{"id":10,"date":"2017-02-17T06:55:52","date_gmt":"2017-02-17T06:55:52","guid":{"rendered":"https:\/\/www.microvistatech.com\/blog\/demonetisation-gst-sops-worry-weigh-on-smartphone-makers\/"},"modified":"2023-06-21T10:02:40","modified_gmt":"2023-06-21T10:02:40","slug":"demonetisation-gst-sops-worry-weigh-on-smartphone-makers","status":"publish","type":"post","link":"https:\/\/www.microvistatech.com\/blog\/demonetisation-gst-sops-worry-weigh-on-smartphone-makers\/","title":{"rendered":"Demonetisation, GST sops worry weigh on smartphone makers"},"content":{"rendered":"
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NEW DELHI:<\/b> Demonetisation and uncertainty over the continuation of incentives for local production under goods and services tax are turning out to be a double whammy for smartphone makers, forcing them to slow down capacity expansion and pushing those considering fresh investment to the ringside.<\/p>\n

The worry is primarily over the tax incentives that enticed them to build local capacities to make the maximum of the opportunities thrown up by the world\u2019s fastest growing smartphone market. \u00a0
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Demonetisation was an unexpected and painful twist, but the companies expect the demand drought due to the current cash crunch to be temporary. Top Indian smartphone makers such as Lava, Intex and Micromax, which have moved a substantial portion of assembling capacities to India from China by investing hundreds of crores here, could be the worst hit if the duty differentials backing local production are discontinued under GST<\/a>, said industry insiders.<\/p>\n

\u201cThere is a stalling of investment in the mobile assembly space \u2026 players who were planning capacity expansion have stopped (proceeding with the plans), including us,\u201d said Sunil Vachani, vice president of the Consumer Electronics and Appliances Manufacturers Association.<\/p>\n

Vachani\u2019s company, Noida-based Dixon Technologies, makes LED TVs, mobile phones and washing machines for brands such as Panasonic, Intex, Gionee, Godrej, Haier, Phillips and Anchor.<\/p>\n

\u201cThe impact of demonetisation is temporary, but if differential duty is not there, there will be huge job losses, investments will go away and people who want to come for making components will also stay away,\u201d he added.<\/p>\n

Smartphone manufactures were among the first to respond to the government\u2019s call for Make in India. The differential duty structure \u2014 tax on imported mobile devices is 11.5% more currently than that on locally made ones \u2014 created the bedrock for these companies to manufacture here. But there is no clarity now on how differential duty would be integrated with GST, the new all-encompassing indirect tax system which is expected to be rolled out in April.<\/p>\n

The government has yet to give exact rate of tax on mobile phones under GST, like it has for white goods (28%) and cigarettes (40%). Manufacturers have approached the government seeking at least a 10% difference in duties under the GST structure to keep the investments flowing in.<\/p>\n

International players that have set up factories in India, such as Foxconn, Flextronics and Salcomp, said investments were on, but according to company insiders, component suppliers that they were pursuing to come to India for creating a viable ecosystem were holding off their bets.<\/p>\n

\u201cComponent makers in China that supply us are waiting for clarity on current developments,\u201d said Sasikumar Gendham, managing director of Salcomp, the world\u2019s largest maker of phone chargers with three plants in India. Hold-offs come at a time when the industry battles a sharp slowdown in demand, has been forced to cut production and benched or laid off employees due to demonetisation which forced people to put off discretionary spending.<\/p>\n

Smartphone makers in India said they have no choice but to keep investing and expanding \u2014 albeit at a slower pace than before. They are telling suppliers to play the waiting game. \u201cWe may not meet our initial deadline of mid-2017 for the new plant but we\u2019re not so worried because there isn\u2019t that outlying massive demand to meet \u2014 for which the factory would be required \u2014 primarily due to demonetisation,\u201d said a top executive at a leading Indian handset maker.<\/p>\n

Industry experts said assembly of phones from imported semiknocked-down kits is the first stage that sets ground for higher value manufacturing in subsequent stages. But if incentives that created the basis of Make in India are removed, future progression will be equally deterred, they warned.<\/p>\n

\u201cIf there is no assurance by the government that duty differential on mobile phones will be continued in the GST regime, there is a possibility of a serious setback to Make in India for mobile phones,\u201d said Bipin Sapra, an indirect tax expert at EY. Any future investments potentially being planned by foreign players may also not come to India, he added.<\/p>\n

An international contract manufacturer told ET that GST was its \u201cprimary concern\u201d, which needed to be resolved on priority. Since introduction of the 11.5% duty differential between mobile phones made locally versus those imported, handset production in India nearly doubled to Rs 54,000 crore in 2015-16. Over the past 12 months, about 40 mobile phone manufacturing units have come up, which is set to raise local production by 75% to Rs 94,000 crore in 2016-17, the Indian Cellular Association has estimated.<\/p>\n

In contrast, the high levels of import of mobile phones \u2014 the reason behind introducing Make in India \u2014 have come down by 4% last fiscal year to Rs 56,000 crore.<\/p>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

26th dec, 2016 NEW DELHI: Demonetisation and uncertainty over the continuation of incentives for local production under goods and services tax are turning out to be a double whammy for smartphone makers, forcing them to slow down capacity expansion and pushing those considering fresh investment to the ringside. The worry is primarily over the tax … Continue reading “Demonetisation, GST sops worry weigh on smartphone makers”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":11,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[3],"class_list":["post-10","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-gst","tag-gst"],"yoast_head":"\r\nDemonetisation, GST sops worry weigh on smartphone makers<\/title>\r\n<meta name=\"description\" content=\"Demonetisation, GST sops worry weigh on smartphone makers. 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