Continuation of sops is essential for international investors like Foxconn, Flex and iPhone maker Wistron Corp, besides global and local players such as Oppo, Vivo, Micromax and Lava, to continue to participate in the Make in India initiative.
Meanwhile, in the lead-up to implementation of the Goods and Services Tax regime, the likes of contract manufacturer Foxconn and some handset companies are set to cut production by up to 40 per cent in June, while some plan to stall component supplies to minimise inventories of finished goods.
“Investments worth more than Rs 1,000 crore are stalled, waiting for clarity on the duty differential or imposition of basic customs duty under GST,” said Pankaj Mohindroo, president of Indian Cellular Association, without naming specific companies. The association represents all handset making companies including Apple, Samsung and Micromax, among others.
The government’s move to levy 12 per cent GST on mobile phones will push up prices of locally made phones by 4-5 per cent, bringing them at par with imported ones, thus taking away advantage for domestic manufacturing which existed due to the existing duty differential structure.
The association on Monday sought finance ministry’s intervention to exempt phones under Rs 5,000 from GST or impose a 5 per cent GST to keep them low cost is possible, while 12 per cent can be kept for the rest. The association has also asked the ministry to define ‘parts’ for mobile phone manufacturing, that will attract a 12 per cent GST.
It added that sub-parts should also be put under the 12 per cent tax limit. While thegovernment has assured its support to the industry, with imposition of basic customs duty (BCD) on imported phones emerging as a strong option to make imports more expensive vis-à-vis locally made devices, it is yet to take a final decision.
“Make in India is a very important programme and has gathered a lot of momentum in 2.5 years. Our endevaour is to make sure that momentum is not lost,” said Ajay Kumar, additional secretary of electronics and IT ministry.
Implementation of GST from July 1 will also lead to a rise in prices of most phones, while creating some operational challenges for handset makers such as stock management and realigning production to keep fewer stocks at lower prices.
Industry sources add that contract manufacturer Foxconn plans to cut production by about 40 per cent in the second half of June for some of its customers who want to keep stocks minimal. Foxconn, which makes phones for Xiaomi, OnePlus, Oppo, Gionee and Nokia, didn’t comment on this query.
“We have adjusted local production… lowering it by about 10-15 per cent, because we will have to control the stocks going to distributors and dealers in June, since we won’t get full credit, but we can’t stop business because sale to end consumer needs to continue,” said Rajeev Jain, chief financial officer at Intex Technologies, which sells phones and consumer durables.