An IT SEZ in Tamil Nadu
Five years ago, when the Nokia telecom SEZ
at Sriperumbudur, almost 40 km west of Chennai, was forced to close due to the Rs 21,000-crore tax dispute, the industrial ecosystem in Tamil Nadu sustained a huge blow. Nokia was the anchor investor for the state.
The facility, spread over in 210 acre, housed Nokia as the Original Equipment (OE) plant and its suppliers. It was a source of livelihood for nearly 15,000 people directly (many of them women) and an equal number indirectly. Nearly 15 million feature phones were produced here every month, making it one of the largest such facilities across the globe at the time.
With the tax dispute and the resulting freeze on the facility, this entire ecosystem collapsed and the state started losing many investment opportunities, especially to Uttar Pradesh’s Noida (both Motorola and Samsung shifted there) and to the privately held integrated business park SriCity in Andhra Pradesh, around 60 km from Chennai (where Taiwanese giant Foxconn relocated).
Now the state is seeing some light at the end of the tunnel. The SEZ
park is about to restart production with two of Nokia’s largest component suppliers, who are now global electronics and component manufacturers, in the process of taking possession of parts of the facility.
Salcomp, a Finnish charger and adapter maker, that was acquired by China-based Lingyi iTech, has acquired the one-million square foot Nokia mother plant along with another 3,00,000 square foot defunct factory of Lite-on-Mobile, which once supplied front and back covers for Nokia’s features phones. The company also acquired a 1,60,000-square foot defunct facility of US-based Laird Technologies, which makes performance-critical wireless products.
With these acquisitions, Salcomp occupies nearly 55 per cent of the park to manufacture components for domestic and export markets. The company has decided to invest around Rs 1,300 crore and plans to start production by March 2020.
Foxconn, which was operating when Nokia was running but closed when Nokia stopped production, resumed production early this year. It is now converting the same facility to a Domestic Tariff Area to cater to the domestic market and plans to invest over Rs 2,500 crore to produce Apple’s premium phones, HMD (Nokia-branded phones), Xiaomi and other products.
China-based Luxshare, another Apple supplier, will be setting up a unit by acquiring Wintek’s facility in the campus (Wintek is a Taiwanese component supplier for the former Nokia factory). Another dilapidated factory owned by component supplier Jabil may be used as a warehouse or bought by another manufacturer.
With all these companies
expected to revive the factories, the park is expected to restart operations by March 2020, said government officials and industry sources, and could see the state regain its leading position. India currently has 268 mobile manufacturing units, but only three or four are in Tamil Nadu.
“The revival of the Nokia facility has a great symbolic value because this was an iconic manufacturing facility and its revival strengthens India’s case,” says ICEA President Pankaj Mohindroo.
The development comes at a time when companies
are looking to derisk from their China focus owing to rising wages there and the trade war between China and the US. Helping the state is the Centre’s “Make in India” push, which has raised tariffs on mobile phones and components. Imported mobile phones now incur a customs duty of 20 per cent, which makes it cost competitive to make phones in India for the burgeoning domestic market. According to an ASSOCHAM-PwC report, India has over 450 million smartphone users, a number that is expected to almost double to 859 million by 2022.
The next step would be making the facility an export hub. Foxconn is a case in point. Its return to Tamil Nadu will entail an investment of around Rs 2,500 crore. Foxconn currently ships parts from China, but hopes one day to manufacture displays and printed circuit boards locally. Counterpoint Research data shows that the company's share in the contract manufacturing in India is around 63 per cent, followed by China's HiPad (12 per cent) and US-based Flex (7 per cent).
Housing two companies, of the top three (Foxconn and Flex), in the state will certainly send a positive message to other investors. Salcomp, which was making mobile chargers, is now looking at backward integration into manufacturing plastics, which in itself is a $4-billion market opportunity, and later metal parts. Once these parts are manufactured in India, more high-value inputs such as semiconductors could follow.
Tamil Nadu’s inherent strength is creating a manufacturing ecosystem, the classic example being the automobile industry. Josh Foulger, managing director, Foxconn India, earlier said Tamil Nadu has the potential to see electronics manufacturing to grow to $100 billion, out of the national opportunity of $1 trillion by 2030.
Part of the challenge for the state will be the tax relief regime going forward. The 4 per cent subsidy under the Merchandise Exports from India Scheme (MEIS) for handsets and components may be scrapped under World Trade Organisation dispute settlement rules. It is still unclear whether the Remission of Duties or Taxes on Export Products (RoDTEP) scheme, which is supposed to replace the MEIS, will provide the same dispensation.
The state administration has said it will address all these concerned in a new electronics and hardware manufacturing policy in four to eight weeks. The government is also planning to develop 100 acres of land near Sriperumbudur on a plug-and-play model to lower capital costs.
Said George Paul, chief executive officer, MAIT, the apex body representing India’s ICT sector. "I see it as a beginning of a journey, the first step is bringing global manufacturing over here. Many of the companies
are looking at Tamil Nadu because it has demonstrated that it is industry-friendly in terms of workforce discipline and so on."