Demonetisation and uncertainty over the continuation of incentives for local production under goods and services tax are turning out to be a double whammy for smartphone makers, forcing them to slow down capacity expansion and pushing those considering fresh investment to the ringside.
The worry is primarily over the tax incentives that enticed them to build local capacities to make the maximum of the opportunities thrown up by the world’s fastest growing smartphone market.
Demonetisation was an unexpected and painful twist, but the companies expect the demand drought due to the current cash crunch to be temporary. Top Indian smartphone makers such as Lava, Intex and Micromax, which have moved a substantial portion of assembling capacities to India from China by investing hundreds of crores here, could be the worst hit if the duty differentials backing local production are discontinued under GST, said industry insiders.
“There is a stalling of investment in the mobile assembly space … players who were planning capacity expansion have stopped (proceeding with the plans), including us,” said Sunil Vachani, vice president of the Consumer Electronics and Appliances Manufacturers Association.
Economic Times, 26 December 2016
