Export Strategy for Mobile Industry: Steps to revival
Mobile handset exports took off from India when the world’s largest manufacturing facility was in full swing run by Nokia. India made mobile handsets were being exported to more than 100 countries around the world. After scaling down of production activity with complete shutdown of production activity in October 2014, exports crashed to zero. The success achieved by Nokia in establishing India as a manufacturing HUB to meet the export requirements is a clear testimonial about the how the country could be transformed into an export HUB considering its geographical proximity to various emerging markets such as Africa, Middle East, Europe etc.
Spurt in production activity should be calibrated to remain export oriented
India is emerging as the preferred manufacturing HUB for mobile handsets. Over 40 new manufacturing facilities have already been established across states and many more are in the pipeline. While there is a huge opportunity on the domestic market requirement fronts considering that the differential duty dispensation is already in place which makes it economically viable to do manufacturing from India. However, there is a huge opportunity on the export front as well. India can replace Made in China or Made in Vietnam export requirement for mobile handsets through Made in India handsets considering the geographical proximity of India with many of the emerging market based out of Middle East, Africa, Europe etc. compared to China / Vietnam.
The Fast Track Task Force (FTTF) export target for mobile handsets is 120 million in 2019-20. As per estimates made by Indian Cellular Association (ICA), the FTTF target can be achieved provided that the GOI institutes some specific mobile handset export related strategies to catalyse this growth. Export of mobile handsets can grow substantially by the year 2025-26 with India made handsets may account for 40 per cent of the total export demand outside India is 800 million Made in India mobile handsets can be exported out.
Who will Export?
Apart from the Global brands such as Foxconn, Vivo, Oppo, Huawei etc., various Indian companies such as Lava, Intex, Micromax etc. would also be keen on making India as their export HUB. Currently, majority of export related activity happens from products manufactured in China and Vietnam. China and Vietnam are our main competitors on the export front, with their its low-cost production centre, faster and efficient supply chain management structure, availability of an ecosystem there and also zero tax and incentive environment for exports.
Policy Reforms and Incentives Recommended
The current MEIS incentive to be enhanced to 5 per cent on mobile handsets, its parts, components and accessories from the current 2 per cent. For reference 5 per cent MEIS is currently applicable on the textiles industry. Entries in the MEIS schedule should also be streamlined based on the parts, components and accessories of mobile handsets.
Reform of Advanced Authorisation with suo moto announcement of broad band input - output norm for duty free import. MOEF norms on E-Waste – CRO and WPC – not to cover cases AA and imports allowed freely without duty.
Duty Drawback is currently 1.5 per cent which is the default rate on every packaged export item. This is grossly inadequate. This may be revised upwards substantially after considering the full duty paid on non-ITA 1, dual use items going as inputs into manufacture of mobile phones. Further service tax is paid on many heads in manufacturing. There is also a transport expense on both legs of imports and exports. Further, state levies and local levies are not rebated at all; as a result exports are not competitive on grounds of price. The world market has already reacted to India’s manufacturing and there is a concerted action to restrict access to components import into India by way of higher pricing or other restrictions. While Indian market may be able to absorb this unfair practice the export market will not buy Made in India mobile handsets due to expensive components used. This disadvantage too must be factored into the drawback rates. All industry rates (AIR) and Brand Rate system may be reformed to assign notional duties on the imports used to arrive at the respective drawback rates.
EPCG to give special window with special export obligation rates for mobile handset exports. Further, there is a massive restructuring going on in the world with capacities shifting to developing countries. India should change its policy regime to allow import of used machinery in the electronics / mobile handset sector under the EPCG scheme. Further, the usual barriers of E-Waste on import of all machinery for electronics sector may also be waived in such EPCG cases.
Zero Duty Access of Indian mobiles in Third World countries. Department of Commerce and Ministry of External Affairs (MEA) to launch special negotiations in FTA and BTA windows to get Third World Countries, most of whom are not signatories to ITA I / II to allow duty-free and control-free import of the above in their countries. This can be done easily as India is very active in the trade diplomacy front, while China, our main competitor, is deficient here. Apart from APTA (Bangkok Agreement) and the proposed RCEP, it is not a member of any major FTA. It entered WTO only at the Cancun Ministerial of the WTO in 2003.
Interest Equalisation - This subsidy should be enhanced from the current 3 per cent to 6 per cent for electronics units since double financing is involved at both import and export legs. The industry is based on volume and value addition through APTP operations on import of parts, components and accessories.
Freight Subsidy - While there is a robust and deep Phased Manufacturing Program in the works, components will continue to flow into India primarily from China a few years from now - mostly by air. Gradually through the PMP we can remove bulk of the weight from these imports. Imports will start comprising of high tech items like sensors, ICs, displays etc. To be competitive for exports we need to provide a freight subsidy to mitigate the higher cost because of such imports in the first 3 years. We estimate that the freight cost based on the assumption that freight cost of Rs. 150 / per kg based on movement from Hong Kong / major Chinese port to Delhi Airport. The freight subsidy requested for the first 3 years mitigates 100 per cent of the inward freight. In the next 3 years it is reduced to half and further reduced to a quarter in the subsequent 3 years based on our estimate of reduction in weight.
Given the above incentives and policy reforms, there is no reason why the present surge in production capacities cannot be transformed beyond India to the shores of the Third World countries. Once India achieves this, it will have a commanding presence in the world, combining both domestic production and global export capacities.