Jaitley’s Budget 2017 attempts to evolve make in India, to take India from a buyer to a manufacturer

By Anusha Ashwin

BENGALURU: Union Budget 2017 provides a renewed impetus to manufacturing and ‘Make in India’. For instance, Infrastructure - which is considered as a key pillar under the ‘Make in India’ program has been strengthened with a large budgetary allocation. The total allocation for infrastructure development in 2017-18 is Rs 3,96,135 crore. A specific program for the development of multi-modal logistics parks, together with multi-modal transport facilities, is considered as a big boost to ‘Make in India’ initiative.

The extra impetus by the Government on initiatives like Skill Development has been proposed to provide essential support for the ‘Make in India’ sectors to thrive. The launch of SANKALP scheme to provide market-relevant training to 3.5 crore youth and STRIVE scheme to improve the quality and market relevance of vocational training is a major push to empower Indian youth with employment opportunities. This initiative should deliver a structured training for India’s youth reducing reliance on imported goods and at the same time equip them to be part of the ‘Make in India’ initiative.

Additionally, ‘Make in India’ program was given a significant boost by increasing the allocation for electronics manufacturing under incentive schemes like Modified Special Incentive Package Scheme (M-SIPS) and Electronic Development Fund (EDF) to Rs 745 crore. Union Finance Minister Arun Jaitley while presenting the Union Budget 2017-18 in the Lok Sabha highlighted that the number of global leaders and mobile manufacturers setting up production facilities in India in the last two years have increased, which has compelled him to exponentially increase the allocation and incentives of schemes like M-SIPS and EDF in 2017-18. This move he says is an all-time high, which evidentially proves that the Government is ensuring that ‘Make in India’ is serious business.

Further, the carry forward of losses and profit linked deduction for startups for 3 out of 7 years was a welcome announcement to the startup sector, inspiring entrepreneurs to innovate and manufacture in India.

In the telecom sector, the government has proposed to impose a 2% special additional duty (SAD) on imports of populated printed circuit boards (PCB) used for mobile phones. Technically, PCBs make the majority of the components in a mobile phone.

Post budget presentation CyberMedia Research (CMR) published its view in response to the all-time high Rs 745 crore allocated for incentives under MSIPs and EDF. CMR has deduced an estimate of profit mobile manufacturers can make with new incentive on ‘made in India’ handsets. It seems to be a win-win for all.

As per CMR estimates, in 2017, of the 270 million (27 crore) mobile handsets to be shipped, 200 million (20 crore) will be made out of India. Also, from the allocated Rs 745 crore incentives for electronics manufacturing in India, around 70% is likely to go to mobile handset manufacturers, basis - the proportion of electronics being produced out of India. This means, as per the all-time high allocation, Government will incentivize Rs 26 per handset to be made out of India. Against this, at an average selling price of Rs 5,138, government collects revenues of Rs 617 per handset by way of various duties and taxes. That is 24 times of the incentive allocated per handset.

Commenting on the incentives announced, Faisal Kawoosa, Principal Analyst for Telecom and ESDM at CMR said, “This is an all-time high allocation and a defined one for the first time that brings in more clarity about what one can expect as incentives. However, the kind of fillip everybody wants for the mobile handset industry looking at the potential in this category of electronics, the incentive could have been more encouraging..”

Get free India Mobile Handset Market report from CMR here

Giving such a push to the manufacturing sector has got Industry leaders talking positively about the initiatives. Voice&Data reached out to few of the key players in the telecom sector to understand their views about the budget.

Welcoming the budget, OPPO Mobile India spokesperson, communicated to Voice&Data that the company would begin operations at its brand new SMT facility that produces the phone’s board in Greater Noida in 2017 as part of their commitment under the Make in India program. They will continue to provide smartphones with excellent camera experience, especially on selfie in 2017 that attract young Indian consumers.

Indian Cellular Association, President, Pankaj Mohindroo, says PCBA  (printed circuit board assembly) comprises 30-40% of BOM (bill of material) value of feature phones and 60-70% BOM value of smart phones. This 2% SAD on importing PCBAs is an indication that the Government is slowly evolving to push handset manufacturers to move from mere assembling to actual manufacturing.

Expressing concern on 2% SAD the CEO of Jivi Mobiles, Pankaj Anand, said, “We were hoping to get some relaxation in taxes for low end smart phones in lieu of promoting smart devices to the masses which will enable them for digital banking and some package to support mobile manufacturing in India, the increase in duty on PCB will certainly increase the prices of mobile phones.” Jivi is a home-grown electronics company that manufactures entry level bar phones with FM to high-end 3G Android smartphones.

One of India’s rising homegrown mobile phone company allays fears. Narendra Bansal, CMD of Intex Technologies, says, “This is a very marginal increase and will have ‘no impact’ on the consumer for two main reasons: First, the increase is so miniscule that brands will absorb this impact and will not pass it on to the consumer. Second, globally and in India, prices of mobiles are coming down and every month cheaper handsets are making their debut in the market. In such a scenario, in future too, prices of mobiles will keep falling continuously with the result that this increase in duty will get mitigated by the low cost of the handsets.”

M N Vidyashankar, President, India Electronics & Semiconductor Association (IESA), has a positive perspective to the budget. He said, “Government’s focus towards ‘Transform & Energise’ the youth through various programs and incentives will give an impetus to entrepreneurial skills and move towards growing the ecosystem. The investments made by the Government in SWAYAM, which will provide 350 online courses in IT and enable students to attend the courses virtually. This initiative will give impetus to implementation of national programs like Digital India, Make in India, Smart Cities as skilled workforce is at the core of the programs’ success, overall accelerating India’s economic development.”

According to Akshay Dhoot, Head, Technology and Innovation, Videocon, the Central Government has presented a growth-conducive budget. The overall announcements look like a cohesive push for holistic economic growth. The Modified Special Incentive Package Scheme (MSIPS) and Electronic Development Fund (EDF) would definitely give a push to domestic mobile handset manufacturing. “India is one of the fastest growing mobile markets in the world and it would further get boost from newly formed trade infra export scheme,” he says.

“The proposal on making India a global electronic manufacturing hub will boost manufacturing the electronic manufacturing market in the country. This in turn will focus on electronics manufacturing and plans to set up electronics clusters across various towns and cities. The huge investment in manufacturing will bring in more capacity creation within the country, though some amount of deterrence for blindly importing the products will happen simultaneously. Allocation and incentives of schemes like M-SIPS and EDF to Rs 745 crore will reflect a strong commitment to promote local value additions in electronics manufacture. The overall tax reliefs given to start ups and MSME’s will boost sustainable employment and the quality of startups in the design-led manufacturing sector,” adds Krishna Moorthy, Chairman, IESA.

Read more reactions from Industry