Government has mandated the use of over 20 percent indigenous components in mobile devices and 40 per cent in telecom equipment made in the country for companies seeking 3 per cent interest subsidy on exports.
The order also mandates that only those companies will be eligible for the interest subsidy who are involved in complete manufacturing of products in the country over those who only assemble their products.
The order issued by the Department of Telecom mandated "The CIF (Cost Insurance & Freight) value of the foreign inputs used directly or indirectly in the exported product should be less than 80 per cent of the FOB (Free on Board) value," for mobile devices.
Mobile industry body Indian Cellular Association, and electronic component makers body ELCINA, appreciated the move but demanded more benefits to boost exports.
"It is a positive step towards mitigation of disabilities but very comprehensive package for export is required if we want to compete at global scale. This is a very small step," ICA National president Pankaj Mohindroo said.
For telecom equipment, the order says, "The CIF (Cost Insurance & Freight) value of the foreign inputs used directly or indirectly in the exported product should be less than 60 per cent of the FOB (Free on Board) value." Electronic Industries Association of India (ELCINA) said that the new rules will ensure only those who are doing minimum acceptable value addition get the benefit of the Interest Equalisation Scheme.
"It is likely that manufacturers of telecom equipment will push for lower value addition criteria under this government order as 40 per cent and 20 per cent respectively would be high for them, but ELCINA feels that this value addition level should not be diluted and Telecom Manufacturer Exporters should achieve the same to qualify for this benefit," ELCINA Secretary General Rajoo Goel said.
The mandate has come following a recommendation by DoT to the Commerce Ministry to impose minimum value addition criteria for telecom products for eligibility under "Interest equalisation scheme on pre & post shipment Rupee export credit" announced in November 2015.
The Directorate General of Foreign Trade had informed the DoT that in February the Department of Commerce has accepted the telecom department suggestion to impose minimum value addition criteria for telecom products for eligibility under the scheme. However, eligibility for benefits under the scheme will be subject to notification by the DoT.
The DoT said that to avail benefit under the scheme of interest subsidy, "The entire product ,including all populated printed circuit boards (circuits), should be manufactured in India at completely knocked down level, i.e full Electronic Manufacturing Services (EMS) done in India." At present, almost every telecom equipment maker and mobile phone manufacturer imports circuits of their products with components pre-mounted on it and put them as one piece at their factory in the country to make final product.
The present practice leave scope for little value addition in products that are 'Made in India'.
"It is important that this additional benefit under Interest Equalisation Scheme is provided only to those manufacturers who achieve minimum local value addition and move up from SKD (semi-knocked down circuits imported with components fitted on it) to CKD manufacturing with use of some locally manufactured components," Goel said.
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