A two percentage point cut in duty incentives under an existing export scheme effective January 1has panicked electronics manufacturers, who say the reduction has the potential to derail the $3 billion mobile handset export segment, halting capacity expansion and leading to job losses.
Ahead of a new export incentive scheme – Remission of Duties or Taxes on Export Products (RoDTEP)-to be rolled out from next year, the Director General of Foreign Trade (DGFT) Saturday issued a notice that the additional 2% benefits given under the existing Merchandise Export from India Scheme (MEIS) for all sectors, except garments and made ups, and including electronics manufacturing, would end on December 31.
With the additional benefits gone, the original incentive of 2%, 3% and 5% would remain until RoDTEP is put in place. The RoDTEP scheme, which is scheduled to replace MEIS from January 1, is yet to get cabinet approval.
“The lead time given to exporters is less. A minimum of three months should have been given,” said Ajay Sahai, director general, Federation of Indian Export Organisations (FIEO).
The electronics manufacturing industry, for which the export incentive will dropped to 2% from 4% now, was sharper in its criticism of the government move.
“This news is nothing less than a painful shock. At one end, the government is talking about attracting investments to make India an electronics export hub, and at the other end, this export incentive is being withdrawn,” said Sanjeev Agarwal, head of manufacturing and design at Lava. “We have already started to export, lined up investments and taken orders basis this 4% export incentive. We will have to cancel orders and fire people if the government doesn’t reverse this.”
Lava recently won orders from US companies such as GE and AT&T to manufacture white-label devices. Meanwhile, other handset manu-facturers and component suppliers such as Apple, ViVo, Oppo, Foxconn and Flextronics, through their industry association, have reached out to finance minister Niramala Sitharaman, communications and IT minister Ravi Shankar Prasad and commerce minister Piyush Goyal, saying the move would severely impact current as well as future investments in electronics manufacturing.
“It will also lead to an immediate halt in all future hiring and capacity expansion,” the India Cellular and Electronics Association (ICEA) said in its December 9 letter.
The national electronics policy 2019 has targeted $110 billion of mobile handset exports by 2025.
“The disabilities in electronic manufacturing vis-a vis China and Vietnam had only been partially met through the 4% MEIS scheme and the discussions in the government were around how to scale this incentive up,” said ICEA chairman Pankaj Mohindroo. “In fact, the committee set up by the PMO headed by Niti Aayog CEO and with members from finance, commerce and MeitY among others was on how to come up with a WTO-compliant scheme to address the disabilities. But this is in fact going the other way.”
In October, the World Trade Organisation (WTO) ruled that India’s export incentive schemes, including MEIS, were inconsistent with provisions of the trade body’s agreement on Subsidies and Countervailing Measures.