Broadband India Forum and Ernst & Young also released a research paper highlighting the need to offer incentives to domestic handset manufacturing under GST regime.
The adoption of smartphone in India will go up to 688 million by 2020 from 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 manufacture which was a single point tax and the basis for all incentives would also be subsumed.
“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,” said Bipin Sapra, partner at EY.
GST alone is not the driver for incentivizing manufacturing in India. Essential factors for a sustained manufacturing environment in India are infrastructure, a robust manufacturing ecosystem, skilled manpower, technology and R&D facilities etc.
The incentive 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 percent—10 percent) with similar value addition, and higher incentives that can be granted when the local value addition in India is more.
Government may extend similar benefits to the component manufacturers, which would encourage more investment in India and give a boost to the handset manufacturing. The prices of parts and components may become more competitive, which will reduce the cost of mobile handsets and make Indian handset manufacturers more competitive.
A study conducted jointly by IIM Bangalore and Counterpoint Researchers highlighted that the value addition in India is approximately 6 percent under the current state of manufacturing in India. This can be increased up to 32 percent by 2020 wherein the most of the manufacturing processes in India.
“We need to increase Smartphone penetration as India has today less than 30 percent smartphone penetration. This can happen through local manufacturing and by increase of local value addition,” said TV Ramachandran, president of BIF.
Image: From left – Anil Prakash of Broadband India Forum, TV Ramachandran, president – Broadband India Forum, Aruna Sundararajan, secretary , MEITY and Bipin Sapra, partner – Indirect Tax , Ernst & Young