South Korean electronics major Samsung is in a bind as the government is nudging the company to restart production of TV sets in India. The company had shifted manufacturing of TVs to Vietnam after the government had raised customs duty on 'open cells', a key component for LCD and LED TVs, last year. However, Samsung has been "non-committal so far" on bringing back the production to India, a senior government official told The Economic Times.
The electronics giant's decision to relocate production to the South East Asian country was seen as a major setback for the government's Make in India initiative. Vietnam is the company's largest production hub.
We feel Samsung was already planning to shift its production of TV panels to Vietnam and this imposition of duty on open cells was one opportunity they got ... They got an opportunity to shift out to Vietnam from where they can use the free trade agreement route to avoid the duty
In a sudden shock to the electronics industry, the government had doubled the customs duty on imported LCD and LED TV panels to 15 percent in the 2018 Union budget. Simultaneously, duty on 'open cells' was hiked to 10 percent, but it was halved after a severe backlash from the industry, which was not ready to domestically manufacture the component. The component in the centre of drama—open cells--are one of the most critical components in a TV panel and accounts for 65-70 percent of the entire appliance's value.
"We feel Samsung was already planning to shift its production of TV panels to Vietnam and this imposition of duty on open cells was one opportunity they got," the official told the newspaper. "They got an opportunity to shift out to Vietnam from where they can use the free trade agreement route to avoid the duty."
Vietnam is a natural choice for companies as the country offers a host of incentives such as income tax holiday for up to 15 years for manufacturers. Moreover, a Free Trade Agreement with ASEAN ensures that imports from the country are cheaper as compared to locally manufactured products. Samsung has various manufacturing facilities for different appliances in the country. The TV unit in Chennai used to churn out 300,000 units every year. The company also operates the world's largest mobile phone manufacturing facility in Noida.
"We feel it was the hike of 15% duty on the LED panels which really hurt the company's India production and not the open cell duty," the official said. The government has been promoting electronics manufacturing in a bid to generate employment and boost exports. Last month, the Cabinet had approved a new electronics policy with an aim to create a $ 400 billion electronic manufacturing ecosystem by 2025 and generate 10 million jobs in the country.
After Samsung's bold move and veiled threats by other manufacturers like LG, the government is now actively considering the removal of 5 percent duty on open cells. Several large companies have stressed that the duty has substantially increased the cost of manufacturing TVs in India. Samsung and other TV manufacturers can take solace from the deferment of the imposition of duties on key mobile handset components such as LCD displays, touch panels and vibrator motors. Mobile phone manufacturers, including Samsung, were up in arms against fresh custom duties, which were supposed to kick in from Feb 1.