China, Taiwan and Vietnam are among the top markets from which products and components of electronic goods have been imported into India. But the coronavirus outbreak and the subsequent lockdown led to delays in product arrivals on the one hand, while customs duties on imports were being slowly raised on the other.
This has led to global manufacturers such as Samsung, Hitachi, BSH Home Appliances and Xiaomi publicly stating that they will ‘Make in India’. In fact, global e-commerce giant Amazon has also announced plans to make devices (such as the Fire TV Stick) in India.
But why are global players suddenly shifting to Make in India? Industry sources said that the reasons are a mix of production incentives being offered in India, high customs duty, and anti-China sentiments after the Galwan Valley clash.
“Rather than importing and incurring high duties, it is a viable option to make in India, even if companies have to make Rs 200 crore-300 crore investments. Importing from China and passing on the high costs to customers has been impacting sales,” said the vice president of consumer appliances at a global white goods firm.
The consumer durables market in India is estimated to be worth Rs 65,000 crore. Of this, products made 100 percent in India constitute less than 10 percent. This is because even if an appliance is manufactured in India, its components are imported from other markets.
What is the India manufacturing plan of appliance makers?
Appliance brand Hitachi said that it would promote ‘Made in India’ air conditioners and aims to reduce its component imports by almost half and increase exports three-fold in the next three years.
Air-conditioners are a segment where components such as air compressors are imported. There has been a rise in the customs duty imposed on these products, in a bid to boost local manufacturing.
Union Budget 2021 announced a hike in customs duty on compressors from 12.5 percent to 15 percent. This means that the prices of refrigerators and ACs will go up by 2.5 percent from April 1.
Many other global companies joined the ‘Make in India’ bandwagon in 2020 and are doing so in 2021. Electronics brand Xiaomi, which sells smartphones, televisions and air purifiers, also stated recently that it would be focussing on manufacturing locally.
Xiaomi India said in a statement that it has onboarded a new manufacturing partner (Radiant Technology) to manufacture smart televisions in India. With this new plant going live, all smart TVs sold by Mi India are being made locally.
“These initiatives underline Mi’s long-term commitment towards India and the government’s Make in India vision. We hope to play a small role in building India as a global manufacturing hub,” said Manu Jain, Xiaomi’s India head, in a statement.
Incentives in the form of affordable labour and land parcels are also pulling global players to India.
Germany-headquartered consumer appliances company BSH Home Appliances is slowly moving away from Chinese imports. Neeraj Bahl, MD & CEO of BSH Home Appliances, told Moneycontrol earlier that instead of importing from China, the company is shifting production of top-loading fully automated washing machines to India. The company is also looking to shift dishwasher manufacturing to India, followed by blenders and refrigerators with bottom-mount freezers.
Why the shift to local manufacturing?
Costs are saved when products are manufactured locally. These electronics companies save on customs duties while customers benefit from lower prices.
Take televisions, for example; TV panels are still imported from China due to a dearth of local manufacturing facilities. This leads to extreme volatility in the prices of panels, and ultimately, of the televisions.
In 2020, the TV segment was the worst hit with close to a 35 percent price increase. The Covid-19 lockdown led to component shortages in India.
As production started resuming slowly, a July 30 notification by the Directorate General of Foreign Trade (DGFT) placed import of colour televisions of all sizes in the restricted category.
Subsequent price hikes were due to TV panel prices rising by 35-40 percent during Diwali 2020 and also the re-imposition of the 5 percent customs duty on open cells (used in TV panels) from October 1 onwards.
Making these components in India would mean that manufacturers and customers would face less disruption in product availability and costs.
“The government is clear that even if there aren’t local manufacturing capacities available, white goods firms have to set up plants here. If we don’t, customs duty will continue to hit us and end customers,” said the chief financial officer of an appliance firm.
Will the PLI scheme help?
The Union Cabinet approved the PLI scheme for 10 sectors (including white goods) in November 2020. This scheme is intended to make Indian manufacturers globally competitive and attract investments into core competencies and cutting-edge technology. PLI also intends to make India an integral part of the global supply chain.
The total allocation under PLI would be Rs 1.46 lakh crore over five years, according to the government statement. Of this, Rs 6,238 crore has been set aside for white goods, including products such as air-conditioners and LED lights.
Additionally, Rs 5,000 crore has been allocated for technology and electronic products, including mobile phones, smartphone accessories, computers and laptops.
Industry insiders said that further clarity is being awaited on what tax incentives will be applicable and for which regions. Further, special economic zones could also be earmarked for this purpose.