The Modi government’s approach to boost local electronics manufacturing is facing huge resistance from the industry. A more measured approach is advisable.
Samsung Electronics, a poster child of Narendra Modi’s ‘Make in India’ campaign, has threatened to cut down on its mobile handset manufacturing in the country.
The South Korean consumer electronics behemoth has already stalled production of TV sets in India.
Samsung is demanding that the government relax its stringent guidelines for local manufacturing of components like displays and touch panels.
Given that this is a problem faced by other players as well, the Modi government may have to seriously reconsider the deadlines under its phased manufacturing programme (PMP).
Samsung Electronics is regarded as one of the biggest advertisements for the ‘Make in India’ campaign of the Modi government. The company has given its own spin to the campaign with its ‘Make for India’ punchline.
Moreover in July last year, Prime Minister Mr Narendra Modi and South Korean President Moon Jae-in inaugurated Samsung’s expanded factory in Noida involving an investment of Rs 4,915 crore. This factory is touted to be the world’s largest mobile phone production unit in terms of number of devices rolled out every month.
The plant has a potential to expand capacity to 120 million units by 2020 from 68 million currently. It has a revenue potential of US$ 10 billion by 2022.
However, the past few months have seen relation sour quite a bit as the objectives of Samsung and ‘Make in India’ seem to be diverging. The South Korean electronics giant has told the government that it will be compelled to cut down on its mobile phone manufacturing in India and also stop producing its flagship Galaxy S6 and Note 9 models.
TOO MUCH OF A GOOD THING?
Like other consumer electronics companies, Samsung is unhappy with the government’s plans to advance the time table of its Phased Manufacturing Programme (PMP) by 2 months. Earlier, these companies had the flexibility to commence local manufacturing of displays and touch panels any time during 2019-20.
But with the changed timelines, companies now have to start manufacturing these components locally in February 2019, or they will attract 10% import duty. This can also go up to 11% with a surcharge. The industry, including Samsung, had earlier inferred that they can start manufacturing these components anytime by March 31, 2020, as stated in the PMP and hence had planned their investment accordingly.
Currently, India does not manufacture these parts domestically. The display panel is a critical component of a mobile phone, accounting for 25-30% of the production cost.
Samsung India Electronics has told the government that import duties will increase the cost of manufacturing, compelling them to “stop the manufacturing of Samsung flagship products (Note 9 and S9) in India”.
Samsung is currently setting up a display assembly plant for mobile phones with an outlay of US$ 100 million. This plant will manufacture Amoled screens and commence operations by April 1, 2020.
The company also says that plans to increase mobile phone exports from India to more than 40% of total production in 2019 from 15% currently will not succeed, as they will become unviable with the levy of import duty. Low-cost destinations like Vietnam will gain the advantage, according to the letter.
Image result for Samsung showroom India
VIETNAM MAKES MORE SENSE
Similarly, Samsung stalled the production of its TVs in the previous quarter when the government introduced 5% duty on open cell LED panels, which account for 65-70% of a TV set’s production value.
It was a huge setback for Make in India, since the Chennai plant produced around 1 million TVs annually and employed thousands, directly and indirectly. Instead, Samsung is now importing finished TV sets from Vietnam.
Imports of TVs from Vietnam soared from 16,000 units in 2017-18 to more than 600,000 units during April-October, 2018-19 according to CEAMA.
In response, the government is looking to remove the duty on open cell LED panels as duty-free imports from Asean countries become more attractive than local manufacturing. Apart from Samsung, even LG India is considering importing finished TV sets from Asean countries through the FTA route.
Just like mobile displays and touch panels, there are no open cell manufacturing plants in India either. Setting up one of them is expected to take around four years.
PMP is a programme launched in FY’17. It promotes indigenous manufacturing of cellular handsets and their components through appropriate fiscal and financial incentives. The industry has been demanding an extension of the deadline for display panels till March 2020.
PMP was introduced for mobile phones due to the rapid influx of Chinese mobile phone manufacturers in India. The country is the second largest cellphone market in the world after China with a worth of over Rs 1.3 lakh crore.
The industry feels that the government norms are too stringent. So far, the government has imposed custom duty on chargers, battery packs, wired headsets, microphones, receivers, keypads and USB cables. In the current fiscal, it is making a similar push for printed circuit board assembly, camera modules and connectors.
IT’S A QUESTION OF BALANCE
Last year, Mr Ravi Shankar Prasad, Minister of Electronics & Information Technology, proudly tweeted how the number of mobile handset manufacturing units in India as jumped by 60 times to reach 120 units in the past four years. He also proclaimed that these factories have created more than 400,000 jobs.
Electronics manufacturing in India has been a great success. There were only 2 mobile phone factories in 2014. Today there are 120 factories. Electronics major @Samsung has set up its biggest mobile phone manufacturing plant in the world at Noida. #DigitalIndia pic.twitter.com/v0TZhLQTgk
— Ravi Shankar Prasad (@rsprasad) July 4, 2018