Source: The Economic Times, Dec 13, 2016
NEW DELHI: The IT and electronics ministry will take a reworked flagship incentive scheme for electronics manufacturing to the Cabinet for approval in the next few days, with an aim to boost local production, a top official said.
“We are reworking on MSIPS (Modified Special Incentive Package Scheme) that has to go to the Cabinet in next few days with an objective to fast-forward investments and incentives, simplify disbursement and also to rationalize categories,” IT Secretary Aruna Sundararajan said at an industry event Monday.
M-SIPS (Modified Special Incentive Package Scheme) was launched in July 2012 for a three-year period and was revised to include white goods manufacturers and was extended till 2020. The revised policy likely to come within a week, is aimed to accelerate investments in the country and simplify the disbursement process for the companies setting up units under the scheme.
ET had first reported that the government was reworking the M-SIPS package in its December 7 edition.
Sundarajan said that ease of doing business and stable fiscal regime which the Goods & Services Tax (GST) would bring, would make India an overall attractive place for manufacturing. Meanwhile, a study by advisory firm Ernst & Young (EY) released Monday suggested that the mobile handset sector should be incentivized for local value-addition under the GST regime which can further propel Centre’s ambitious Make in India initiative.
The study by US-based consultancy EY, together with Broadband India Forum (BIF), suggested that benefits provided to handset makers under the current dispensation should be extended to component manufacturing, in order to bring additional investment into the country. In fact, incentives can be given according to the local value addition done by a company, as per a proposed formula.
“Government has to do policy changes to create the necessary infrastructure, skills and R&D to bring whole manufacturing landscape into the country by providing incentives to set off local disabilities in the country,” E&Y Partner Bipin Sapra said.
India’s smartphone adoption is growing at a CAGR of 23%, and is expected to reach 688 million units by 2020 from nearly 388 million presently. Companies that locally assemble mobile phones get a 11.5% duty benefit compared to those who import fully built phones, thus making phones within India a cheaper and more attractive proposition.
A recent IIM-Counterpoint finding puts local value addition at 6% and estimated that it could go up to 32% by 2020 after bringing most of the manufacturing processes locally.
While the government has said at multiple forums that it would want the current incentives to continue, the structure in which they will continue under the ambit of GST, is as yet unclear.
Handset industry’s growth faces uncertainty as the GST regime would do away with the current duty differential that mobile handsets makers avail. E&Y has proposed that under GST, incentives can be multiplied by a factor such that the total incentive is equivalent to the one currently available.
“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 with similar value addition, and higher incentives that can be granted when the local value addition in India is more,” the firm proposed.