As many as 100 of the 127 mobile phone assembly units in India could shut if the government goes ahead with its plan to increase customs duty on certain mobile phone components this year, prompting the industry to seek a deferment of the scheduled hike to 2020.
In a letter to the Prime Minister’s Office (PMO), the India Cellular and Electronic Association (ICEA) sought the deferment of the customs duty hike to 2020 on the import of LCD assembly, vibrator motor and touch panel, which was supposed to kick in later this year under the phased manufacturing plan (PMP). The parts are scheduled to attract 12.5% countervailing duty (CVD) on imports and excise duty of 1% without input tax credit.
In the December 28 letter to Nripendra Misra, principal secretary to the prime minister, president of ICEA Pankaj Mohindroo said, “There is deep distress in the industry, especially in the Indian mobile manufacturing ecosystem which holds more than 100 of the 127 factories and it will not be prudent to load an extra cost on this ecosystem.”
It added that especially feature phones industry is in an extremely “traumatic” situation and can ill-afford any cost increase.
The PMP is an integral part of the government’s Make in India initiative which seeks to not only make the country self sufficient in production of electronic hardware but also hopes to make India a global manufacturing hub by 2025.
Mohindroo, incidentally, was also the chairman of the task force appointed by the government to find ways to catalyse the growth of mobile phone and component manufacturing ecosystem in India and the panel had recommended PMP as a key measure.
The industry body said the raison d'etre for PMP was to increasingly deter import of more and more components into the country with each passing year through higher import duties, making it more attractive to start manufacturing and assembling in India.
It was envisioned that as a result India would see a manufacturing ecosystem develop. However, the components which attracted duty hikes in 2017 and 2018 have failed to attract manufacturing into country so far. This has effectively raised the prices of the imports rather than lead to import substitution, making it counter-productive.
A senior industry representative even said if the customs duty on LCD assembly was increased this year, it would be cheaper to import a handset rather than assemble it in the country.
“2017, PMP and 2018 PMP products have not taken off. We should first focus on establishing these verticals rather than jumping ahead,” Mohindroo said in the letter. In 2017, die cut parts, receiver and mic, mechanics, key pad and USB cable began attracting higher customs duty. Only USB cable manufacturing has set shop in India. In 2018 PCBA, camera modules and connectors were added to the list.
The industry body, though, said that India mobile manufacturing crossed the Rs 50,000 crore target originally earmarked by March 2020. This was despite the lack of progress in the 2017 PMP components. The letter says, the industry would clock revenue worth Rs 70,000 crore in the current fiscal year ending March 31.
“A key factor which we repeatedly stressed upon is the establishment of a robust export market which will scale up volumes to a level that even investments in core components can become attractive,” Mohindroo said.