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Mobile policy gets it right PDF Print E-mail
Tuesday, 24 March 2020 04:19
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New policy WTO-compatible, rewards only big producers

India’s biggest battle in terms of becoming competitive has always been that of scale, and while this was partly fixed when most industries were delicensed in 1991, many restrictions, such as those imposed due to restrictive labour laws, remained. Thus, while countries like China, Vietnam, and Bangladesh walked away with the exports market for readymade garments and shoes, India’s restrictive labour laws ensured our firms remained small and just nibbled at the exports market. Even in the case of mobile phones—a big market for exports globally at around $300 bn right now—India’s plan to target exports has been a failure. There has been a sharp jump in the number of firms assembling phones and components—from two in 2014 to over 260 right now—but, handset exports were just around $2 bn in 2019; the National Policy on Electronics 2019 projected these rising to $110 bn by 2025!

While India raised the incentives on mobile phone exports to 4% of the value of the phone, the problem was that everyone got this, even small firms. What India needed, instead, was a policy that focused on getting just the top 4 or 5 manufacturers in the world; Apple, Samsung and Huawei control nearly three-fourths of global exports, and the bulk of exports take place out of China and Vietnam.

While the policy to woo mobile phone manufacturers has taken a long time to finalise, it addresses many critical issues. For one, unlike India’s existing MEIS scheme of incentives for exports that is WTO-incompatible—WTO rules out export subsidies—the new incentives that start at 6% and taper off to 4% in the fifth year are WTO-compliant as they are linked to domestic production. The incentive, coupled with the sharp corporate tax cut, helps reduce the cost disadvantage India had versus a Vietnam. It also helps that India has a reasonable domestic market. And, given that India’s per capita income is around a fifth of China’s, labour costs here will be much lower. The scheme has an outlay of Rs 40,995 crore over five years, so it is looking at the firms producing around Rs 8 lakh crore of phones cumulatively; the policy stipulates that any firm availing the incentives has to have an output of at least Rs 25,000 crore over that in the base year. That means only the really serious players will benefit, and so they are more likely to relocate some of their China/Vietnam operations to India or, more likely, expand here rather than in those countries; the policy thinks local value addition can rise to around 40% with these incentives. And, since the policy is applicable only to phones that cost at least $200 to produce—that is a retail value of around $350-450—the bulk of them will have to be exported. The making of a policy, and its working are, obviously, two different things, but this time around, India has focused on creating scale, which is a sea change from the past; also, to the extent firms don’t deliver, they don’t get the incentives.

 
 

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