Make In India
MAKING INDIA A MANUFACTURING SUPERPOWER
In a turbulent global economy, India is a rare ‘bright spot’ but if it has to continue its ascending growth trajectory, the country has to increase its manufacturing output. Initiatives like Make in India, Digital India, Skill India have helped to steer towards that target.
Backed by bubbling intellectual and technological capabilities; an emerging middle class bolstered by young population; increase in FDI across sectors; India is on the right path to fulfil its potential. But this positivity shouldn’t mask underlying issues ranging from infrastructure saddled by difficulty in land acquisition, convoluted tax regime and majority of the workforce in the unorganized sector.
Let’s take an example: currently, there are only 2 million jobs created for every 12 million youth who come into the urban job market. But with more global manufacturing giants setting up their base in India, not only will there be more jobs created, but manufacturers would also be able to manufacture products from within the country for global consumption. If the basic edicts of the Make in India initiative can bring about the reforms in all of these areas, then that is more than half the battle won.
To understand how transformative manufacturing can be, Indians can look across the border to China. Starting from similar position in the 1980’s, Deng Xiaoping’s Southern Tour laid the foundations for a huge turnaround, as China’s manufacturing sector contributes approximately 50%, with manufacturing capabilities, for years, growing at 10%. Today, China is considered the global workshop of the world, as it contributes to 22.4% of the global manufacturing.
But herein lies an opportunity as financial mismanagement leading to rampant shadow banking creating credit bubbles, an ageing population and a tilt towards domestic consumption have slowed the Chinese economy.
In recognition of this progressive shift, several industry stakeholders along with CEAMA are now showing their wholehearted support of the “Make in India” initiative. In 2015, CEAMA hosted the first Annual Summit ACE Dialogues to show their solidarity and support to making India a manufacturing power. Currently, the Consumer Electronics industry is facing a growth of approximately 10%. While the Government has done its bit towards demand generation, CEAMA requests that they come up with a Phased Manufacturing Plan (PMP) to create an eco-system of indigenous MSME sector, starting from manufacturing small components to the finished products.
In 2015, with Ernest and Young, we released a white paper that addresses the bottlenecks and structural issues that the appliances and consumer electronics manufacturing sector has been facing. Furthermore, this report delved into the structural challenges faced by India’s consumer electronics and appliances industry and deliberated challenges, opportunities and possible solutions.
Moreover, the Union Budget 2016 laid emphasis on transforming India, with several legislations and taxation structures undergoing a massive upheaval, including tax reform via GST. Taming inflation – target for FY 2016-17 is 3.5% and for FY 2017-2018 is 3% - and reducing current account deficit – down to just 0.1% in Q4 of 2015-2016, were major indicators of robustness of the economy.
Heralding the onset of a new era of mutual cooperation, a golden opportunity is knocking on our door and it is up to us to capitalise on it and strive towards making India a superpower. As our honourable PM says, let us first look for FDI – First Develop India.
Aligning e-Waste Challenges with PM’s Vision of Swachh Bharat
With ‘Make in India’ and ‘Digital India’ the objective is to turn India into an economic and manufacturing super power. However, as manufacturing grows in India, consumption patterns would change and product lifecycles, which are short already, are likely to get even shorter. This would mean more people would discard or replace their durable products, faster.
This begs the question – what happens to the products that are getting replaced? What is the system to handle and dispose them? And what role, if any, can the Swachh Bharat play?
Thanks to our increasing reliance on technology, the past couple of years have seen a significant increase in the amount of e-waste, with 10 Indian states contributing to over 70% of the total e-waste generated and 6 states contributing to over 65% of the e-waste generated. Urban India is generating nearly 1500 metric kilo tonnes of e-waste every year.
So, what is e-waste? Simply defined, it is the digital, electrical and electronic equipment that is no longer in use. Technically, it is addressed as WEEE – waste from electric and electronic equipment.
The majority of Indian population has no inkling about how to handle their e-waste and continue to either sell it to the scrap dealer or throw it with the regular household garbage. And this garbage is hazardous! TVs have high levels of lead, which is extremely hard to dispose; circuit boards, semiconductors, and copper wiring are hard to dispose and they also contain poisonous substances such as arsenic, beryllium, cadmium; PVC’s are known to have carcinogens. The list goes on.
The safest way to treat e-waste is to recycle them. Approximately 1.5% of the e-waste in India is recycled by formal recyclers, while a 9.5% is done by informal agencies. These informal agencies at work have their own recycling units. But lack of proper training, use of child labour and redundant equipment and processes are, in themselves, a huge threat to the people and the environment. In fact, 76% of the workers in these e-waste plants are said to be suffering from respiratory ailments.
On the positive side, there are some recycling companies that have tried to bring about a more formal system of e-waste collection and sorting pan India. Manufacturers themselves are keen to support the government initiatives. Some of the challenges:
- Building awareness among consumers, dealers, members of supply chain and manufacturers, on the law created for safe and responsible disposal of end-of-life products.
- For customers, an Advance Recycling Fee (“ARF”, or Advance Disposal Fee, “ADF”) as a part of the purchase price.
- Rapidly increasing e-waste volumes via imports disguised as donations towards bridging the digital divide or as metal scrap need to be controlled.
In a recently held seminar, the president of Consumer Electronics and Appliances Manufacturers Association (CEAMA) said that what India needs in order to put the scope of e-waste management in the right direction is to create a balanced ecosystem between the manufacturers, e-recyclers, consumers and the government and to create a more formal structure of an ‘e-waste supply chain’ with all the stakeholders.
In the wake of the success the Clean India Mission has witnessed, there is a demand for including e-waste disposal as an integral part of the Clean India Campaign. CURE India has launched a campaign to get a signed petition to reach the PMOs office. Perhaps the success of Swachh Bharat depends a lot on the awareness that has risen amongst the common man and that same awareness needs to spread about the mounting threat that e-waste is posing as well.
What better way to begin it than to bring it under the aegis of the Swachh Bharat Abhiyan?
Delivering world class products of the highest standards
Before the Indian Standards Institution (ISI) came into the picture, the lack of standardization in local goods affected the Indian consumer. Developed countries dumped goods of uncertain quality and specifications and went scot-free owing to a lack of accountability.
To arrest this issue, the ISI, followed by the Bureau of Indian Standards (BIS), forced manufacturers to be more accountable. In October 2012, the Department of Electronics and Information Technology (DeitY) stipulated the manufacturer be accountable for the products that they brought into the market. The Compulsory Registration Order (CRO) came to the fore, emphasising:
- Stopping other countries from dumping non-compliant products into the Indian market.
- Ensuring that the Indian consumer had only high quality and world class products.
- Developing domestic products to international standards to enable competing in the global arena.
Manufacturers had to self-declare all products to prerequisite standards. The process of testing (only from BIS recognised labs), validation and registering of each product came into place. BIS revised its guidelines and mandated that every product had to have the amendment of IS13252:2010 (Information Technology Equipment Safety: General Requirement).
Manufacturers registering their products for the first time can get their product validated as per the new amendment. Failing to do so would result in the cancellation of the product registration. Products with different models and colours will also have to be registered. Since the industry is still reeling under the implications of the BIS Registration requirement, both DeitY and BIS are continuously working with the stakeholders to refine the policies.
Growing competition and evolving technology is pushing manufacturers to regularly ‘innovate’. However, the process of registration and self-declaration is proving costly. Moreover, stretched timelines increases costs and disrupts market strategy. Re-compliance and marketing the same product under different brand names further burdens timelines and costs.
The industry, as a whole, is appealing for a few amendments in the new mandate:
- Create a factory ownership system where manufacturers can register multiple products and brands from multiple factories under a unique registration number.
- Register only new products and not models of already registered products.
- Conduct surveillance on sampling basis rather than monitoring every single product, as this adds to the cost of compliance.
- Be cognizant of the costs, timeframes, and product lifecycles.
- Increase infrastructural capacity of the existing NABL accredited BIS identified labs to speed the registration process.
- Eliminate third-party agencies to certify the labelling and work with the factory declaration instead.
- Simplify the renewal process by elimination parameters like production quantity and value, of goods produced at the time of renewal.
- Provision of an LOI in cases where there has been a delay of process in approving inclusion.
- Bring out a smaller logo that international manufacturers have to adopt before they can export to Indian market.
The industry and the government want to bring the best products to the Indian consumers. However for this to materialize there needs to be a working in tandem.
GST and its Potential to Lead Economic Integration of India
Goods and Services Tax (GST) is being heralded as he biggest indirect tax reform in recent times, bringing together the entire Indian market through a common playing field across businesses and diluting the erstwhile labyrinthine tax code. Prior to GST, a number of indirect taxes (viz. central excise, service tax, VAT, Entry Tax, Octroi, etc.), coupled with an inability to cross-utilize tax credits accrued on state taxes against payment of central taxes and vice versa, added to the cost of goods and services.
Even among states, there was no uniformity of tax, with each state having different rates for the same product, different policies for availment of credit, and varied procedural norms, leading to market fragmentation. Both inter-state and intra-state transactions would now be governed by the same authorities under the same framework. GST should achieve uniformity in tax rates across the states and should remove location bias in investment decisions.
A marked difference of the GST regime from the present tax regime is that the GST regime would be a destination tax based regime as against the origin based taxes that are presently in vogue. Hence, taxes will be paid in the state where consumption of goods takes place as against presently being paid in the state from where they are sold.
In states with more population and more spending power, consumption will follow suit and tax collection in these states should go up and result in larger state government spends for development in these states. However, the Government must keep in mind states where the people do not yet have such spending power, these states are supported by special focus on creating economic activity through incentivizing manufacturing, infrastructure and so on, thereby encouraging economic progress overall.
While GST promises to address some of the inherent issues in the present indirect tax regime, achieving full economic integration to create a single homogenous market is easier said than done. Under GST, states will enjoy some powers that will enable them create a differentiator in respect of the rates applicable on goods and services, since states are free to fix the SGST (State GST) component of the tax within a narrow specified band. However, achieving its introduction in India would provide a fresh impetus to the Indian economy and it would certainly be a momentous achievement for the present Central Government.
CEAMA has welcomed enforcement of several initiatives but a few factors continue arrest domestic manufacturing:
- Reduction of customs duty on components of air conditioners and refrigerators to enable domestic manufacturers to compete with products that are imported under specific Free Trade Agreements (“FTAs”).
- Lack of incentives in the form of lower duty on production of energy efficient products, based on the star rating of the products.
- No duty benefits on goods required for substitution of ozone depleting substances.
- Cost of inputs, raw materials, etc., that is required for manufacturing getting dearer due to the oddities in tax structure, which has been more supportive of importing finished goods rather than raw materials.
Currently, the consumer electronics industry is facing a growth of approximately 10%. CEAMA requests that to boost indigenous manufacturing, the government must come up with a Phased Manufacturing Plan (PMP). This would create an eco-system of indigenous MSME sector, starting from the manufacture of small components to the finished product. The reduction of the corporate tax for M-SMEs to 29% is bound to encourage better inflow of technology and give indigenous manufacturing the impetus it needs
Indian manufacturing needs to evolve to a point where we can take charge of the entire value chain from start to finish and the Electronics System Design and Manufacturing (ESDM) stage needs to rest in the hands of the indigenous manufacturers. The Budget 2016 was a good start.
BUREAU OF ENERGY EFFICIENCY - Get more with less, Smart Saving with Smart Appliances
Two families have the same number of members, have similar lifestyles, own similar assets and yet one paid 20% more on electricity bills. Consumption problem? Turns out it’s actually simpler: old appliances vs. star labelled appliances, the latter 20% more energy efficient. All the key household appliances, namely, refrigerators, washing machines, TVs, etc., contribute at large to the electricity bill. If any of these products is over a decade old, then the energy being consumed is much more than the current norms. Further, the higher the energy consumed, the greater consequent impact on the environment.
Now multiply this by lakhs of families. The impact is gigantic.
For example, in case of refrigerators, the current models consume almost 75% less energy as compared to models that are over a decade old, of similar size. Similarly, the energy efficiency of washing machines has practically doubled over the last two decades, thanks to the R&D efforts of the manufacturers to upgrade their technology and components.
Purchase decisions are largely driven by the cost of owning the appliance (amount paid at purchase), overlooking the cost of using the appliance (amount for running the appliance). In order to make this information easily available, the Government of India (Bureau of Energy Efficiency, Ministry of Power) introduced the Standards and Labelling Program in May 2006. The key objective, is to help the consumer make an informed choice about the energy saving and thereby the cost saving in terms of energy.
Under this program the manufacturers are required to place a label showing how much electricity the appliance will consume under certain conditions. The Star labels indicate the product's energy performance. The energy parameters indicate quantitatively how much energy is consumed or the energy efficiency rating of that product and/or other related requirements. More stars means more efficient appliance. The labelling program gets updated every year due to constant technology Upgrades.
Challenges in the form of undertaking check testing and managing manufacturers and products that failed the tests. Penalty provisions without adversely impacting the brand’s image as well as protecting the consumer interest needs to be developed. All consumer electronics now require mandatory certification from the BIS before they can be sold in India. This process is often time consuming and expensive, leading to delays in product launch.
The need of the hour is to further cement the good work that is being carried out by further smoothening and streamlining processes, creating greater awareness amongst the Indian consumers for energy efficiency and encouraging and rewarding companies that are adopting latest and emerging standards for compliance.
Mobile & Communication
CEAMA Form Mobile and Communications council to support the growth of telecom industry and Make in India initiative>
Consumer Electronics and Appliances Manufacturers Association (CEAMA), the apex Chamber for the Consumer Electronics and Home Appliances Industry in India, today announced its extension by forming a Mobiles and Communications council to advocate on the mobility industry. CEAMA is an all India body of manufacturers of Televisions, Entertainment Electronic Products & Home Appliances and acts as a catalyst in the promotion of Industry, trade, technology and entrepreneurship.
The Mobiles and Communications council will strive to provide a forum for discussion and exchange of ideas between the member telecom equipment and mobile manufacturers. The council in collaboration with other industry associations will present an industry consensus view to the Government on crucial issues pertaining to the growth and development of the Indian mobility industry from its existing scenario.
The introduction of this new committee shall support the Government’s initiative to promote manufacturing in India. The Smartphones segment is growing at a phenomenal rate in the country and there is a huge scope of bringing out synergies between Consumers Durables with handset Industries in the near future.
The CEAMA – Mobile and Communications Council will dedicate itself to assist member firms in raising the issues, enabling formulation of suitable policies to incentivize growth of the industry. Therefore, as an industry body CEAMA believes that the manufacturers should prepare for the above change and able to set up manufacturing facilities, to manufacture the mobile parts & accessories to support and promote Make in India initiative.
Government impetus on ‘Make in India’ by providing tax and duty benefits will strengthen the manufacturing capabilities of India. >
After the announcement made by Hon’ble Finance Minister in his budget speech levying BCD, CVD and SAD on the few key components as enumerated above large number of manufacturers supporting Make in India program are finding the proposal to be extremely dis-advantageous for the industry due to following reasons:-
The scheme was launched by the Hon’ble Minister of Power in May,2006 and is currently invoked for equipments/appliances Room Air Conditioner, Ceiling Fan, Colour Television, Computer, Direct Cool Refrigerator, Distribution Transformer, Domestic Gas Stove, Frost Free Refrigerator, General Purpose Industrial Motor, Monoset Pump, Openwell Submersible Pump Set, Stationary Type Water Heater, Submersible Pump Set, Tfl, Ballast, Solid State Inverter, Office Automation Products, Diesel Engine Driven Monosetpumps For Agricultural Purposes, Diesel Generator Set, Led Lamps, Inverter Ac
This duty will have an adverse impact on the end customer pricing of the mobile phones. This duty increase coupled with Indian currency depreciation will make the phones costly for end customer. Therefore, this will act as a dis-incentive to both industry and consumers.
The local component ecosystem is still not fully in place, resulting into dependence on international ecosystem for components, therefore the Industry should be given an opportunity to build the ecosystem and encourage the initiatives being taken in this area. While we and industry in general are working hard to ensure that majority of components are domestically made, we need some time and further encouragement to make this happen domestically.
While the intent of govt. is clear to promote manufacturing in India, we would like to bring to your kind attention to the fact that the govt. in the budget of 2016 -17 has created custom duty anomaly: while on one hand domestic mobile manufacturer have to pay about 29% as custom duty on the inputs like Battery Charger/Adaptor/Speaker and Wired head set, on the other hand importers of mobile CBU have to pay only 12.5% on the same inputs.
The above items constitute to about 10% to 30% of the cost of mobile manufacturing depending upon the nature of the mobile hand set. This impact is being felt by all major players who are manufacturer of mobile phones and such anomalies will hit the ambitious dream of making India a manufacturing hub for mobiles.
The current available duty exemption may kindly be made available for more than 1 year so that the industry and ecosystem partners can be prepared and can ensure that as much as possible the components are manufactured locally in the country.