Budget aims to deepen electronic goods value chain; capex target disappoints
Source: Live Mint
Budget 2025-26 has placed emphasis on the backward integration of India’s electronic goods value chain and other capital-goods industries with a reduction in basic customs duty on components. Among the proposals are a reduction in the duty on open cells for television panels from 10%-15% to 5% and parts of open cells to from 2.5% to 0%. Most of these panels, which account for 60-65% of the cost of a TV, are currently imported. To encourage faster adoption, the import duty on display panels has been increased from 10% to 20%.
To boost the mobile phones and electric vehicles value chains, the duties on parts used in printed circuit boards, camera modules and various other components of mobile phones have been removed. “To the list of exempted capital goods, I propose to add 35 additional capital goods for EV battery manufacturing, and 28 additional capital goods for mobile phone battery manufacturing,” the finance minister said in her Budget speech.
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These initiatives follow the building of a mobile phone manufacturing ecosystem in the country through production linked incentives (PLI) schemes, and emphasise backward integration into component manufacturing from the initial thrust, which was limited to final product assembly.
However, the absence of an announcement on the much-awaited PLI scheme for components disappointed the industry.
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The Budget also includes certain measures to improve ease of doing business in the sector. Non-residents providing services to a resident company that is establishing or running an electronics manufacturing unit in India will be covered by a presumptive taxation regime, reducing the compliance burden and tax uncertainty.
Nuclear power push
The other important announcement for the capital-goods industry was the thrust on building nuclear power capacity with an outlay of ₹20,000 crore for research & development of small modular reactors (SMR). The government has plans for at least five indigenously developed SMRs with the help of the private sector, for which the Atomic Energy Act will be amended. The move could significantly benefit companies such as Larsen & Toubro Ltd which already have significant expertise in this space.
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Despite various announcements that could benefit the sector, the BSE Capital Goods Index dropped more than 3% on Saturday. Among the hardest hit was Rail Vikas Nigam Ltd (down 9%), while shares of Titagarh Rail Systems Ltd, ABB Ltd, Siemens Ltd and Hindustan Aeronautics Ltd fell 4-6%.
The industry seems to have been spooked by the government’s capital expenditure budget of ₹11.2 trillion, which is almost the same as in FY25. The revised estimate for government capex in FY25 stands at ₹10.2 trillion, 8% lower than budget estimates of ₹11.1 trillion, dashing hopes of a push in the last two months of the financial year.
