14 Feb 2019
Industry Outcry Sees India Postpone Phone Components Import Levy
Bid to accelerate domestic electronics manufacturing programme by increasing import costs falters at first hurdle.
Stepping back from the brink, India's government has withdrawn the 12.5% countervailing duty (CVD) and 1% import duty on a range of mobile phone handset components (including LCD display panels) that was due to come into effect on the 1st of this month. Although billed as a move intended to boost local manufacturing, the plan was roundly criticised by local manufacturers and international smartphone brands, many of which believed such an imposition would stifle the country's emerging mobile-phone-assembly business.
The government initially announced the plan as part of a bid to accelerate its Phased Manufacturing Program (PMP), a nationwide initiative intended to transform India into an electronics manufacturing hub by 2025. Launched in 2017 as part of the wider Make in India programme, one of the key tenets of the PMP was an annual increase in the import costs of certain electronic components to the point where it becomes more cost-effective to manufacture them from scratch domestically.
In line with this, in early January this year, the government confirmed plans to impose the enhanced CVD and excise duty on LCD display assemblies, vibrator motors and touch panels, all of which are essential components in the manufacture of smartphones. The announcement also made it clear that the additional levies were to come into effect on 1 February, rather than on 1 April as originally envisaged.
The government's move immediately triggered widespread outcry, with many maintaining that, far from providing a shot in the arm for domestic smartphone manufacturers, it would actually ensure that many such businesses would be unsustainable over the short to medium term. Concerns primarily centred around two issues – firstly, India is seen as still lacking the required ecosystem to manufacture such components.
Secondly – and arguably more seriously – it was also feared that the additional levies would hike the cost of locally manufactured phones to the point where it would be cheaper to import them. Should this concern have been borne out, it would have entailed up to 100 local manufacturing plants closing with pretty much immediate effect.
Among the companies to express its concern at the government's proposal was Samsung, with the Seoul-headquartered electronics giant warning that any such move would see it suspend all production of its flagship Galaxy Note 9 and S9 models in India. It also indicated that the levy would result in it reviewing the viability of a US$100 million phone-assembly plant due to come online in Northern India in April 2020.
Following the many representations, the imposition of the additional levies has been put on indefinite hold. It is now expected that the earliest any such move might be reintroduced would be April 2020, by which point it is hoped that the domestic industry might be better-positioned to produce the currently imported components to an acceptable standard and at a sustainable price.
Mitra Dave, Mumbai Consultant