Covid-19 crisis: Global mobile firms warn curbs make India unattractive

Machines constitute 97 per cent of the investment cost. But based on the 40 per cent criterion, a company now effectively has to bring in an investment of over Rs 600 crore each year to be eligible for the scheme if it want to use second-hand machines.
The productivity-linked incentive (PLI) scheme of the government to woo mobile device players like Apple Inc and Samsung to make India a global export hub could be derailed.

The reason: Global mobile majors have made it clear to the government that they cannot shift production for export from markets like China to India or create an export hub if the government goes ahead with a proposal to consider only 40 per cent of the value of imported second-hand  machines (to make devices) for determining the investment made by a company to be eligible for the scheme.

Under the scheme, the government is offering incentives of 4-6 per cent for five years on mobile device exports.

Global majors have demanded that it should be 100 per cent, without which their cost of making phones in India will go up, investment will more than double, and India would again become uncompetitive compared to China and Vietnam despite the incentives offered under the scheme.

To be eligible for PLI, a company has to invest an incremental Rs 1,000 crore (in four years), starting with Rs 250 crore in the first year of operations.

Machines constitute 97 per cent of the investment cost. But based on the 40 per cent criterion, a company now effectively has to bring in an investment of over Rs 600 crore each year to be eligible for the scheme if it want to use second-hand machines.

The second condition for availing of the scheme is that global companies can export only devices whose price is above $200 and also make incremental export sales of a minimum of Rs 4,000 crore in the first year, going up to Rs 25,000 crore in the fifth year.

A top executive of a global device company said: “We are not undertaking incremental production in India, but merely shifting production from other countries to India for hedging risk. So we obviously need to import and bring second-hand machines too and get 100 per cent of their value and not merely 40 per cent.”

 
Even after the incentive, India still has a cost gap vis-a-vis Vietnam of 3-7 per cent, which will again widen if the 40 per cent cap is imposed.

The ICEA, which represents mobile device manufacturers, has made a pitch against the move. It has pointed out that new machines, which the government is insisting on, are not made in India, and, with a limited number of global manufacturers, they take 18-24 months to be delivered.
Used machines are the fastest and most efficient way to reach India’s export targets.

 
Device players say 97 per cent of the investment in a mobile facility would be in plant and machinery. That is because, ICEA points out, under the PLI scheme, the cost of land, power, environment control, and IT infrastructure is not taken into account while calculating a company’s investment in a year.

 
The association also pointed out since the used machines were cheaper than the new ones, companies would need to import more, and that, in turn, would create more capacity if they wanted to meet their investment criterion to avail of the scheme. So there will be more export of phones and more employment.

Global players say machines to make mobile phones have, on average, a 12-year life span and can be retrofitted to make the latest high-tech phones.

 
An executive of a mobile phone company looking at export from India said: “It makes no sense for the government to insist on new machines. The decision should be left to the companies. In any case the government won’t pay them any incentive until they export products worth Rs 4,000 crore in the first year.”

 


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