The current directive by the Ministry of Commerce to reduce the MEIS from 4–2 percent is not in sync with the goals set in the National Policy for Electronics (NPE), 2019, to export 100 million handsets worth USD 110 billion every year by 2025.
To support electronics exports, 4 percent special incentive was being offered under Merchandise Exports from India Scheme (MEIS) to the electronics sector. The mobile handset manufacturing industry has been interacting with the government on this issue and was awaiting an increase in the export incentive to 8 percent to make India globally competitive and become a manufacturing hub.
DGFT, Ministry of Commerce, recently notified that MEIS is to be reduced to 2 percent from the existing 4 percent on mobile devices and components. MEIS is the biggest enabler toward taking away the cost disability and has a direct positive impact of 4 percent on India’s disability stack. Reducing the export incentive puts Indian mobile handset exports at a major disadvantage in one stroke and will definitely reduce the existing handset exports to negligible.
As per IAMAI research, India today stands at a cost disability of 8–10 percent compared to Vietnam and 18–20 percent against China in electronics manufacturing. The disabilities arise out of multiple factors like higher cost of money, cost of land, corporate tax structure, and lack of value-chain infrastructure, to name a few.
One of the steps toward enabling manufacturing in India was announced by reducing the corporate tax to 25 percent in July, 2019. The step was considered the first toward addressing the disabilities industry suffers. The tax reduction had a direct impact of 1 percent on addressing the cost disability; however, the government needs to follow with further steps to make India globally competitive in manufacturing.
The direct and indirect impact of this export incentive reduction is starkly clear. The existing investor sentiment will be shaken looking at the unpredictability of the policies; new jobs which the export-oriented manufacturing activity might have generated will be lost and it would definitely discourage any new investments from coming to India. According to IAMAI, this decision is not in sync with the current geo-political requirements. The need of the hour is to bring in long-term (5 to 7-year time frame) confirmed policies, which work toward taking away the disabilities. The policies must move away from import substitution to export orientation, and India has to invest in infrastructure to establish itself capably in the global value chain. The government cannot look at piecemeal measures, disconnected from the global realities that are present and must realize that the window of opportunity is not going to be open indefinitely.
Till the time India resolves its infrastructure issues, 8 percent incentive to export-oriented manufacturing is a necessity. IAMAI, in its request, has urged the government to review and introduce WTO-compliant incentive scheme of 8 percent for export-oriented mobile handsets and components manufacturing, which brings India at par with the global manufacturing hubs.