India is currently the second top manufacturer of smartphones in the world and quickly catching up to first-place, China. Samsung is slowly closing manufacturing shops 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 maker of electronics, including iPhones and Apple devices — is setting up facilities in Sriperumbudur, a town in the Kanchipuram district of the Indian state of Tamil Nadu. Apple is also reportedly opening a new, state-of-the-art store in Mumbai.
According to Ravi Shankar Prasad, the Union Minister for Communications, IT, and Law in India, the day he can buy an Apple phone that’s designed in California and then assembled in India (and not China) will mark a significant milestone for India.
One reason this may happen sooner rather than later is because the taxation laws in India are changing. For example, the Indian government has removed the five-percent customs tax on cell phones. Nirmala Sitharaman, India’s Finance Minister, also recently announced a decrease in corporate tax rates.
Although this progress is expected to boost profitability for local businesses, new manufacturing companies that are setting up shop after October 1, 2019, will benefit the most. This is because such businesses will pay only 15 percent tax, which is a huge incentive to manufacture merchandise locally. The effective tax rate for these businesses will be 17.01 percent, inclusive of overcharge and cess. Also, such businesses will not be required to pay minimum alternate tax (MAT).
White goods & premium products
Currently, a majority of entry to mid-level white goods are manufactured in India. (These include appliances, such as air conditioners, refrigerators, stoves, etc., which used to exclusively have a white enamel finish.) However, premium products — including smartphones — are still made in countries like South Korea, but typically with a tax percentage of 25 percent.
Thanks to India’s new tax incentives, it may soon become the country of choice for premium product manufacturers.
Kishan Jain, director of Goldmedal Electricals, believes the government’s move to decrease tax rates would encourage local manufacturing. “These proposals will aid the domestic generation of energy-efficient solutions, such as LED lighting, and immensely help companies operating in this space,” he said.
Kamal Nandi, EVP and business head of Godrej Appliances and president of the Consumer Electronics and Appliances Manufacturers Association (CEAMA), said that a rise in foreign direct investment (FDI) inflow is certainly expected in the country. He pointed to the fact that Finance Minister Sitharaman stated that international companies with an office and in a joint venture with Indian businesses, will also get tax privileges.
Although Indian manufacturers had previously shared concerns about foreign companies being given a gratuitous hand in the Indian market, the new tax laws are expected to be fair. Ravi Saxena, MD of Wonderchef, said Sitharaman is working to provide a level playing field for local manufacturers. The aim is to create ideal conditions that support successfully manufacturing in the country.
The Indian government anticipates the demand for electronic products to reach USD 400 billion between 2023 and 2024. This could lead to a valuable foreign exchange outflow in the country, which may widen the trade deficit with other countries. The government is, therefore, incentivizing local electronics manufacturing in hopes of reducing import costs.
The Ministry of Electronics and IT has published a draft electronics policy, which aims to create a USD 400 billion turnover in the electronics manufacturing environment by 2025. However, the strategy is strongly based on the success of mobile phones and related components. Case-in-point: the policy aims to double the target of cellular phone manufacturing from 500 million units in 2019 to one billion by 2025.
Many believe there should be recommendations and benefits for other electronics manufacturing sectors, too — and there is hope.
For example, the draft policy includes direct tax benefits for manufacturers establishing new facilities or renovating existing ones. The administration also intends to promote a forward-looking tax rule, which includes investments in different segments of electronics with a sunset clause. Plus, it’s considering increasing income tax benefits on investments relating to R&D in the electronics sector.
Overall, the government aspires to make India an export center for electronics goods, which means all local manufacturing will likely benefit for the next few years.