Experts say the plan to bring the component ecosystem into India gradually through the phased manufacturing programme (PMP) will not succeed unless it is complemented with a large market. India does not offer the required scale to attract high-end component makers of key products such as printed circuit boards and LCD screens to set up shop in the country, and targeting the export market could help bridge the gap, they say.
“Today, virtually nothing is being exported from the country. Hence there is no question of any loss to the exchequer (due to export sops). And secondly, once this industry is built, the exchequer will still have immense gains due to income tax and GST collection on account of millions of jobs created and value generation of $400 billion within the country,” Pankaj Mohindroo, chairman of industry body India Cellular and Electronics Association (ICEA), told ET.
He said the industry body has already given presentations on the proposal officials in the Prime Minister’s Office, the Department of Industrial Policy and Promotion and to the secretary of ministry of information and technology. The proposal for an export tax holiday to boost local manufacturing comes at a time when India is looking to bridge the current account deficit in the face of a weakening rupee.
After oil, import of electronic products, including handsets, is the largest contributor to the country’s import bill. Any move to provide export sops would tie in with the demands of US technology giant Apple Inc., which has been negotiating tax exemptions with the Indian government to make India an export hub, which would give it the requisite scale to up its limited local production.
Korean electronics major Samsung has also recently set up its largest manufacturing base India and plans to export a chunk of the production. While the first phase of PMP has seen success with the establishment 120 plants from just two in the last three-and-a-half years, the industry has the potential to reach a turnover of $500 billion in the next five to seven years, with $230 billion coming from mobile phones and $270 billion from components, while meeting 40% of global demand through PMP.
However, experts say the target to produce 1.25 billion phones, of which 800 million will be exported over the next five to seven years, look increasingly ambitious at this stage, unless the government doles out tax holidays like those granted in countries like China and Vietnam.
“We need smartphone makers to come up with commitment plans for 10–15 years to develop an ecosystem, but this requires them to be able to use India as an export hub, as well as just the incountry demand isn’t sufficient,” said Navkender Singh, associate research director at market tracker IDC. Under PMP, the government had identified 12 parts used in mobile phones that have to be assembled locally in phases until 2019-20.