Contract manufacturers of Apple like Vistron and Foxcon, Samsung, as well as local device makers like Lava, Macromax, among others, have urged the government to expedite the process of granting visas to Chinese engineers and technicians who are required in India to set up their new units for handset manufacturing which is crucial for them to meet their production targets under the production-linked incentive (PLI) scheme rolled out last year.
Though the device makers who have been selected under the PLI scheme are appreciative of the efforts of Indian embassy in Beijing in trying to fast-track such specific visa requests by Chinese engineers, they said the matter needs to be seen in a strategic manner by policy-makers as it is for the success of the PLI scheme.
Under the PLI scheme, new units need to be set up and while components and other machinery, etc, have finally landed after delays associated with the pandemic, they can now be put together only by Chinese engineers. This is because most of the units are shifting from China. Once set up by Chinese engineers, they can be operated by Indians who would be in a position to take over the entire gamut of commissioning and operations fully over the next two years.
Almost 70% of production by the contract manufacturers of Apple, for instance, takes place in China with the balance happening in Taiwan. The shifting of units is taking place from China and not Taiwan, industry sources said.
Stuck supplies of components, travel restrictions due to suspension of international flights have anyway delayed production by the new units because of which the industry has urged the government to roll over their first-year production targets to second and third year. This, the industry has sought for only those manufacturers who have met their investment targets for the first fiscal. The request is currently under the consideration of the government.
“The PLI applicants are working very furiously and with everything possible at their command to fulfill the targets. Many of them will be able to complete it but not before early FY2021-22; and a handful will even be able to complete by March 2021. However, they are skating on thin ice because there could be many slips in these extraordinary circumstances. Most companies have exhibited sincerity by ensuring that they have either already or will try and complete their investment targets by March 2021. Clearly, if investments are completed, there is no reason for the companies to hold back production. This itself is sufficient ground to appreciate that all PLI participants have approached the scheme in good faith and the shortfall in production targets for FY21 are purely a result of supply constraint,” Pankaj Mohindroo chairman of India Cellular Electronics Association (ICEA), wrote in a letter to Ajay Prakash Sawhney, secretary, ministry of electronics and information technology (MeitY), last month.
The ICEA has written that PLI applicants, who complete the investment target before March 31, 2021, would have established their seriousness and commitment and therefore must be rewarded.
Its proposal is that such applicants who have met investment targets and achieved base production should be given the PLI on incremental production, irrespective of whether they have met the incremental turnover target for FY21. This will mean a lower outflow from the budget allocated for PLI during the current year, and by adjusting the target. “We believe this is well within the powers of the empowered committee,” Mohindroo has written.
The PLI scheme has set different targets for overseas manufacturers like Apple and Samsung, and Indian players like Lava and Micromax. The incentives range between 4% and 6% annually. In the first year – FY21 – overseas players are required to make an investment of Rs 250 crore and manufacture goods worth Rs 4,000 crore more than the previous year. The phones made by overseas players should have an invoice value of over Rs 15,000. In the case of Indian players, the investment target is Rs 50 crore and they have to manufacture phones worth Rs 500 crore in the first year.
The formula suggested by ICEA is thus: For FY21, against Rs 4,000 crore, say the applicant has achieved only Rs 2,000 crore and there is a shortfall of Rs 2000 crore, as per this recommendation, then the company should be paid 6% on Rs 2,000 crore and the applicant can opt to add the balance Rs 2,000 crore in the incremental turnover criteria in either FY22 or FY23. This will ensure that the production targets over the five-year period are not reduced. Therefore, the spirit of PLI remains intact.