Chinese smartphone maker Xiaomi, which had earlier sought an exemption from the mandatory 30% local sourcing norms to set up its own retail outlets in India, has now said it doesn’t need the waiver any more, department of industrial policy and promotion (DIPP) secretary Ramesh Abhishek said on Monday.
Xiaomi has written to the DIPP saying it doesn’t need the waiver as it is manufacturing here and will be able to meet the local sourcing norms. Last month, a panel, headed by Abhishek, had sought more material from Xiaomi to support its claim of using “cutting-edge technology”. According to foreign direct investment (FDI) norms, the government may relax the sourcing condition for entities undertaking single-brand retailing if they have “cutting-edge” technology and where local sourcing is not feasible.
The spotlight has been on Xiaomi after Apple’s application for such a waiver was turned down by the finance ministry earlier this month. Another Chinese mobile phone maker, LeEco, has also sought such a waiver.
According to the FDI rules on proposals involving FDI beyond 51% in single-brand retailing, “sourcing of 30% of the value of goods purchased will be done from India, preferably from MSMEs, village and cottage industries, artisans and craftsmen, in all sectors”.
“The quantum of domestic sourcing will be self-certified by the company, to be subsequently checked by statutory auditors, from the duly certified accounts which the company will be required to maintain. This procurement requirement would have to be met, in the first instance, as an average of five years’ total value of the goods purchased, beginning April 1 of the year during which the first tranche of FDI is received. Thereafter, it would have to be met on an annual basis,” said DIPP’s consolidated FDI policy.
Although Xiaomi seems to be confident of meeting the 30% local sourcing norm and set up own stores, according to telecom industry sources, the average value addition in assembling of mobile handsets in India by foreign players is less than 10%.
However, in a few cases, the value addition level is to the tune of 30%, said the sources.
In an effort to raise value-addition by foreign mobile handset makers in India, Budget 2016-17, while keeping a 1% excise duty on domestic manufacturing (assembling), had proposed to levy import duties on chargers, adapters, batteries, wired headsets and speakers, taking the cumulative tax incidence (including basic customs duty of 10%, countervailing duty of 12.5% and special additional duty of 4%) on these products to over 29%. Finished handsets, however, attract only the CVD of 12.5%, with 30% abatement. The reason behind the move was said to be the fact that despite concessions, core manufacturing activities in India by foreign players didn’t shift. However, the government later partially rolled back the move following protests from the industry, saying importers of mobile handset components would need to pay only the CVD of 12.5%.
Roughly 20 firms currently have handset factories in India, including those of Taiwanese firm Foxconn, US-based Flextronics, South Korea’s Samsung Electronics and China’s Vivo.