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Losing countervailing duty exemption shield likely to hurt handset makers

Industry associations seeking urgent meetings with govt, which has been promoting Make in India based on duty differential benefits, to resolve this issue.

, ET Bureau|
Last Updated: Apr 04, 2017, 02.23 PM IST|Original: Apr 04, 2017, 02.41 AM IST
GST is an overarching tax structure that India is set to introduce in July.
GST is an overarching tax structure that India is set to introduce in July.
NEW DELHI: Indian handset makers fear loss of investment and jobs if the recent government comments that countervailing duty exemptions will be removed in the goods and services tax regime are carried through.

Industry associations are seeking urgent meetings with the government, which has been promoting Make in India for the past couple of years based on duty differential benefits, to resolve this issue. They want the electronics and IT ministry to back their case, people aware of the developments said.

“If this happens, it will result in huge job losses, losses for all entrepreneurs and will send a wrong message to foreign investors that there is no consistency in policy,” said Shantanu Das Gupta, secretary-general of the Consumer Electronics and Appliances Manufacturers Association.

Losing countervailing duty exemption shield likely to hurt handset makers

“If the duty differential is removed, local manufacturing will become unviable overnight, people will move to 100 per cent importing of fully made phones. The government must find an alternative to maintain the differential,” he added.

Revenue secretary Hasmukh Adhia said on Monday that India was unlikely to provide any exemption from countervailing duty to IT or telecom manufacturers in the proposed GST regime. GST is an overarching tax structure that India is set to introduce in July. It would subsume all indirect taxes, leaving little space for offering incentives to individual sectors.

Continuation of duty differential is one of the incentives sought by Apple to manufacture iPhones in India.

Adhia said the only way to create duty differential is to impose higher customs duty in some cases, but industry executives said such a case is yet to be presented to the government from the industry.

Industry insiders said their associations have been seeking meetings on an urgent basis with the departments of IT and electronics, commerce and even the Prime Minister’s Office, to highlight the issues and concerns of the industry.

“We want to work with the Ministry of Electronics and IT to back our case with the government, so that thousands of jobs and investments can be protected,” said Pankaj Mohindroo, president of the Indian Cellular Association, which represents handset makers including Apple, Samsung, LG and several Indian brands, that have invested into creating local manufacturing units.

Since the introduction of an 11.5% duty difference between imported and locally made handsets, local production in India nearly tripled to Rs 54,000 crore in 2015-16, during which about 40 new mobile phone manufacturing units and more than a dozen component units have come up in the country. The ICA had estimated local production to reach Rs 94,000 crore in the just ended fiscal 2016-17, riding on the current set of incentives which have been broadened to chargers, batteries and headsets in budget 2016-17.

About 60,000 direct and an equal number of indirect jobs have been created by the local manufacturing industry, while component manufacturing units have added another 15,000 jobs.

The overhang of the new macro government policy is also a burning issue for several companies – Indian and foreign – that have already invested in setting up mobile phone manufacturing units to gain benefit from the duty differential.

For international investors who are already in India, say Foxconn, Flextronics and Salcomp, investments are going on. But insiders say suppliers who were pursuing to come to India for creating a viable ecosystem were now holding off their bets.

“Duty differential has to be maintained to keep a level playing field for Indian manufacturers,” said Rajeev Jain, chief financial officer at Intex Technologies, one of the local players that plans to further invest in setting up a large-scale facility at Kasna, Greater Noida.

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