Bit by bit: The Make-in-India advantage

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Published: June 2, 2015 12:04:35 AM

Smartphone companies set to begin making in India; there is sound economics behind the move

The Make-in-India bug finally seems to have got to the smartphone manufacturers. A host of smartphone companies are now announcing devices which they are already making in India or planning to make here in the near future.

Soon after Micromax subsidiary Yu Televentures announced that the next batch of Yuphoria phones will be made in India, Lava’s Xolo announced a sub-brand called Black to be made at their facilities here. Both companies are bringing in initial batches from China and will gradually shift to Indian assembly, most probably based on demand.

Samsung has, for a couple of months, been winding up to assemble its flagship Galaxy S6 phones locally. Chinese companies are also seeing an opportunity. While Oppo has announced that it is setting up a manufacturing facility in India, newer players like Phicomm are talking about making in India even before they come in.

So what is this opportunity? Anshul Gupta, research director, Gartner, highlights the huge differences in import duties of finished product versus components—a smartphone attracts a duty of 12%, but its components can be imported at just 1%. “Mobile manufacturing companies are trying to take advantage of this. The difference is big and it makes sense for them to assemble in India,” he says. Apart from the difference in duty, there is also the opportunity that the Indian market offers. India is still in a growth phase along with other countries in the region and that will offer the volumes that justify investment in a manufacturing or assembly unit.

Pankaj Mohindroo, national president of the Indian Cellular Association, reiterates that the roughly 11% differential duty in favour of domestically manufactured handsets along with the central government’s initiatives to support a manufacturing ecosystem provides an ideal opportunity for brands. There is also some sound economics here.

Mohindroo says in value terms the handset industry grew to R75,000 crore by the end of 2014, registering a CAGR of 28%, and can touch R1 lakh crore by the end of his fiscal. Of this, the smartphone market is 25% in volume and 75% in value. That opportunity is hard to miss.

However, despite incentives such as cash back on investments, tax exemptions and preference for domestically manufactured electronics products for government procurements, there is a lot missing. For instance, the high rate of VAT on mobile handsets and accessories in various jurisdictions eats into the small profits many of these manufacturers depend on. And there is the fact that the ecosystem of semiconductor fabs, component suppliers and design houses has still not developed here. Gupta says at least in the near future the components will be a mix of imports from China and locally procured ones. With what happened to Nokia’s Chennai plant where the ecosystem was almost in place, it might not be that easy to woo the big component manufacturers to India.

Manufacturers, meanwhile, are more worried about what happens if there is a surge in demand for a product manufactured in India. They will not be able to scale up as they would with plants in China. “We will always have our Chinese facilities on standby for an eventuality like this,” explains Vishal Sehgal, co-founder, Lava International.
Interestingly, there are indicators that the Make-in-India bug might infect other sectors too. Just last week, WPG, Microsoft India and Intel India announced that its new small form factor NuPC will be made in India. With Micromax and Xolo both entering the 2-in-1 PC space, they too might be tempted to test the waters on this front soon.

If all goes well, the Indian customer will have a lot to smile about. “The difference in duties will surely bring in some cost advantages. This can be passed on to end-users and could result in lower prices,” adds Gupta.

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