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India may roll out export benefits for smartphone companies

Written by Moulishree Srivastava Published on   3 mins read

India competes with markets like China and Vietnam which have far better manufacturing policies.

In its attempt to reach its ambitious goal of becoming a USD 110-billion-smartphone export hub by 2025, India is planning to roll out more benefits for the global and local handset manufacturers.

In the upcoming budget, the government may unveil USD 5 billion (INR 36,000 crore) fund to provide production-linked incentives (PLI) to smartphone makers while offering their suppliers subsidized loans to set up factories.

In line with its six-year-old flagship program, Make in India, which aims to establish the country as an electronics manufacturing hub, the government has been trying to lure device makers away from its Asian peers—China and Vietnam—the favorite manufacturing destinations for some of the largest smartphone companies. As per industry estimates, the manufacturing policy measures in China and Vietnam are far better, making India uncompetitive by almost 19-23% and 10-12% points, respectively.

According to a Bloomberg report, India plans to make USD 190 billion worth of mobile phones by 2025 from USD 24 billion now. Of these, exports account for USD 3 billion.

“MeitY (Ministry of Electronics and Information Technology) is working on a production-linked incentive and there will be certain rigid criteria to avail this incentive,” a government official told local media Economic Times (ET). “We only want those companies which are going to make India an electronics manufacturing and export hub to be able to use this incentive.”

The PLI scheme is likely to substitute duty credit scrip (certificates with monetary value that can be used to pay customs duty) under the current export policy, and its USD 5 billion-fund would be spread out over a period of five years. In the first year, the budgetary support from the scheme could be close to INR 3,000 crore (USD 423 million), another official told ET.

The PLI scheme would consider criteria such as employment generated, investments made, the average selling price of phones, and production for zeroing down the beneficiaries, the report added.

This comes at a time when India has delayed the roll out of its new export promotion policy scheduled to be operational by January 1. The new policy, known as “Remission of Duties or Taxes on Export Products (RoDTEP),” was to replace the currently active “Merchandise Exports from India Scheme (MEIS)” applicable to exports of all goods.

MEIS was declared illegal by the World Trade Organization (WTO) in October 2019 for violating the trade practices by giving direct subsidies. The US had filed a suit against India in early 2018 challenging its export subsidies. A month before the WTO decision, the Indian government had announced WTO-compliant RoDTEP, which is estimated to cost USD 7 billion (INR 50,000 crore) in tax rebates.

After WTO ruled in favor of the US and called for scrapping MEIS, India appealed against the decision in WTO’s Disputes Settlement Body (DSB). The case is still pending. Earlier this month, industry body Federation of Indian Export Organisations, MEIS would continue till March 31 this year. However, India reduced the additional 2% export benefit under MEIS starting this year.

India is the world’s fastest-growing smartphone market, with over half a billion users. This has made it a magnet for global smartphone companies including Apple, Samsung, Xiaomi, Oppo, Vivo, Realme, and OnePlus. All these companies have been assembling smartphones for Indian users either through contract manufacturers like Foxconn, Flex, and Wistron or their own factories for the last few years. Since last year, the government started pushing the manufacturers to assemble devices to cater to other markets, a request they happily obliged.

Apple has started making its latest phones including iPhone XR for the domestic market as well as exports, while Oppo is looking to manufacture 100 million smartphone units locally by the end of 2020, and use India as its export base for South Asia, Middle East, and African countries. Its sister company Vivo is exploring exports from its new manufacturing unit in Greater Noida under the first phase of its INR 7,500 crore (USD 105 million) investment planned for India. OnePlus has also recently started exporting smartphones to the US that are made in India and may convert the country into its manufacturing hub.

However, the recent 2% reduction in export subsidies have made the industry worried. According to Indian Cellular and Electronics Association (ICEA), following the reduction in export sops, manufacturers would now be forced to cancel their export orders, reassess investment plans and retrench employees, many of who were hired in the past six to eight months based on the export potential.


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