Even as the Centre is pushing hard its ‘Make in India’ agenda, it has been reduced to a charade in cell phone manufacturing. With mobile phone-makers exploiting the loopholes in the tax structure, the so-called local manufacture of mobiles has turned into a screw-tightening job with as much as 99 per cent of manufacturing still being done overseas.

This is a fallout of the Centre’s decision to impose a 12 per cent import duty on finished handsets and a local excise duty of 1 per cent in the 2015 Budget. At the same time, it set the duty on components at zero. This was done with the expectation that phone brands would find it cost-effective to make handsets in India.

However, mobile manufacturers have taken advantage of this to import phones as semi-knocked down (SKD) kits with most components already soldered to the main circuit-board of the handset. These kits are brought in as components at zero duty and then simply assembled into devices with value addition of just 1-2 per cent.

On the other hand, if the phone companies were to import completely knocked down (CKD) kits, it would push up the local value addition to 7-10 per cent as the assembling requires more labour and a proper assembly line. But due to zero duty on SKDs, most brands prefer to do just a screwdriver job.

“We have observed that almost no actual manufacturing of mobile phones is really happening in the country as the current tax structures give incentives to semi-knocked-down kits. We are, therefore, talking to the government to come out with a policy encouraging CKDs that will kick-start the overall mobile phone manufacturing industry in India,” said Anwar Shirpurwala, Executive Director at Manufacturers Association for Information Technology.

Pitching for duty

MAIT and European Business Group have separately made formal representations, requesting the government to impose a 12 per cent duty on the import of SKD kits

“This will encourage local companies to transition to CKD imports, enforcing greater local value addition and, thus, laying the foundation for true ‘Make in India’,” said TV Ramachandran, President of the European Business Group and former head of Cellular Operators’ Association of India.

A few manufacturers with high-value manufacturing in India support the move. “Samsung India undertakes production of mobile phones through CKD, and not SKD. This helps in achieving better quality-control for consumers, employment for local community through environment-friendly operations,” a Samsung Electronics Southwest Asia spokesperson said.

In 2014, 260 million mobile handsets, valued at close to $18 billion, were sold in India. Keeping distribution margins, taxes and duties aside, the annual import bill amounts to $12 billion of this.