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Budget 2017-18: What it means for electronics manufacturing

The finance minister announced that the Foreign Investments Promotion  Board (FIPB) would be abolished in 2017-18 and that the government will be announcing a new roadmap for foreign direct investments (FDI) for further reforms.

The FIPB is fast-track unit set up by the government of India to look into FDI proposals. Recently the government relaxed FDI rule of mandatory 30% local sourcing for brands looking to open single retail stores in India. But this relaxation is only being offered to products that are “state-of-art and cutting edge’ technology. Over the years, several mobile/smartphone manufacturers like Lenovo, Xiaomi, LeEco and Apple have applied for a single brand license. However, these proposals are pending including Apple’s, which is vying the Indian smartphone market as its next big investment.

Abolishing FIPB does not necessarily mean that these companies will move an inch closer to opening their own stores. Jaitley did not elaborate on FDI regulations that would replace functions taken up by FIPB. But removing FIPB from the scenario could mean two things:

i)Local sourcing norms for single-brand retail could be tweaked, removed or at least reduced.
ii)Smartphone brands like Apple, Xiaomi looking to open single-brand stores could have special considerations and rebates within the current FDI and local sourcing norms.


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The budget also proposed a Rs 745 crore incentive for electronic manufacturing in the country through Modified Special Incentive Package Scheme (M-SIPS) and Electronic Development Fund (EDF). 

Government incentives for electronics manufacturing will provide an additional stimulant to smartphone manufacturers, especially foreign makers like Apple and Xiaomi who are subject to mandatory local production. This will further lower down prices of 4G smartphones and encourage telcos to bid for more 4G spectrum in the future.

However, the prices of all electronics might go up with the proposal to impose a 2% special additional duty on populated printed circuit boards (PCB) most of which are imported currently. This could additionally bring up prices of smartphones, RAM units, PCs, or pretty much any device that uses a PCB.

Currently, both domestic and foreign smartphone makers have manufacturing plants in India with 4G smartphone shipments in India growing significantly. During Q3 2016, IDC reported that 4G smartphone shipments were up 24% QoQ, while the Indian market is also a significant contributor to 4G shipments in the Asia Pacific region. There has also been an uptake in 4G services in the country with operators like Jio, Airtel, Idea, and Vodafone making huge investments for network expansion. But there also has to be enough 4G device penetration for the telecom industry to evolve. A price hike in smartphones is impending due to the 2% special duty on PCBs as most domestic smartphone manufacturers import PCB boards for production.

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