Reports say that this the government’s aim is to attract global companies such as Apple and Samsung to make India their manufacturing and export base.

Govt may unveil Rs 36000-crore fund to incentivise smartphone brands to make in India
Money Tech Shorts Thursday, January 16, 2020 - 17:59

Government of India wants to boost the export of smartphones from India and is working on a plan to add more incentives to the manufacturers. According to an Economic Times report, the government may unveil a Rs 36,000-crore fund to give incentives to smartphone makers to attract them to make in India.

At present the value of exports is around $3 billion. The government has set an ambitious target of $110 billion to be achieved by the year 2025.

Prime Minister Narendra Modi reportedly met with the representatives of the mobile phone industry including from Apple and Samsung. The meeting was meant to know directly from the players what can be done to increase the volume of production in the country and to make it an export hub. Incidentally, the government wants to encourage local assembly units like Lava so they are also a part of the success story going ahead. Lava can explore exporting the entry level smartphones, the government feels.

The understanding is that the new scheme in operation soon that will offer an incentive that will be 5% to 7% in value. This particular incentive will be available only on the volumes of goods exported and not on the sales concluded in the domestic market. India is one of the largest markets for smartphones in the world. The government has set a target of Rs 36,000 crore to be spent over the next five years on this incentive scheme and the beginning may be made with an allocation of Rs 3,000 crore in this year’s budget itself.

The situation on the ground is that emerging economies like Vietnam offer better facilities to the manufacturers through multiple incentives. The broad calculation is that Vietnam could be 10% to 12% points below India if competitiveness is calculated. The figure for China is way below, at 19% to 23% points. This dissuades companies like Samsung and Apple or contract manufacturers like Foxconn and Flextronics from expanding their production volumes here.

The new incentive plan being worked out by the government will be in the form of a production linked incentive or PLI. There will be half a dozen parameters, like employment generated, investment made, average selling price of phones and production. The Ministry of Electronics and Information Technology (MeitY) is the nodal authority mandated to promote the electronics industry in the country and it is this ministry that is currently working on this PLI formula. It may soon be shared with the stakeholders and then implemented.

Speaking of incentives, the government has, from January 1, 2020, reduced the incentive from 4% to 2% under the Merchandise Exports from India Scheme (Meis), where duty credit scrips were being issued to exporters. These scrips could then be used to pay duty for their subsequent import of components.

From the perspective of the Indian Cellular & Electronics Association, which has Apple, Foxconn, Xiaomi and Flextronics among its members, the incentives being sought from the government covers areas such as subsidy for machinery and equipment, power, incentive for supporting industry, labour subsidy, logistics and reduction of land rentals. It is not clear which of these would get addressed by the schemes under consideration.

The government has to keep in consideration the WTO norms as well while incentivizing domestic firms for exports.

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