Manufacturing after COVID-19

Time for ‘Make in India’ to go stronger

The lockdown is a challenge, but it is also an opportunity to strengthen mobile phone manufacturing and making the country a global supply chain hub for electronics

Bhupesh Raseen, Chairman, TMA

 

Bhupesh Raseen

 

Coronavirus (COVID-19) spread is the biggest threat to the world and the global economy in nearly a century. The virus that originated in China has infected people globally, with several countries and major cities going under lockdown, imposing quarantine measures on the entire population. This has confined citizens to their homes except for essentials and effectively brought normal life to a halt in India as well.

While organizations have rolled out mandatory work-from-home policies to prevent the spread of COVID-19, malls, shopping centres, movie theatres and all public places are temporarily shut in an effort to prevent community transmission of the disease. These limitations are leading to a slowdown in business across all major industries (with the exception of healthcare services) and small business owners are struggling to deal with the situation.

Like most of the sectors, including manufacturing, the mobile phone industry has also been severely impacted by the pandemic and the lockdown that has followed it. With the consumption of such products and services going down, revenues of the companies will soon start to dry up, placing the jobs of millions of workers at a huge risk.

The mobile phone industry in India is also facing the heat and has a rough ride ahead due to the COVID-19 outbreak. India’s share in global smartphone production is set to fall to the levels seen four years back, as factories have halted manufacturing activities due to the lockdown and demand is likely to stay weak till at least July 2020.

It is important to understand that the mobile manufacturing in India was more of an assembly-line scenario rather than full-scale manufacturing, largely dependent on imports of displays, components and semi-knocked down (SKD) kits from China. Only around 10% of the components were indigenous. The business situation can become unfavourable for the mobile phone manufacturing, trading and service ecosystem in India if the current situation persists.

The import and transportation of various components for assembling mobile phones, tools and dies, machinery and robotic equipment are badly affected and there is no certainty for how long this situation might prevail. Electronic component supply chains that were heavily dependent on China and other South-East Asian nations have been severely impacted. The most important resource required for building technologically advanced products—qualified and trained manpower—are scared to even step out of their homes.

The COVID-19 outbreak has presented new and un-mapped roadblocks for the India mobile phone and ESDM industry, causing a disruptive impact on players both large and small. There is an urgent need to take firm steps to address the pain areas of industry, channel partners and service establishments. To support the industry the government needs to ensure ease of doing business, provide support to small business for maintaining cash flow and announce relief measures for corporate taxes to enable liquidity management.

Improve ease of doing business, resolve regulatory bottlenecks

Many mobile phone parts and electronic components are imported without payment of customs duty on submission of a bond to the appropriate Indian Customs authorities. Due to sudden announcement of lockdown and suspension of operations, submission of bonds by the importer to Customs may get delayed.

Considering the situation, the government should allow clearance of such consignments on the provisional basis to be regularised by submission of bonds, subsequently. Similarly, the bond limit available with the Customs authorities of one port should be allowed to be utilized for import of consignment at some other port as the importers are facing difficulties in submission of fresh bonds due to the lockdown.

While the EXIM 2015-20 Policy was extended there is a need for clarity on whether this would also mean that the provisions of the Merchandise Exports from India Scheme (MEIS) have been extended as well.

In spite of the MHA allowing operation of courier services, there would still be practical problems in sending copies of physical documents for export-import cargo clearance. Hence, it will be helpful if the CBIC allows submission of scanned and attested copies of documents, instead of originals during the lockdown period. The companies may be allowed to submit the original document later, within a specified time frame. Easing of operations at ports is also needed for faster turnaround and clearance of cargo.

It will also help if the due date for filing appeals for matters under litigation is extended by 60 days post lifting of lockdown. Delay in filing an appeal against an order beyond statutory timelines should be automatically condoned. Similarly, provision should be made for automatic renewal of pollution control approvals for one year.

It is important for government agencies and industry to work together and iron out the details of restoring the mobile and electronic component supply chains after the lockdown is lifted. The government should clarify the industries and sectors that are deemed essential goods. To encourage smooth logistics operations and return of labour in the post lockdown scenario, it should engage with the industry and trade unions and reach out to the workers, encouraging them to join back. Beyond the statutory lockdown period, wages should be paid to only those workers who re-join work, while others should be considered on leave.

Support SMBs to maintain cash flow

Most channel partners and retail businesses are stressed due to the sudden freezing of operations. Although the Reserve Bank of India has provided relief on loan EMIs for three months, an amendment needs to be brought to the necessary provisions to stop the clock on every possible payment to government and financial institutions as well. Medium and small enterprises will especially need at least three months to get back on the track after the lockdown is lifted.

Since 10% extra limit on cash credit is discretionary on banks, it would be best to reduce the margin on working capital loans from 25% to 10% for the current year (at least up to 30th September 2020).

Since banks are allowing the transfer of only Rs. 25,000, stockists and traders of mobile phones and electronic goods are unable to receive payments for the consignments they have sent to customers in other cities. The allowed limit on the transaction is insufficient for a buyer during this time of crisis and is causing trade channels to freeze up due to artificial credit squeeze. Hence, the government may support the SMBs by urgently releasing the GST refunds and personal income tax refunds to improve liquidity and encourage payment of wages and discretionary spending that will help revive overall economic activity.

Provide tax relief for better liquidity management

The government should provide relief to corporate taxpayers in view of the severe liquidity crunch being faced by them, as also incentivize contributions towards combating the COVID-19 pandemic. Industry requires short term, temporary relief from payment of taxes to address severe liquidity issues faced by businesses and deferment of all tax payments until 30 June 2020. It should expedite refunds and allow the deduction for contributions made or expenditure incurred towards combating COVID-19 in India.

Besides, the limitation on interest deduction should be relaxed for debts raised or guaranteed by non-resident (NR) associated enterprise (AE) between April 2020 to March 2021 period. By making it not applicable for the period, the government can help ease the liquidity pressure in this time of need and help taxpayers to use the amount released for business purposes.

As per Rule 85 of the CGST Rule, 2017, the amount payable on reverse charge basis under the GST Act shall be paid by debiting electronic cash ledger maintained. Thus, the entity making payment of GST liability cannot utilize input tax credit balance to pay the said liability. This provision is causing hardship to all taxpayers during such a difficult time when the world is facing a liquidity shortage due to economic recession and COVID-19 pandemic. A relaxation of six months may be provided to utilize input tax credit balance to pay the Reverse Charge Mechanism (RCM) liability through the necessary amendment in GST rules.

To directly support the mobile phone industry, the government needs to extend waiver or relaxation in interest payment; facilitate quick disposal of refund claims; relax restriction to claim ITC under Rule 36 (4) of the CGST Rules, 2017; relax rules to offset GST credit balance; and the provision mandating reversal of input tax credit on account of non-payment to the supplier within 180 days and extend the time-frame to one year.

It may also help if the time limit for filing of GST Annual Return in form GSTR-9 and reconciliation statement in form GSTR-9C is extended and the payment of GST liability is deferred. The government should also immediately issue Service Exports from India Scheme (SEIS) licences to exporters through Ministry of Commerce, and provide relief to e-commerce operators and extend the validity of the expired e-Way Bills for a minimum period of three months.

Further, the government may consider relaxation in levy of taxes on supply of essential goods to hospitals and government or private medical facilities, for example, exemption from levy of customs duty and IGST on import of goods such as ventilators, testing kits, masks, sanitizers, medicines and other equipment which are essential in prevention or treatment of COVID-19 disease.

While the Government is monitoring the prevailing situation closely and working to mitigate the pain experienced by the common citizen, the industry in India is also looking forward to some quick action and policy interventions that can help minimize the impact of the lockdown on the country’s economy and viability of industries and small businesses.

As the COVID-19 pandemic is brought under a reasonable degree of control, India needs to seize the opportunity to further Make in India initiative to attract global investments. Many companies that have been using China as a manufacturing base are likely to be happy to move to India after the Coronavirus fiasco, provided that the government does its homework well. These measures suggested above may well usher in a new ‘golden age’ for mobile manufacturing in the country and help establish India as an important hub for a robust, pandemic-proof global electronics supply chain.

The author Bhupesh Raseen is the Chairman, Mobile Advisory Committee of The Mobile Association

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