Budget 2020: India’s mobile phones makers fear for jobs in the face of fewer incentives and global competition

Rush of customers at a mobile phone shop in Patna BCCL

  • Mobile phone manufacturers are looking for export incentives and lower GST on mobile parts this Union Budget 2020.
  • The India Cellular Electronics Association (ICEA) claims that reducing export incentives under Merchandise Exports of Indian Scheme (MEIS) could lead to domestic job losses.
  • Internet and Mobile Association of India (IAMAI) feels like higher costs also make the country’s mobile manufacturing less competitive on a global scale.
The global demand for smartphones is falling and exports from India aren’t immune. It doesn’t help that its exports are less competitive than China and Vietnam. Together, they account for nearly two-thirds of global exports in 2018-19.

Ahead of the Union Budget 2020, the India Cellular and Electronics Association (ICEA) points out that if the government sticks to its reduced export incentives, not only will that increase cost disability — but could also result in massive unemployment in a sector that employs more than half a million Indians.



In the long term, the fall out could even hamper the government’s plans to produce 1 billion mobile phones and hit $400 billion by 2025. The industry body has also called out for lower goods and services tax (GST) on mobile accessories to help streamline the sector’s tax regime.


Beating China and Vietnam
Despite climbing 21 ranks on the mobile exporter’s list and growing by 17%, India’s smartphone exports are still far behind other countries. In fact, it’s the only 17th in the world — despite being the world’s second-largest manufacturer of phones.


Research by the Internet and Mobile Association of India (IAMAI) shows that the cost of making a mobile phone in India is 8-10% more than that of Vietnam and 18-12% more compared to China. These cost disabilities are normally the results of higher cost of money, cost of land, corporate tax structure, and lack of value chain infrastructure among other factors.

The time for India to garner more market share is running out as the global demand for smartphones is shrinking according to analysts.

Export incentives
Starting in January, export incentives under the Merchandise Exports of Indian Scheme (MEIS) electronics exports were reduced to 2%. However, without a notification on the matter, benefits to exporters may extend till March 31, when the updated Foreign Trade Policy 2020-2025 will become operational.

"The current directive by Ministry of Commerce to reduce the MEIS from 4 per cent to 2 per cent is not in sync with the goals set in the National Policy for Electronics, 2019, to export 100 million handsets worth $110 billion every year by 2025,” IAMAI said in a statement — a far cry from the expectation of $3.5 billion in 2019.

Employment of 6.7 lakh people on the line
The ICEA claims that the reduction in export incentives won’t only hit India’s mobile phone exports, but also its workers.

Currently, there are around 6.7 lakh people employed in the handset industry. "It will lead to an immediate halt in future hiring and capacity expansion. Nothing can be worse at this time where the economy and the job situation in India is already precarious and under severe distress," ICEA told the government in a letter.

According to the industry body, the sector has a vision to create over 50 lakh jobs and 1,800 new factories over the next six to seven years.

The disparity in tax rates
The manufacturers of mobile phones in India are also seeking 12% GST on mobile ‘parts and accessories’ against the current 18-28% slab.


They claim that a tax rate of either 18% or 28% creates confusion. The problem has become more acute after basic customs duty of 10% was implemented on printed circuit board assembly (PCBA) last year..

Call for a competitive tax regime
Indian smartphone manufacturers agree that if India wishes to hit $400 billion by 2025, it needs a competitive tax regime. "Though mobile manufacturing in India has done very well in the past 4-5 years, the exports from the country is very less compared to the major exporters in the world," ICEA Chairman Pankaj Mohindroo told IANS in an interview.

And, it’s not unrealistic target with the country’s current growth trajectory and the global mobile market valued at $495 billion and growing — albeit at a slower rate than before. It doesn’t help that the World Trade Organisation (WTO) ruled that India’s subsidy schemes were in violation of its rules late last year.

Industry organisations and finance minister Nirmala Sitharaman have been in meetings to find a resolution. With less than 15 days till the Union Budget 2020, Sitharaman is on a clock — and time is running out.

See also:
Budget 2020: Five charts that explain what you can expect from India’s defence expenditure this year

Budget 2020: Auto industry expectations range from GST cuts to another EV boost

Here's how the budget allocation for Armed Forces in India stacks up on the global scale

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