enough understanding in India regarding goods that come under ITA-I and those that come under ITA-II? If not, why?
RT: India has enough understanding and we must not underestimate India’s ability at that, but sometimes, our policy makers don’t want to understand.
TDB: How would you rate the Union Budget on a scale of 1 to 10 as far as your industry is concerned?
RT: From my industry perspective, I rate it as poor and retrograde, because it has provided nothing for promoting Indian design/technology or Indian brands, which is India’s strategic need. This should be our long term objective that has been lost in the process.
“We are disappointed by the fact that an announcement to reduce CST wasn’t made in the budget” - Lalit Kumar Gupta, MD & CEO, Essar Oil
TDB: What do you make of the financial jugglery in the duty on petrol and diesel – reduction in basic excise duty and increase in road cess by equal amounts – in the Union Budget?
Lalit Kumar Gupta (LKG): I think it is a good move to provide funding for infrastructure projects, without raising taxes by earmarking certain proportion of the excise duty for this purpose. For the last few years, road construction has slowed down in our country due to various reasons and, for long-term viability of projects, it was important for the sector to get an independent funding stream, instead of budgetary support. Without assured funding, stakeholders like lenders, operators and state and central governments etc. wouldn’t have been able to take up projects and complete them on time.
TDB: Do you think there were better ways to make this additional Rs.40,000 crore available for infrastructure development than the way the government did it via the jugglery?
LKG: I think the government has done well to provide for infra development without hiking taxes, which would have led to inflation and in certain cases, even subdued demand.
TDB: Do you think this was a pre-emptive step ahead of the implementation of the Goods and Service Tax (GST)?
LKG: The government has said that from the 1st of April, 2016, GST would replace most other indirect taxes in the country. Petro products, however, will not be part of the GST regime. Putting petro products under the ambit of GST would have been a major tax reform, but while they have been constitutionally brought under GST, they will not be subjected to GST levy till notified. Present state and central taxes like sales tax/VAT, CST and excise duty will continue to be levied. We had expected the government to reduce CST to 1% from 2%, in line with the proposed Constitutional Amendment bill on GST, before eventually making it zero. We are disappointed that this announcement wasn’t made in this budget.
TDB: Do you think the government has realigned its policies to the new reality of crude oil prices in the $40s?
LKG: The government is sensitive to the fact that while lower crude oil prices are leading to lower inflation and reduction in the subsidy bill, it is also leading to lower tax collection for state governments as state VAT is on ad volarem basis. Lower crude import bill could also impact our forex rate, thereby hurting exports. Hence, it is a fine line that the government needs to tread, while balancing all aspects of the economy.
The government has also taken the opportunity to boost tax collection and curb revenue deficit, without stoking inflation, by raising excise duty on petrol and diesel. Reduction in crude oil prices helps in correcting the Balance of Payment situation and gives enough opportunity to RBI to increase forex reserves, without the depreciation of the rupee. This is also helping in controlling inflation, thereby giving a big boost to consumer sentiment. Looking at OPEC’s resolve to protect market share and continuous production by non-OPEC members, who are big consumers themselves, crude oil prices are not expected to rise beyond $60-70/barrel in the short to medium term, which is good for the Indian economy.
“The Budget has given a 10-11% outright margin to local manufacturers of ITA Goods” - N. K. Goyal, President, CMAI Association of India
TDB: What’s your take on the Union Budget? Government has reduced Special Additional Duty for all goods, except PCBs, for use in the manufacturing of ITA bound goods. What prompted it do so?
N. K. Goyal (NKG): The budget is industry friendly and promotes the overall growth of the country, which is good for the IT and telecom sector. The government’s main interests like ‘Digital India’ and ‘Make in India’, for which they are giving out benefits and incentives, will work great for us.
Long back, Government of India had signed an agreement for allowing duty free imports of telecom and IT products. This is known as ITA-I. As an association, we had a view that not anything and everything should be covered under duty free imports. So, in the last budget, we were successful in convincing the government and they had imposed 10% duty on certain products that were not covered under ITA-I. It was done on trial basis for 6-7 products. This conviction had made our association believe that this year, the list will be widened. The government didn’t find this feasible for various reasons. Instead, it removed SAD on all components expect PCBs. This will make imports of components cheaper.
Secondly, if we manufacture cell phones in India, the excise duty is 1%. The same for tablets is 2%. On the other hand, if we import, the duty is 12.5%. But if we avail CENVAT, the duty is 1% on tablet and 2% on phones. Hence, if I am importing as a trader, I will not avail CENVAT. This has given an outright margin of 10-11% to local manufactures. These two are the bigger benefits.
Other than this, in case of HDPEs (used in the manufacture of telecommunication grade optical fibre cables), excise duty has been reduced from 7.5% to nil. And of course, the reduction of corporate tax with time will boost the sector.
TDB: Is it (the move to reduce SAD on components of ITA goods) enough to provide an impetus to domestic manufacturers and reduce India’s dependence on imports?
NKG: Every industry or association aspires for more and more. There is no end to this. This government is serious and sincere. They are coming up with various good solutions and these solutions will result in bigger investments and our manufacturing will get a boost. As a result of incentives, coupled with various schemes of the government, today, companies like Lava, Micromax and Spice etc. want to manufacture in India. Even countries like Japan, Taiwan, South Korea and China want to come to India and manufacture.
TDB: Considering that the government is trying to realign its policies with the ‘Make in India’ campaign, do you expect similar moves in the future?
NKG: The government is very committed to ‘Make in India’ ’and is always open to suggestions. Preferential Market Access (PMA) has helped the sector in a big way. Apart for PMA, the government has also announced a lot of investment in the North East, Left-dominated areas and villages etc., which in turn, are scopes for us to benefit from. Other than this, there are a few things we want – (a) make a standard for IT and telecom products to be used in India by a government body called Telecom Engineering Centre (TEC) and (b) make it mandatory for imports to India to be tested by TEC.
TDB: Do you think the government needs to provide more incentives to Indian ITA goods manufacturers to increase their competitiveness?
NKG: We have to work in a given context. We cannot aspire to get everything, but there are certain areas where we have to find solutions. For example, for all purchases, government departments ask for experience, along with various other conditions. This makes it very difficult for new and innovative domestic companies. Secondly, interest rates in India are very high. While a Chinese manufacturer can access funds at 2-3%, we end up borrowing at 12-14%. We have to find a solution to this. Besides, there are issues with start-ups. A lot of students are very good in developing products and applications. 15-16 year olds are, today, developing wonderful products. But how do they promote them? We are looking for solutions to promote these innovations.
TDB: Is there enough understanding in India regarding ITA-I and ITA-II? Or, are there still some doubts?
NKG: As of now, we don’t have ITA-II. However, ITA-I has a long history. It was signed in 1984. At that point in time, technologies and concepts were not what they are today. Mobile phones were not there. Internet and telecom were two different things. Because of these reasons, and new technologies coming up, there is always a doubt in the mind of implementers - be it the government, industry or consumers. Hence, world over, there is a need being felt for ITA-II to cover products that are not covered in ITA-I. As far as we are concerned, we are fundamentally very clear what was covered in ITA-I.
“We are following up with the government for a bigger hike” - Arun Kumar Jagatramka, CMD, Gujarat NRE Coke
TDB: Against your demand for 20%, the government has increased customs duty on coke to just 5%. Will it make any difference to coke manufacturers in India? Will it in anyway reduce imports from countries like China?
AKM: The increase in import duty to 5% is an encouraging move as it proves that the government recognises the value addition done by the domestic industry, which is under the siege of cheap imports from China. However, the increase in clean energy cess on coking coal to Rs.200/- will nullify the benefit, which would have been accrued from this rate hike, to a great extent. Hence, there won’t be any considerable difference in imports of met coke from China. We are following up with the government to consider a further increase in duties.
TDB: Do you think there is a case for anti-dumping duty on Chinese coke exporters, instead of a blanket hike on customs duty?
AKM: There is certainly enough case for anti-dumping duty on Chinese coke. This is primarily because the price at which Chinese coke is arriving in India is less than the cost of production of coke in India. In fact, the price of Chinese coke arriving in India is less than the selling price of coke even in the Chinese market.
TDB: How would you rate the Union Budget on a scale of 1 to 10?
AKM: Considering the thrust on infrastructure and public investment in reviving the economy, which would have a positive effect in the long term, I would rate the budget as 8 on a scale of 10.
“Reduction in customs duty and tax on royalty is an encouraging move” - Manish Sharma, President CEAMA & President, Panasonic India and South Asia
TDB: What do you think were the motivations behind reducing the customs duty on OLED TV panels and Black Light Unit Modules to zero in the Union Budget?
Manish Sharma (MS): As a part of the ‘Make in India’ initiative, the government’s efforts towards creating a conducive environment to ease the manufacturer’s woes with effective governance and effortless implementation has been the major root cause for reduction in customs duty on OLED TV panels and Black Light Unit Modules. This step will surely create more opportunities for manufacturing the panels locally and attracting global businesses to invest in the country. Also, it will cater in generating more employment, which will lead to an increase in purchasing power, thereby having a positive effect on economic growth and IIP.
TDB: Who do you think would be the real beneficiaries of this move – domestic manufacturers or importers?
MS: Some of the challenges that the country is facing has severely impacted our productivity. Imbalanced trade due to heavy customs duties and restriction on imports was another road block that was hampering the economic growth of the country. With such concerns and with the government realising the need for ‘ease of doing business’, we are very sure that the move in reduction of customs duty will benefit domestic manufacturers, as well as importers.
TDB: Since this move was taken to reduce the cost of raw materials, do you think this will give enough impetus to domestic manufacturing and exports?
MS: The reduction of customs duty on specific raw materials, and a reduction in tax on royalty, will certainly encourage indigenous manufacturing and technology proliferation, thereby supporting the ‘Make in India’ campaign. This will not only lift sentiments of the electronics industry, but will also greatly improve the purchasing power of the common man in the country.
TDB: Instead of reducing duty, wouldn’t providing additional export incentives been a better move?
MS: Duty reduction on BLU and panels required to make LCD/LED and OLED TVs will provide an opportunity to indigenously manufacture panels in the country. For exports to improve, it is imperative to strengthen the indigenous production base. Once adequate infrastructure, environment and facilities for large scale production is achieved, exports will automatically get a boost. Without creating a viable & vibrant condition for local production to be internationally competitive in prices, it would not be possible for large scale exports.
TDB: Do you expect similar moves in the future as government attempts to realign policies with the ‘Make in India’ campaign?
MS: Certainly. The budget has laid down a clear roadmap for taking India to double digit growth. We not only see a strong direction in which the economy is going to be directed, but also the important milestones that we need to cross on the way. With this budget, we also see long term national targets that have been set for the year 2022, which marks 75 years of India’s independence. In line with the ‘Make in India’ campaign, the announcements made by the government, both in the budget as well as outside of it, provide for a strenuous effort to move in the direction of achieving defined socio-economic targets.
TDB: How would you rate the Union Budget on a scale of 1 to 10 as far as your industry is concerned?
MS: The Finance Minister has done a balanced and stable job with this Union Budget, which not only focusses on the long term, but also improves the ‘ease of doing business’.
“A lot more needs to be done to support the healthcare sector” - Suneeta Reddy, Managing Director, Apollo Hospitals
TDB: What would be the impact of the exemption of customs duty on the import of artificial heart valves on patients and the medical industry?
Sunita Reddy (SR): Artificial heart procedures in India are already being performed at 1/10th of the cost in the US. So, the customs duty exemption, which was 5% earlier, is not expected to have a significant impact on patients, unless, of course, if we commence indigenous manufacturing of the devices and that is not the case right now.
TDB: Will the customs duty exemption have any impact on medical tourism in India?
SR: India will continue to be an attractive destination for medical tourists as long as we offer healthcare of global standards at lower rates. In fact, lower costs compared to western countries, coupled with world class treatment, is the first advantage we offer followed by our internationally acclaimed medical talent and infrastructure. In this context, I doubt if a minor alteration to the cost would really impact patient decisions.
Having said that, the biggest deterrent to medical tourism is the cumbersome legal formalities involved, which the government is already addressing. Extension of ‘visa on arrival’ facilities to citizens of 150 countries is a good move that will ease some of the bottlenecks for international patients in accessing quality healthcare services in India and give a boost to medical tourism.
TDB: How would you rate Union Budget 2015 from your industry’s point of view?
SR: Overall, this has been a forward-looking and stable budget. By linking financial inclusion (Jan Dhan Yojna), social security and health insurance agendas, the budget outlines a clear road map for ensuring access to healthcare for everyone in the future. Specifically, health exemptions provided for all and, in particular, for the elderly, is a major positive. The announcement of setting up five new AIIMS will increase the access to health facilities in those states and also provide a training ground for medical professionals. The extension of the ‘visa on arrival’ is another progressive move. This will go a long way in facilitating medical tourism that showcases India’s world class health facilities while contributing invaluable foreign exchange to the exchequer.
Having said that, a lot more needs to be done in terms of providing physical and educational infrastructure to support the healthcare sector. This has to be done in partnership with the private sector, which has been providing nearly 70% of the additional beds in India. We also welcome the plan to have a phased reduction in corporate taxes over the next four years to 25% and the roll out of the GST initiative from FY2016.
Customs duty reductions in Union Budget 2015
A list of some select items for which customs duty was reduced in Union Budget 2015 to either address duty inversion or reduce the raw material cost of key manufactured goods
Note: Effective rate of duty was increased only for two items - metallurgical coke (from 2.5% to 5%) and commercial vehicles (from 10% to 20%)
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