Broadband India Forum and EY releases paper on incentivising handset manufacturing under GST

Broadband India Forum (BIF), in association with Ernst & Young (EY) has released a research paper which highlights the need to incentivize domestic handset manufacturing in India under GST regime.

Wider deployment of 4G networks along with affordability and indigenisation of smartphones is going to drive mobile broadband to the next level of penetration via handsets. With the rapidly increasing demand, it is important to incentivize the local manufacturers to meet majority of the demand through domestic production.

Speaking at the event TV Ramachandran, president, BIF said, "We need to increase smartphone penetration as India has today it is less than 30 per cent. This can only happen through local manufacturing and by further increase of local value addition. Further, BIF along with EY is proposing an innovative way of using GST to incentivise handset manufacturing. This we believe is a win-win formula for all.”

Speaking at the event Aruna Sundararajan. secretary, MeitY said, “The early momentum that we have achieved actually needs to be sustained and further accelerated. This complementary study by EY & BIF providing how incentives can be continued under GST to the domestic handset industry with good quality analysis and information will be helpful for the government to frame a better policy and boost local handset manufacturing.”

Speaking at the event Bipin Sapra, partner, EY said, "It is expected that the adoption of smartphone in India will go up to 688 million by 2020 as compared to 238 million in 2015. With the introduction of GST, most of the current centre and state taxes/duties will be subsumed under GST. The excise duty on smartphone manufacturing which was a single point tax and the basis for all incentives would also be subsumed. Thus, it is expected that the incentives available to domestic manufacturers under the current regime would decrease and there is need to continue the incentives under the GST regime to meet the increasing demand through domestic production.”

While GST alone is not the driver for incentivizing manufacturing in a country, some of absolutely essential factors for a sustained manufacturing environment in the country are infrastructure, a robust manufacturing ecosystem, skilled manpower, technology and R&D facilities etc. For the other factors to develop, it becomes important to grant incentives to the domestic manufacturing in order to set off the local disabilities.

The actual incentive amount can be enhanced with a multiplier (‘N’) to grant a benefit that is at least equivalent to the incentive available under the current regime (i.e., approximately 8%—10%) with similar value addition, and higher incentives that can be granted when the local value addition in India is more.

Speaking to VARINDIA, Bipin Sapra said, "The factor N can be in the range of 1.5 to 2 so that those smartphone manufacturers who does more value addition will benefit in the log run."  

Government may go one step further and extend similar benefits to the component manufacturers, which would encourage more investment in India and give a boost to the handset manufacturing ecosystem. Once the ecosystem is created, the prices of parts and components may also become more competitive, which, in turn, will reduce the cost of mobile handsets and make Indian handset manufacturers more competitive globally.

A recent study conducted jointly by IIM Bangalore and Counterpoint highlighted that the value addition in India is approximately 6 per cent under the current state of manufacturing in India. This can be increased up to 32 per cent by 2020 wherein the most of the manufacturing processes in India. Thus, providing incentives can be a start to build the eco-system for mobile handset manufacturing and bringing value addition to India.