Why TV manufacturers may shift out of India if import duties aren't reduced

Why has the government raised import duties?

The government has aggressively pushed to cut down on India's massive import bill for electronics, which stood at $21 billion in FY18 and made up the third biggest chunk of the import bill after crude oil and gold. As a result, import duties on a wide range of products have seen six specific tariff hikes over the past one year. The idea was that as importing became an unviable option for manufacturers due to rising costs, they would be forced to produce their merchandise in India. This double-edged focus on value-addition, rather than simple assembling, has yielded results in mobile manufacturing. The number of units have risen from two in 2014 to 123 by the end of 2017, according to data from Hong Kong-based Counterpoint Research.

Why are electronics goods manufacturers unhappy about this move?

Manufacturers now say that while the government is effectively cutting off their access to foreign imports, it hasn't been able to create a suitable supply of components in the domestic sector at the same pace. Major manufacturers such as Samsung and LG had been critical after import duties on open cell TV panels were raised by 10 per cent in the last Budget. While it has subsequently been reduced to 5 per cent, manufacturers want it to be done away with completely because it accounts for an estimated 65-70 per cent of a television set’s production cost. Samsung has quietly wound down its TV factory and the industry is now threatening that if duties are not cut, they would find new markets to import from or would outright shift manufacturing facilities. This may mean major job losses as currently there are some 30 facilities in India providing direct employment to over 50,000 people.

Where are these manufacturers planning to shift to?

Vietnam is the nation of choice. Over the past five years, the nominally socialist nation has become a hub for engineering and electronics manufacturing as scores of Chinese companies flock over the border attracted by a 10-year tax holiday and cheaper labour. This includes many LED display manufacturers. Most importantly, Vietnam is a part of the Asean grouping of nations with which India has a Free Trade Agreement (FTA). Import duties on items imported under FTAs are either very low or are waived off. Imports from Vietnam have zoomed in the current fiscal year as those from China, the largest source, go down. Apart from these two, South East Asian nations such as Thailand and Indonesia remain the major source of LED panels imported into India since there is no local manufacturing. The share of LED sets stands at 75 per cent of the 16 million units a year TV market in India.

Is there any other industry facing a similar dilemma?

While the hikes had initially focused on components, specifically those for mobile device manufacturing, later policies saw higher duties being placed on finished goods as well. This includes consumer durables such as speakers, air conditioners, household refrigerators, and washing machines. Since companies in the electronics sector have an integrated production — that is the same firm manufacturing multiple products — plant shutdowns for TV may have a ripple effect on the production of other products as well.

What does the government plan to do?

The ongoing tussle has resulted in a sharp rise in the import of TV panels. Estimates suggest some Rs 2,700 crore worth of TV sets have been imported between April and October 2018 compared to Rs 2,900 crore during the whole of 2017-18. This has riled the Commerce Department which considers reducing dependence on imports a priority after the current account deficit ballooned to 2.9 per cent of the GDP in the second quarter of the fiscal compared to 1.1 per cent just a year-ago. But having faced success in boosting mobile manufacturing, the ministry of electronics and information technology wants to stick to the duties.

What does all this mean for the government’s much-touted Make in India programme?

While the government has clarified that it does not maintain any data with regards to job generation under the Make in India programme, investments may be hit. Component industries tend to cluster around major manufactures, a point repeatedly raised by mobile giant Apple in their negotiations with the government in setting up shop in India. 

The loss of big names like Samsung may dampen investment estimates, the Consumer Electronics and Appliances Manufacturers Association has told the government. A close look at the Reserve Bank of India’s data shows there is a marked slowdown and contraction in Foreign Direct Investment, the first time this has happened under the current regime.

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