Production holds the key to productivity

India has the potential to become a major consumer electronics and durables manufacturer. But for this to happen, the tax regime must change drastically.

Trade bodies and manufacturers have been seeking reduction in the tax burden so that consumer durables penetration can increase across the country and exports also get the necessary fillip.

Against 7% in Thailand, a colour television (CTV) attracts about 35% tax in India. No wonder then that Thailand exports 15 million of the 17 million CTVs it manufacturers. In contrast, India exports barely a 10th of the 10 million CTV sets made here.

In fact, the Indian electronics industry accounts for less than a per cent of the global industry. The electronic products market in India is growing at about 30% annually and is worth a little over $24 billion now.

But by the turn of the decade, it is expected to be worth $70 billion by 2010, and $160 billion by 2015.

Perhaps buoyed by the growth prospects of the Indian market, several multinational companies have already set up manufacturing facilities here.

But no new significant player has made an entry in the past couple of years and even existing manufacturers are rethinking future investments in setting up manufacturing facilities.

Unless the Centre evaluates its Free Trade Agreement (FTA) policy, which is gradually making domestic manufacturing in this sector less lucrative, the investment potential of consumer electronics sector is going to wane significantly.

Already, Japanese major Sony has chosen Thailand over India and shifted production to the former. Other manufacturers may also follow suit over a period of time.

Another factor that can help the Indian industry is lowering import duties — such a step won’t impact the domestic industry since  most of its products are manufactured in tax-free zones and can compete with imported products. But it would help in the arrival of cheaper goods from neighbours such as China.