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Phonemakers Hanging Up On Exports As Subsidy Cut

Leading mobile phone makers have stopped taking fresh orders for exports in a move that could derail India’s ambition to become a hub for cellphone exports.

The reason is a new notification which has reduced the Merchandise Exports from India Scheme (MEIS) — an export subsidy programme — by half from 4 percent of the freight on board value of the product to 2 percent, effective from January 1. The reduction has made Indian phones uncompetitive in the global market where they compete with Vietnam and China, the two leading exporters, for orders.

Mobile device manufacturers while exporting from India face a cost disability with Vietnam ranging from 9-12 percent and with China of 19-22 percent. What the MEIS of 4 percent did was to partly cover this disability which allowed some players at least to try out the export market. Now, though, with fresh orders being rejected, the government’s ambitious target of doubling the exports of mobile devices to $3.57 billion in FY 19-20 now looks like a pipedream, particularly as it has to be followed up by a doubling of exports once again to $7.86 billion in 2020-11.

In response, Commerce Ministry officials met on Monday with executives of top companies including Lava, Samsung, Apple, Xiaomi, Flextronics, Foxconn and Wistron (which manufactures for Apple) and Motorola, among others, to discuss a way out of the mess.

Hari Om Rai, director, Lava Mobile, said: “We have stopped taking fresh export orders as we cannot sell it as a huge loss after the reduction in the MEIS. Even at 4 percent, the disability in cost was not completely neutralized but we were still exporting. But this government move will severely impact exports.”

A Samsung executive who attended the meeting pointed out that at 2 percent, there will be hardly any exports of phones from India. The South Korean company has been in the forefront of exports and had announced that 30 percent of its 120 million per annum capacity new plant would be for that purpose, provided the policies were conducive. The firm declined to comment on the issue.

Top global OEM manufacturers who make and export the products for companies such as Apple also made it clear to Commerce Ministry officials that a 2 per cent MEIS makes it unviable for them to export from India. They have stopped taking fresh orders.

A Chinese mobile player, which is looking at pumping up exports from India, has demanded that the MEIS should be restored to 4 per cent.

Stung by the government’s decision, the Indian Cellular and Electronics Association which represents all the leading mobile device manufacturers has warned that many firms are reassessing their investment plans and might opt for large scale retrenchment of the employees they hired in the past six to eight months.

Mobile players say that as new orders for exports come in December-January, many have no choice but to decline them, even if it means losing business.

Under the National Policy on Electronics of 2019, the government fixed aggressive targets for mobile device exports. By 2025, it envisaged that India would produce 1 billion mobile handsets valued at $190 billion; this would include 600 million handsets valued at $110 billion for exports. This plan now lies in tatters. The MEI scheme had been challenged by the US at the WTO in 2018 and a dispute panel at the WTO had upheld America’s complaint last year. India has appealed against its scrapping. The appeal is pending. Just in case its appeal fails, the government has already earmarked a sum of Rs 50,000 crore for a new scheme to replace the MEIS which would be WTO-compliant. This new scheme requires cabinet clearance.

At the meeting, mobile manufacturers urged the Commerce Ministry to retain the MEIS in its original form for the time being until the WTO panel rules on India’s appeal.―Business Standard

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