In a bid to make the electronics industry more competitive, the electronics and hardware manufacturer associations have proposed a slew of recommendations including removal of central sales tax (CST) on all electronics hardware, 4 per cent VAT across the board on entire hardware chain, removal of distinction between IT and non-IT for domestic taxes and levis and allowing 100 per cent domestic tariff area (DTA) access to all electronics hardware products.

It has also asked for five per cent interest subsidy of Rs 600 crore per year and income tax exemption on all electronic hardware units for 10 years.

Industry bodies are of the opinion that as a result of CST, local manufacturers were being rendered uncompetitive since imports were being cheaper under the Information Technology Agreement (ITA) of the WTO to which India is a signatory.

Mr Vinnie Mehta, Executive Director, Manufacturers Association of Information Technology (MAIT), said, "Single biggest challenge of IT industry is the issue of CST. Since the industry has zero duty structure under the ITA, local taxes are the biggest concern. CST makes local sourcing of components more expensive vis--vis imports. The Government has announced a roadmap for this, under which it would reduce one per cent of duty every year. However, the IT industry must be considered as a special case, and instead of reducing it in a phased manner, it should be brought down at the earliest."

MAIT has emphasised complementing software development with strong R&D in hardware for Indian companies to become competitive in the global market.

Under the proposed recommendations submitted recently to the Department of Information Technology and the National Manufacturing Competitive Council, the industry chambers have sought the above recommendations. "We have just submitted these proposals and electronics hardware being the single largest sector, India must take all measures to promote it," said Mr Deepak Puri, Moser Baer, who chairs the electronics hardware committee of the CII.

"The proposal is also likely to be discussed at the joint Indo-US ICT conference in December to further understand the needs of the sector," added the CII Chief Information Officer, Mr Vikram Tiwathia.

Industry bodies estimate that adopting these recommendations would create a growth rate of 32 per cent in the hardware market by 2010 and achieve a market capitalisation of $85 billion. This would contribute $ 11.06 billion indirect revenue and $1.29 billion direct revenue. Over the next 10 years, electronics hardware production would contribute to 12 per cent of GDP, creating an employment of 7 million directly and 14 million indirectly.

At present, India has 0.7 per cent share followed by Thailand at 1.4 per cent, Taiwan at 3.5 per cent, South Korea at 7.2 per cent, Germany at 12.1 per cent against China, which leads with 14.6 per cent share in the global production.

The chamber believes that the policy would help India address the problem of trade deficit, of which 30 per cent is due to electronics hardware.