Companies making and selling high-end devices, such as iPhone from Apple and the Galaxy S and Note Series by Samsung, would be the biggest beneficiaries, as would some homegrown players like Lava, Karbonn, Micromax, and Intex.
Scheme aimed at making India a hub
The scheme — which will be rolled out by the IT ministry and has been prepared in consultation with the ministries of finance and commerce as well as the Niti Aayog — is aimed at making India a hub for manufacturing of electronics and components, standing parallel to other manufacturing powerhouses such as China and Vietnam, highly-placed sources told TOI.
“The electronics hardware manufacturing sector faces the lack of a level-playing field vis-à-vis competing nations… (and) suffers from a disability of 8.5% to 11% on account of lack of adequate infrastructure, domestic supply chain and logistics; high cost of finance; inadequate availability of quality power; limited design capabilities and focus on R&D by the industry; and inadequacies in skill development,” a source in the IT ministry said, while making a case for the booster.
The government plans to offer incentives under the scheme to large contract manufacturers (as defined in the FDI policy circular of 2017) on sale of phones above the invoice value of $200 (a little over Rs 14,000). Those to benefit will include global contract manufacturers such as Foxconn, Flex and Wistron, all of whom are making products in India. However, some companies such as Oppo, Vivo and even Samsung are not too happy as the incentive is for devices with ex-factory price of above $200, and the majority of phones sold by them are below this cost.
The other group to benefit will be “domestic companies”, defined as those “owned by resident Indian citizens”, again as defined in the FDI policy circular of 2017. These include entities such as Karbonn, Lava and Micromax, which are currently struggling but may benefit from the booster. “A company is considered as ‘owned’ by resident Indian citizens if more than 50% of the capital in it is beneficially owned by resident Indian citizens and/or Indian companies, which are ultimately owned and controlled by resident Indian citizens,” an official said.
The government wants to cut the ballooning bill of electronics imports. It hopes that incentives through the scheme will help create incremental production of Rs 8.2 lakh crore worth of mobile phones and their parts, generate exports of Rs 5.8 lakh crore, while creating 2 lakh fresh jobs and contributing Rs 4,782 crore to the exchequer through direct tax revenue.
“The total cost of the scheme is envisaged at Rs 41,795 crore and it will be initially available for approval of new applications for a period of three months. This will be a centrally-sponsored package and will not have an overlap with any existing schemes in electronics manufacturing,” one of the source said, adding, “India will be well-positioned as a global hub for electronics system design and manufacturing (ESDM) on account of integration with global value chains, becoming a destination for mobile phones exports.”
As per the plan, the scheme will extend an incentive of 4% to 6% on incremental sales achieved in 2019-20, that would act as the base year. While the majority of funds would be disbursed towards manufacturing of mobiles phones, it will also cover making of specific electronic components and also ATMP units (assembly, testing, marketing and packaging) which are seen as a precursor for setting up an eco-system for semiconductors. The components covered will include SMT (surface-mounted technology), devices for semiconductor, PCB (printed circuit boards), and sensors and micro/nano-electronic components.
The official note said that the package was necessary considering the imminent withdrawal of the Merchandise Exports from India Scheme (MEIS) and the limited relief provided under the proposed Remission of Duties or Taxes on Export Product (RoDTEP) scheme. “A high-level committee, chaired by CEO Niti Aayog and comprising of secretaries of Department of Economic Affairs, Department of Commerce, Department for Promotion of Industry and Internal Trade, and IT has recommended for focus on mobile manufacturing.”
The total incentive planned to be given in the first year is around Rs 4,030 crore, in second Rs 6,395 crore, in third Rs 8,760 crore, in fourth Rs 11,790 crore and in fifth Rs 10,820 crore. “With the demand for electronics hardware expected to rise rapidly to approximately $400 billion (approximately Rs 26 lakh crore) by 2025, India cannot afford to bear the rapidly increasing foreign exchange outgo on account of electronics imports,” the IT ministry said.