Unmake in India

| Updated on October 09, 2014 Published on October 09, 2014

The Centre cannot absolve itself of the responsibility for the shutdown of the Nokia handset plant

Nokia’s decision to suspend manufacturing at its mobile handsets plant near Chennai is not the best advertisement for the Narendra Modi-led Government’s ambitious ‘Make in India’ plans. What makes the closure of the factory — the country’s only significant handset making facility that produced over 800 million units over the last seven years — particularly unfortunate is that it has been principally the outcome of a protracted tax dispute. The Income Tax department has alleged that Nokia had failed to deduct tax on the royalty payments made to its Finnish parent for proprietary software used in the handsets manufactured at the plant. The initial tax demand of ₹2,100 crore has, over time, mounted more than ten-fold, inclusive of interest, penalties and various ‘anticipated’ liabilities. The department had further obtained a court order to freeze the assets of the plant. This meant that even as Nokia announced a divestment of its mobile devices business globally, there was no way the ownership of the Chennai factory could have been transferred to any entity interested in taking over operations.

The Centre has washed its hands of the matter by saying that it will ensure “such incidents do not occur again”. Yes, it was the UPA government that had issued the tax demand and imposed the asset freeze. But what stopped the current one from directing IT authorities to lift the freeze and enable Nokia to transfer the factory to Microsoft (which has taken over the former’s entire handset business) or any other prospective manufacturer? Significantly, Nokia had offered to put the entire proceeds from the sale of the plant (in which it has invested over $300 million) into a separate escrow account, pending resolution of the tax dispute. At the very least, the IT department could have been asked to show some flexibility in the recovery of dues from Nokia.

The shutting down of the plant will impact not just its 1,000-odd workers (they numbered around 8,000 not too long ago) but also undermine the new government’s efforts at achieving “zero net import” of electronic goods by 2020. Only on Monday, IT Minister Ravi Shankar Prasad laid the foundation stone for two electronic manufacturing clusters in Madhya Pradesh. India now imports electronic goods worth over $30 billion annually — a figure that would be much higher if one adds chips, components or sub-assemblies going into ostensibly domestically manufactured hardware. The Nokia unit was seen as a flagbearer of sorts for local manufacturing. Though it was essentially making low-cost feature handsets, the facility could have been scaled up to produce smartphones. But that dream has soured — for reasons that have nothing to do with the viability of manufacturing.

Published on October 09, 2014
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