Tech

Cap on exports incentive by govt to hurt handset, component exports, says industry

NEW DELHI: The recent imposition of a ceiling on exports incentive by the government could discourage domestic manufacturing of mobile phones and parts for shipping out, handset makers have said, adding that it was a sovereign commitment that the Centre cannot go back on.

The government on Tuesday notified that benefits to each exporter under the Merchandise Exports Incentive Scheme (MEIS) for the September-December period is capped at Rs 2 crores. For the mobile phone industry which exported devices close to Rs 7571 crore by value in the corresponding period last year, according to data from the Ministry of Commerce, a 2% MEIS benefit meant an incentive of Rs 150 crore.

In 2019, Korean major Samsung alone accounted for 82% of the device and component exports, while high value iPhone maker Apple made up 15%.

“The cap of Rs 2 crores per exporter certainly impacts large exporters who are most critical to capture global markets,” Pankaj Mohindroo, chairman, India Cellular and Electronics Association (ICEA) told ET. “In our industry, it impacts the component exporters the most.”

Samsung and Apple didn’t respond to ET’s emailed queries.

ICEA represents leading mobile manufacturers including Xiaomi, Vivo, Oppo, Apple, contract manufacturer Foxconn besides home-bred brands Lava, Micromax and Karbonn.

“MEIS was committed upto 31/12/2020 without any cap though it was reduced from 4% to 2%. The sudden denial from September 2020 is not appropriate since it is a sovereign commitment,” Mohindroo said.

He added that the body will send a written communication to the government regarding the same.

Under MEIS, the government provides duty benefits depending on the product and country. Rewards under the scheme are payable as a percentage of realised free-on-board value (of 2%, 3% and 5%) and MEIS duty credit scrip can be transferred or used for payment of a number of duties including the basic customs duty.

The MEIS rate for mobile phones was reduced from 4% to 2% from April.

“…on the whole, this will hinder PM’s dream of making India an export hub,” said Bibhash Deb, Head-Taxation, Legal & Secretarial at Lava International.

Another industry executive sought to know that if there is no benefit, why would a manufacturer import components from China, assemble them in India and then export, when the same can be done directly from China at a lower cost.

“…first you attract companies to heavily invest in setting-up manufacturing in India by giving such incentives and then place a cap over it,” the executive said.

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