Reduction of handset export incentives to 2% will lead to job losses: ICEA

The mobile handset industry, which employs over 6.7 lakh persons, has expressed concern over reduction of export incentives to 2 per cent and said that it will lead to massive job losses.

Industry body India Cellular and Electronics Association (ICEA) said discussions have been going around between the industry and the government for the past three months to replace the Merchandise Exports from India Scheme with a WTO-compliant scheme but the Director General of Foreign Trade surprisingly notified downward revision of the export incentive.

"Sudden U-turn in policy will devastate exports and lead to massive job losses...This not only gives way to extreme policy uncertainty which is likely to scare investors -- both global value chains and Indian champions -- but in fact, will result in immediate collapse of exports of one of the few sectors that has responded positively to the MEIS scheme," ICEA Chairman Pankaj Mohindroo said in a letter to the concerned ministries.

The DGFT on December 7 reduced export incentive from 4 per cent to 2 per cent. The Manufacturers' Association for Information Technology (MAIT) has proposed incentive in the range of 8-10 and also expressed concern on the reduction of export incentives.

ICEA in the letter to Finance Minister Nirmala Sitharaman, Commerce and Industries Minister Piyush Goyal and Telecom Minister Ravi Shankar Prasad on December 9 said members of the body, including Apple, Vivo, Oppo, Foxconn and Lava, have approached it saying they will be forced to cancel their exports and "retrench large-scale employees" which have been hired in the past 6-8 month.

"It will also lead to an immediate halt in future hiring and capacity expansion. Nothing can be worse at this time where the economy and the job situation in India is already precarious and under severe distress," ICEA said.

ICEA also said the "sudden U-turn" in the policy will have far reaching implications on India's reputation as a destination for stability in policy and attractive in investments.

Mobile handset exports grew over eightfold to Rs 11,200 crore in 2018-19 and exceeded imports for the first time, industry body ICEA said in a note.

Handset exports during April-July 2019 reached around Rs 7,000 crore, thereby creating grounds to hit an annual figure of Rs 25,000 crore in the current financial year, according to the Indian Cellular and Electronics Association.

The industry body said the export incentives were partially addressing severe disabilities that India faces compared to Vietnam and China.

Mobile phone production in India is 9-12 per cent expensive compared to cost in Vietnam and 19-22 per cent when compared with China, ICEA said.

Mobile handset exports grew over eightfold to Rs 11,200 crore in 2018-19 and exceeded imports for the first time, industry body ICEA said in a note.

MAIT President Nitin Kunkolienker said this decision by the government is not aligned with the vision of an export-led electronics manufacturing out of India from the electronics sector perspective.

He said the reduction in export incentives will not only bring exports to a standstill of electronics from India but will also impact the existing investments as well as planned investments for the future period -- much of which was linked to export orders.

"This will also negatively impact the ongoing work towards creation of value chain of electronics manufacturing in the country and further risk the employment creation emanating from the electronics manufacturing," Kunkolienker said.