NEW DELHI: Mobile handset brands and third-party manufacturers are putting their investments and hiring plans on hold following a sudden reduction in duty credit scrips under an export incentive scheme to 2% starting January 1 from 4%.
The government decision implies policy uncertainty which will devastate handset exports from India, resulting in large-scale job losses, industry insiders ET spoke to said.
In a January 2 letter to Prime Minister Narendra Modi, the Indian Cellular and Electronics Association (ICEA) said following the reduction in export sops, manufacturers would now be forced to cancel their export orders, reassess investment plans and retrench employees, many of who were hired in the past 6-8 months based on the export potential.
“It will also lead to an immediate halt in all future hiring and capacity expansion. Nothing can be worse at this time where the economy and job situation in India are already precarious and under severe distress,” the association, which counts Apple, Foxconn, Xiaomi, Oppo, Vivo and Flextronics as its members, said in the letter.
The letter followed a meeting with the PM held on December 28, which was attended by top executives from the handset industry such as Apple India managing director for strategy & policy Virat Bhatia, Lava chairman Hari Om Rai, Samsung senior vice-president Manu Kapoor and ICEA chairman Pankaj Mohindroo.
India’s smartphone market leader, Xiaomi, told ET in an emailed statement that it was surprised to see the cut to 2%, especially at a time when the government was working towards fostering electronics exports from India.
“We feel this will further discourage exports, along with negatively impacting the current and future investments planned for the sector,” the company said.
It urged the Ministry of Commerce to review this move, which it said might significantly hurt the overall export potential for the electronics industry from India. It requested the government to “increase the cap on duty drawback for export of smartphones from India”.
The duty credit scrip is a certificate with a monetary value that can be utilised for the payment of customs duty.
The scrip under the Merchandise Exports from India Scheme (MEIS) was doubled to 4% from 2% on mobile handsets in October 2017. This seemed to have had a dramatic impact on exports, which, according to ICEA data, are expected to cross $3 billion in the ongoing financial year from less than $200 million two years ago.
But in a notification in December, the extra 2% was removed with effect from January 2020, triggering protests from handset manufacturers. ET reported on December 24 that the government now is considering a 6% replacement for the MEIS, against an industry demand of 8%. While there are no official words on that yet, the government reduced the incentive given as duty credit scrips.
“It (clarity on export sops) is really the number one ask for us for the export plans. Whatever the government policy is, we will have to follow it,” a top executive with a leading third-party manufacturer told ET.
The ICEA has urged the government to reinstate 4% MEIS for mobile phones till a WTO-compliant scheme of a higher order is formulated.
It said reduction in the export incentive would hurt India’s reputation as a destination for stability in policy and attractiveness in investments. More so, as the WTO ruling on the MEIS is under appeal, with no line of sight on an order by the appellate tribunal.
A WTO panel last year ruled that India’s popular incentive schemes for exporters such as the MEIS flouted multilateral trade norms. The government had withdrawn the extra 2% benefit after that.
The ICEA said two Indian companies were able to snatch export orders from China amid the US-China trade war and that the 4% duty incentive was a key enabler to mitigate logistics cost.
Xiaomi said it had urged the government also to further improve policies to support exports that could address structural disabilities for electronics manufacturing in India as compared to China and some Asean countries, as well as to create a supportive ecosystem for facilitate ‘Make in India’ for the domestic market as well as the world.