Budget 2019 India: The Centre is likely to offer sops – including higher incentives under the Merchandise Exports from India Scheme (MEIS) and duty drawback – in the upcoming Budget to boost electronics exports, acceding to some of the demands of the industry.
Under MEIS, the government provides exporters, especially in the labour-intensive sectors, duty credit scrip at 2-5% of their export turnover, depending upon products and shipment destinations. At present, exports of mobile phones and printed circuit board assembly are eligible for a 4% MEIS scrip but components like battery, camera module etc, get only 2%.
The Indian Cellular and Electronics Association (ICEA) has recommended that MEIS must be enhanced to at least 8% for a minimum period of 5 years. “Also considering the current threat to continuation of MEIS going forward due to WTO etc, the same benefits may have to be given in a different manner,” the industry association, which boasts of members including Apple, Sony, Vivo, Google etc, said. It also demanded that the duty drawback rate – which was recently enhanced to 4% subject to a maximum incentive of Rs 197 per piece – should be increased to encourage export of smartphones and high-end phones.
The industry has for long rued an unfavourable direct tax regime in India, compared with neighbours like China and Vietnam. Direct tax in India can be as high as 30% plus dividend distribution tax compared to 0-10% in China and Vietnam. Lower corporate taxes have prompted large global electronics players to improve their presence in these countries, rather than India.
The ICEA demand is that a 10-year tax holiday be given on a block of 15-20 years on all profits and gains under Section 80 IA of IT Act, 1961, for manufacturing or rendering of services in or in relation to the mobile handsets, its parts, components accessories etc, so as to bring in fresh investments.
The mobile handset manufacturing activity in India has witnessed good progress in the last 4 years with local manufacturing of handsets touching 225 million units during 2017, enabling India to become the No.2 global manufacturing hub for handsets after overtaking Vietnam.
However, it still has a long way to go to beat China. During 2018-19, a total of 290 million mobile handsets worth Rs 1.7 lakh crore were manufactured or assembled in India. Consequently, the share of import of handsets as a percentage of total market demand has come down drastically in the past 4-5 years. From a 83% import dependency in volume terms in 2014, the demand has come down to 7% in 2018.