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NEW DELHI, March 21

MANUFACTURERS Association for Information Technology (MAIT) has urged the Government to remove the net foreign exchange positive (NFEP) condition for units under Electronic Hardware Technology Park (EHTP) scheme by making necessary amendments in the forthcoming Exim Policy.

In a statement here, the association has called for relaxing the export performance condition from the existing $100 million per annum or three times the value of imports including capital goods, to 10 per cent of the total value of imports.

Further, the EHTP units should be permitted to sell unhindered in the domestic market at concessional rate of duty once the necessary export obligations had been satisfied, MAIT said.

``Once the IT industry hits the zero duty regime, the current definition of exports or imports will lose its significance and hence NFEP condition of export obligation will not be relevant. Allowing unhindered access to the domestic market will help the industry build global scales,'' said Mr Vinnie Mehta, Director of MAIT.

The continuance of concessional access to the DTA (domestic market) was essential as DTA was permitted as an incentive for exports. If this was replaced by payment of full duty, then the units would end up paying taxes on the local value addition as well, he said.

"In the Indian context, local labour content accounts for a significant proportion of the value-addition and taxing this would imply rendering uncompetitive the only advantage we have. This will also result the supplies to DTA being non-price competitive,'' Mr Mehta said.

MAIT said the EHTP scheme was hugely successful in the past as it permitted import of capital goods and input of raw materials at zero duty. It also allowed sale into the domestic market to the tune of 50 per cent of goods exported from the unit at half the rate of existing levies such as customs and local.

However, as the customs tariff rates became significantly lower, the latter concession no longer remained attractive. Further, due to the global shift in manufacturing pattern from vertical integration to outsourcing, import content in manufacturing had significantly increased, MAIT said.

MAIT said the domestic hardware manufacturing was faced with negative tariff structure since import duty on capital goods and input of raw materials had been significantly higher than that on finished output.

With the IT industry slated to hit zero duty regime in 2005, the incidence of negative tariff would lead to significant adverse impact on domestic manufacturing.

``While in the Union Budget 2002-03 the problem was addressed to a significant degree for the component industry, attention also needs to be focussed on correcting the inverted tariff structure for the finished goods manufacturing in the Telecom and IT sector,'' the association said.

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