India is currently the second largest smartphone manufacturer in the world and is quickly catching up to first place China. Samsung is slowly closing factories in China and opening new ones in India. And Apple is next in line to do so.
In fact, Foxconn – one of the largest contract manufacturers of electronics, including iPhones and Apple devices – is setting up facilities in Sriperumbudur, a town in Kanchipuram district in the Indian state of Tamil Nadu. Apple is also opening a new state-of-the-art store in Mumbai.
According to Ravi Shankar Prasad, Union Minister for Communications, IT and Law in India, the day he can buy an Apple phone designed in California and then assembled in India (and not China) will be a significant milestone for India. .
One reason this could happen sooner or later is because tax laws in India are changing. For example, the Indian government eliminated the five percent customs duty on mobile phones. Nirmala Sitharaman, India's Finance Minister, also recently announced a reduction in corporate tax rates.
Although this progress is expected to increase the profitability of local companies, new industrial companies that set up shop after October 1, 2019 will benefit most. This is because these companies will only pay 15% tax, which is a huge incentive to manufacture goods locally. The effective tax rate for these companies will be 17.01 percent, including additional charges and fees. Furthermore, these companies will not be required to pay the minimum alternative tax (MAT).
White goods and premium products
Currently, most mid-level white goods are manufactured in India. (These include appliances like air conditioners, refrigerators, stoves, etc., which used to exclusively have a white enamel finish.) However, premium products – including smartphones – are still manufactured in countries like South Korea, but typically with a percentage tax of 25 percent.
Thanks to India's new tax incentives, it could soon become the country of choice for premium product manufacturers.
Kishan Jain, director of Goldmedal Electricals, believes the government's move to lower tax rates would encourage local production. “These proposals will assist the national generation of energy-efficient solutions, such as LED lighting, and immensely help companies operating in this space,” he stated.
Kamal Nandi, executive vice-president and business head, Godrej Appliances and president, Consumer Electronics and Appliances Manufacturers Association (CEAMA), said an increase in foreign direct investment (FDI) flow is certainly expected in the country. He pointed to the fact that Finance Minister Sitharaman had stated that international companies with offices and joint ventures with Indian companies will also get tax privileges.
While Indian manufacturers have previously shared concerns about foreign companies receiving free aid in the Indian market, the new tax laws are expected to be fair. Ravi Saxena, MD, Wonderchef, said Sitharaman is working to provide a level playing field for local manufacturers. The objective is to create ideal conditions that support successful production in the country.
Exporting electronics
The Indian government predicts that demand for electronic products will reach US$400 billion between 2023 and 2024. This could lead to a valuable outflow of foreign exchange in the country, which could widen the trade deficit with other countries. The government is therefore encouraging local production of electronics in the hope of reducing import costs.
The Ministry of Electronics and IT has published a draft electronics policy, which aims to create a turnover of 400 billion dollars in the electronics production environment by 2025. However, the strategy relies heavily on the success of mobile phones and related components . Case in point: the policy aims to double the cell phone production target from 500 million units in 2019 to one billion by 2025.
Many believe there should be recommendations and benefits for other electronics manufacturing sectors as well – and there is hope.
For example, the draft policy includes direct tax benefits for manufacturers who establish new facilities or renovate existing ones. The government also intends to promote a prospective tax rule, which includes investments in various electronics segments with an expiry clause. Furthermore, it is considering increasing income tax benefits on R&D-related investments in the electronics sector.
Overall, the government aspires to make India an export hub for electronics, which means all local production will likely benefit over the next few years.
