The In­dian adapter in­dus­try is in dire need of gov­ern­ment sup­port

Lo­cal adapter man­u­fac­tur­ing com­pa­nies are col­lec­tively de­mand­ing more sup­port from the gov­ern­ment in or­der to man­u­fac­ture prod­ucts of global stan­dards. The poli­cies or duty struc­tures cur­rently in place do not fully elim­i­nate the dis­ad­van­tages of man­u­fact

Electronics Bazaar - - Contents - By Shruti Mishra

The In­dian adapter man­u­fac­tur­ing busi­ness is an amal­ga­ma­tion of many small and medium adapter mak­ers and a hand­ful of large man­u­fac­tur­ers. The credit for lo­cal man­u­fac­tur­ing of adapters goes to the ca­ble TV digi­ti­sa­tion drive and the in­creased us­age of mo­bile de­vices like lap­tops, smart­phones, etc. In spite of a large num­ber of lo­cal man­u­fac­tur­ers, the do­mes­tic adapter mar­ket is lag­ging far be­hind China, be­cause what started off as lo­cal man­u­fac­tur­ing is ac­tu­ally noth­ing more than just as­sem­bling parts and units im­ported from China, and mak­ing spare adapters rather than sup­ply­ing orig­i­nal prod­ucts to com­pa­nies in the first place.

Deven­dra Chauhan, tech­ni­cal and sales head, Shyam Elec­tron­ics and Mag­net­ics, whose com­pany clocks an an­nual turnover of ` 40-50 mil­lion sell­ing adapters, states that cur­rently, his firm is op­er­at­ing around 40 per cent be­low its pro­duc­tion ca­pac­ity. “The lack of or­ders is mainly be­cause we pro­duce spare parts and our adapter is not sold with the orig­i­nal prod­uct,” he ex­plains.

Of all the hin­drances that the adapter in­dus­try play­ers high­light, the most com­mon com­plaint is about the buy­ers’ ten­dency to buy low cost prod­ucts rather than fo­cus on qual­ity or global stan­dards. S.K. Mar­wah, di­rec­tor of Shiv Shakti Elec­tron­ics, a man­u­fac­turer of SMPS and power adapters, says that lo­cal man­u­fac­tur­ers are ca­pa­ble of pro­vid­ing qual­ity prod­ucts but do­ing so will raise their costs. He points out that in In­dia, the cus­tomer sets the price bar first. And man­u­fac­tur­ers have to pro­duce adapters within that price limit. “Here, peo­ple pre­fer to buy a low cost prod­uct; there­fore, we have to com­pro­mise on qual­ity,” he adds.

How­ever, in or­der to pro­mote do­mes­tic man­u­fac­tur­ing ca­pac­i­ties and value ad­di­tion in the adapter busi­ness, the gov­ern­ment has taken two crucial steps. First, it is re­vis­ing the GST rates of the raw ma­te­ri­als that are used in mak­ing adapters and, sec­ond, it is im­pos­ing a 10 per cent cus­toms duty on im­ported adapters. To un­der­stand how suc­cess­ful these two poli­cies are in boost­ing lo­cal man­u­fac­tur­ing, we reached out to some do­mes­tic play­ers and asked them to share their opin­ions.

The re­vised GST rates

Be­fore the im­ple­men­ta­tion of GST, adapter mak­ers were pay­ing 12.5 per cent VAT in ad­di­tion to the ex­cise duty. After the GST roll­out, adapters were placed in the 18 per cent tax slab. Con­fu­sion arose when com­po­nents like PCBs, which are used in man­u­fac­tur­ing adapters, were also kept at the same high tax slab. See­ing the in­dus­try in tur­moil, the gov­ern­ment acted fast and soon slashed GST on com­po­nents that are in­puts for fi­nal prod­ucts. So com­po­nents like PCBs have been shifted from the 18 per cent tax bracket to the 12 per cent one. For the ma­jor­ity of adapter man­u­fac­tur­ers, this came as a big re­lief; how­ever, there is still a sec­tion of the in­dus­try that feels that the taxes should be re­duced even fur­ther.

Chauhan thinks that if the gov­ern­ment re­duces the dif­fer­ence in GST rates be­tween the fi­nal prod­uct and the raw ma­te­rial that goes into mak­ing it, it will ul­ti­mately ben­e­fit the end cus­tomer. When asked how much re­lief he would like in the tax­a­tion on the fi­nal prod­uct, Chauhan replies, “I think this should be re­duced to around 15 per cent from the cur­rent 18 per cent.”

On the flip side, Mar­wah feels that the 18 per cent GST rate is quite fea­si­ble and is not a hin­drance to lo­cal man­u­fac­tur­ing. Com­par­ing the taxes in the pre­and post-GST regimes, he says, “Ear­lier we used to pay ex­cise duty along with the VAT, which ul­ti­mately added up close to 18 per cent. There isn’t much dif­fer­ence after the im­ple­men­ta­tion of GST.”

On a sim­i­lar note, Neeraj Bharara, di­rec­tor, Rosy Elec­tron­ics, which is en­gaged in mak­ing AC-DC adapters for set-top boxes, says that the sit­u­a­tion is quite bal­anced now. “Ear­lier, the is­sue was that in­put com­po­nents and ma­te­ri­als were placed in the high­est tax slab. Now the out­put and in­put are in the same tax range, which has sim­pli­fied the man­u­fac­tur­ing process,” he says.

Im­po­si­tion of cus­toms duty

The gov­ern­ment im­posed a 10 per cent ba­sic cus­toms duty (BCD) on mo­bile charg­ers and adapters, soon after the GST roll­out in July 2017. Al­though the parts or raw ma­te­ri­als used for mak­ing these prod­ucts were kept out of the duty am­bit, many man­u­fac­tur­ers think that this move isn’t a stim­u­lus for adapter man­u­fac­tur­ing.

In­dus­try play­ers point out that the gov­ern­ment has im­posed the duty on com­plete adapters while most of the com­pa­nies in In­dia are im­port­ing adapters in the form of semi-knocked down (SKD) units. When asked why the im­port of SKD units does not add much value on the man­u­fac­tur­ing front, Chauhan says, “Since man­u­fac­tur­ers are im­port­ing SKD units, it is not gen­er­at­ing many jobs here. Im­port­ing com­pletely knocked-down (CKD) units has the po­ten­tial to gen­er­ate jobs. If you are im­port­ing SKD kits, there is a dip of al­most 15 per cent in job generation as com­pared to when CKD kits are im­ported. That is why this step is not re­ally ben­e­fit­ing lo­cal adapter mak­ers.”

In­dus­try’s rec­om­men­da­tions to the gov­ern­ment

The need to impose im­port duty on SKD units: Cur­rently, im­ported SKD units are ex­empted from any kind of duty and there­fore peo­ple are im­port­ing these in bulk. Chauhan sug­gests im­pos­ing a 10 per cent duty on SKD units as well. “Once the duty is im­posed, it will au­to­mat­i­cally make the SKD prod­uct costlier and peo­ple will start as­sem­bling in In­dia, which will ul­ti­mately lead to more lo­cal labour in­volve­ment and help in gen­er­at­ing rev­enue,” he high­lights.

Funds and sub­si­dies: Un­der­lin­ing the prob­lem of qual­ity not match­ing ex­port stan­dards, Chauhan says that lack of funds is the main is­sue. “The gov­ern­ment is not pro­vid­ing any help in this re­gard in terms of fi­nanc­ing,” he adds. Lack of proper ma­chin­ery is an­other fac­tor that is hold­ing back the adapter in­dus­try’s ca­pa­bil­ity to scale up glob­ally. This busi­ness is pri­mar­ily dom­i­nated by small play­ers who are fi­nan­cially not very strong, and they need fund­ing sup­port to in­vest in ma­chin­ery and in the ex­pan­sion of fa­cil­i­ties so that they can match in­ter­na­tional stan­dards of pro­duc­tion.

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