Hon Hai to invest $5b in India after Indian government imposed a 10% import tariff
Hon Hai (2317.TT), who had already decided to make the $5b investment, seems to have accelerated its timetable just after the imposition of a 10% import tariff imposed by the Indian government. The investment, which is to be made over five years, is focused on the construction of a global manufacturing hub that is centered on a production facility for ‘electronic products’, which are components for smartphones destined for the European and local markets, with a maximum capacity of 10m phones/month.
The Indian government decided to impose a 10% tariff (BSD – Basic Customs Duty) starting on July 1, after the country shifted to a GST (Goods and Services Tax) system that eliminated the differential between locally made and imported phone pricing. The tax is specific to “Cellular mobile phones and specified parts of cellular phones like chargers, battery, wire headsets, Microphones and Receiver, Key Pad, USB Cable, etc”. The country also increased the local VAT tax on similar imported goods from 6% to between 35% and 40%, pushing hard on those who wish to do business in India to produce locally. There are some exceptions, such as PCBs, connectors, and display modules that are not produced by local Indian manufacturers, but the bulk of items needed for smartphone production will be tariffed.
Recent investments by Wistron (3231.TT), who produces the Apple (AAPL) iPhone SE in Bengaluru and Hon Hai’s Foxconn (2354.TT), with five assembly plants in Andhra Pradesh, have stimulated (and the tariff) Samsung to announce that it will double its investment in its mobile phone manufacturing by 2020. An estimated 175m handsets are expected to be produced locally in India, up from 110m in the previous year. In 1996, India signed the Information Technology Agreement in 1996, which gave zero duty status to a number of CE category products, but as smartphones did not exist when the agreement was signed, the government looked to legal opinions that gave them the right to impose the tariffs. Imported phones cost 11.5% more than local equivalents under the old tax system, but the GST conversion’s 12% local tax seems to wipe this out, to the detriment of local producers, however the IT ministry ensures local manufacturers that they will continue to have a distinct cost advantage over those made elsewhere.
The Indian government decided to impose a 10% tariff (BSD – Basic Customs Duty) starting on July 1, after the country shifted to a GST (Goods and Services Tax) system that eliminated the differential between locally made and imported phone pricing. The tax is specific to “Cellular mobile phones and specified parts of cellular phones like chargers, battery, wire headsets, Microphones and Receiver, Key Pad, USB Cable, etc”. The country also increased the local VAT tax on similar imported goods from 6% to between 35% and 40%, pushing hard on those who wish to do business in India to produce locally. There are some exceptions, such as PCBs, connectors, and display modules that are not produced by local Indian manufacturers, but the bulk of items needed for smartphone production will be tariffed.
Recent investments by Wistron (3231.TT), who produces the Apple (AAPL) iPhone SE in Bengaluru and Hon Hai’s Foxconn (2354.TT), with five assembly plants in Andhra Pradesh, have stimulated (and the tariff) Samsung to announce that it will double its investment in its mobile phone manufacturing by 2020. An estimated 175m handsets are expected to be produced locally in India, up from 110m in the previous year. In 1996, India signed the Information Technology Agreement in 1996, which gave zero duty status to a number of CE category products, but as smartphones did not exist when the agreement was signed, the government looked to legal opinions that gave them the right to impose the tariffs. Imported phones cost 11.5% more than local equivalents under the old tax system, but the GST conversion’s 12% local tax seems to wipe this out, to the detriment of local producers, however the IT ministry ensures local manufacturers that they will continue to have a distinct cost advantage over those made elsewhere.
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