NPE targets, GST correction may push cellphone production by $15 bn: ICEA

Electronics manufacturing target of USD 400 billion set under the government policy is difficult to achieve within the set timeline but, correction in goods and services tax may push mobile phone production by up to USD 15 billion by 2025, industry body ICEA said Tuesday.

The National Electronics Policy 2019 had set a target to create a USD 400 billion electronics manufacturing ecosystem by 2025.

However, Minister of state for electronics and IT Rajeev Chandrasekhar had earlier this month said electronics manufacturing is expected to grow to USD 300 billion in the next 3-4 years.

India Cellular and Electronics Association (ICEA) chairman Pankaj Mohindroo said that the industry has lost two years to the COVID-19 pandemic, and compared to the USD 80 billion production target of mobile phones by 2025, only USD 50 billion is expected to be achieved.

"If we are able to hit USD 250 billion (domestic electronics manufacturing) by 2025-26 (from about USD 70 billion in 2021), it will be a very good performance," Mohindroo said.

The USD 400 billion target set under NPE 2019 included USD 190 billion from mobile handsets production, of which USD 110 billion were to be met from exports and USD 80 billion from the domestic market.

Mohindroo said correction in GST can further boost mobile phone production for the domestic market by USD 15 billion and help take domestic electronic production to USD 265-270 billion.

A report released by EY on the impact of GST on mobile phones said that imposing a 12 per cent GST rate on mobile handsets increased tax by almost 50 per cent in this sector from a prevailing national average rate of around 8.2 per cent in the pre-GST era.

"The industry was emerging from GST with a tax increase, and the Government once more increased the rate by another 50 per cent from 12 to 18 per cent.

This increase in the GST rate has a trickle-down effect leading to the rise in prices for the consumer, which in turn is decreasing the demand for mobile phones," the report said.

Mohindroo said during the lockdown, the digital device kept running the country by supporting education, health and work from home.

"The loss has been on smartphone sales, and feature phones are also getting very badly impacted by this (increase in GST). Look at the bottom of the pyramid, VAT in Bihar was 5 per cent.

On Rs 1,000, one was paying VAT of Rs 50, and now the same person has to pay Rs 180, and it's very glaring on the invoice. The biggest impact has been on the transition to smartphones," he said.

The industry has demanded that the government should subsume taxes on electricity and petroleum in GST and help companies get a refund of those taxes under GST.

"This is an unfinished agenda of GST where we could not subsume electricity and fuel in the GST. When you export, you are not able to get the refund of these elements, and they get embedded in the cost structure. The taxes on petrol and diesel are among the highest in the world," Mohindroo said.

He said there has been an attempt to address the tax issue through RoDTEP (Remission of Duties and Taxes on Exported Products), but it has not been completely addressed.