Customs duty on 'Open Cell' from Oct 1, manufacturing capacity must for domestic TV industry

By Shailesh Yadav
New Delhi [India], September 20 : The customs duty at the rate of 5 per cent shall apply on Open Cell, a key component for television manufacturing, from October 1, 2020, as the customs duty exemption given to Open Cell for a period of one year will end on September 30.
This exemption was given a year ago to the industry as it had sought time to build domestic capacity for Open Cell, said a Finance Ministry source while responding to a query whether the television sets are going to cost more from coming October as panel duty sop ends.
This move is elemental to the Phased Manufacturing Plan (PMP) of television and its components to bring the television industry out of the crutch-walking (of mere television assembling while being totally dependent on imports for all its parts), said a top government source who did not wish to be named. "For how long such import duty sops can continue? The TV industry is well aware of the basic tenets of phased manufacturing. The sop was offered for a limited period of one year in anticipation that the industry would build capacity for manufacturing critical components in India. For India to be Atmanirbhar, our manufacturers cannot remain merely assemblers of imported parts. Manufacturing in India cannot survive on the support of import forever," the source added.
Another source in the know of the matter said that till last year televisions worth Rs 7000 crore were being imported. The government has supported the television industry through custom duty structure. A customs duty of 20 per cent has been imposed on imports of television since December 2017. This high protection benefitted all domestic TV manufacturers. Television import has also been put on the restricted category with effect from the end of July this year. Thus, television manufacturers are enjoying full reasonable protection from imports.
When asked that TV manufacturers would have to bear 5 per cent customs duty on Open Cell as its manufacturing capacity has still not come in India and they have to continue to import Open Cell even if customs duty gets imposed on it, as has been claimed by the industry, the source said, "Newly imposed restriction puts a curb on import of TVs. This market would now be available to domestic manufacturers. This seems to be the reason for domestic manufacturer trying to resort to a price increase. Reintroduction of duty on Open Cell appears only an excuse."
When confronted with the argument of the TV industry that it is under pressure as price of fully built panel has gone up by 50 per cent and customs duty of 5 per cent on open cell would lead to a raise in the price of TV by roughly 4 per cent as it is the major component for TV and, also, the prices may go up well by a minimum of Rs 600 for a 32-inch television and Rs 1,200-1,500 for a 42-inch TV and even higher for a large screen television, the government source rejected it as "misleading and exaggerated" stating that the fact is that these leading brands are importing Open Cell for a basic price of Rs 2,700 for a 32 inch and about Rs 4,000 to Rs 4,500 for a 42-inch television. The impact of 5 per cent duty on Open Cell would, thus, not be more than Rs 150-250 for a television".
Explaining the rationale of the imposition of a marginal duty of 5 per cent on Open Cell, the top government source said that critical items shall start manufacturing in India. "No real manufacturing growth of television could happen unless Open Cell is domestically made. The present activity carried out by the industry is only of assembly of television after importing most of the parts. This cannot go on for long as the assembly of television does not entail any significant value addition. Deepening of value addition in the domestic market must happen in a phased manner."
"The television manufacturers import parts worth Rs 7,500 crore in a year. This figure would further grow as the import of fully made television gets curbed. It would be in the interest of the country that parts like Open Cell are gradually be made in India. Open Cell capacity building in India would also help to make panels for mobile phones which is a huge market", added the same source.
It may be noted that the first phase of PMP would be to have an assembly of a product. In this stage, parts of a product are kept at lower or nil rates so that their cost remains low and these could be imported at concessional duty rates for assembly of that product in India. However, this stage cannot stay for very long even if the industry wishes it to continue forever.
The second phase of manufacturing is that certain parts should be made in India. At this phase, duty is imposed on such parts. This phased manufacturing strategy has been applied to most electronic products. For example, the phased manufacturing plan for mobile phones was implemented in four phases.
Sources in the know of the matter and the industry said that even with this clearly laid out vision of the Government, the television manufacturers have been reluctant to build up domestic capacity for parts while seeking higher protection on fully made television. The Government had earlier imposed 5 per cent duty on Open Cell in March 2018. But on the request of the domestic TV industry, it was withdrawn last year for a limited period of one year. The domestic industry did not respond to this call of the government to build domestic capacities for parts.
Finance Ministry sources said that with finished goods imports restricted, such duty structure (0 per cent duty on parts) leads to windfall gains for the domestic units. However, continuous import of parts like Open Cell is not in the country's interest. The imposition of customs duty shall incentivise the domestic manufacturing of critical parts like Open cell in India. This is the real phased manufacturing and would be in line with the Atmanirbhar Bharat policy of Government of India.