The Indian electronics component industry believes the end of the Duty Entitlement Passbook (DEPB) scheme will smother the development of capacities for the manufacture of components considered vital for the economic growth and security of the nation.

"The two schemes which provide for remission of duty suffered on inputs for exports from DTA are Duty Drawback and DEPB Scheme. While both the schemes have almost similar objectives, there is wide variation in the compensation rates of the two," Elcina Electronics Industry Association of India Secretary General Rajoo Goel.

Duty Drawback and the DEPB scheme entitle an exporter to get refund of custom duties imposed on raw material and inputs used for making a finished electronic component or product in India.


He explained that the refund rate of customs duty on some finished goods like microphones, printed circuits boards, semiconductor devices and PC motherboards through the DEPB scheme ranges between 3 and 8 per cent, while through duty drawback, the rate is only 1 per cent.

"End of DEPB scheme will reduce breathing space for electronic component manufacturers," Goel said.

The indigenous manufacturing industry has widely suffered after India signed an Information Technology Agreement under the aegis of the World Trade Organisation.

As a result, an electronic component manufacturer in India had to pay various state and central taxes for manufacturing in the country, while there is no customs duty imposed on IT and telecom finished products like computers and mobile phones or their components.

Presenting the estimates, Elcina spokesperson said that on a Rs 100 component made in India, a manufacturer with 50 per cent value addition can earn a maximum return on an investment of Rs 11.90, compared to Rs 34.40 earned by a manufacturer in China on the same product.

"A manufacturer in China has the opportunity to capture the Indian market by lowering price and eliminating the local competition from Indian manufacturers," Goel said.

The Indian IT, telecom (communications) and electronics (ICTE) industry has been exporting about 18 to 20 per cent of its production over the last six years, while imports have been growing at a CAGR of about 25 per cent. At present, the ICTE sector is estimated to have a negative trade balance to the tune of USD 24 billion.