Local electronic makers may get international calls


NEW DELHI: Indian contract manufacturers Dixon Technologies, Lava International and Jaina India could gain the most from 100% foreign direct investment allowed in the segment as large global companies may want to consider them for third party contracts and buy equity for tighter control over design and quality control.

“It’s a big positive for local electronic manufacturing service providers like us. Lot of brands who want to do single-brand retail and contract manufacturing can do so with local companies,” said Sunil Vachani, executive chairman of Dixon, which makes consumer durables, mobile phones and lighting products for other companies. “The new rules also open up the window for new brands to come into India, who can now use contract manufacturing and yet easily comply with local sourcing norms, since it now includes exports, thus making it a win-win for all parties.”

Dixon Technologies shares fell 1.7% to Rs 2,635.70 at the close on the BSE on Thursday.

The government on Wednesday allowed 100% FDI in contract manufacturing through the automatic route. The move will help companies – especially smaller ones – raise funds to expand operations and cater to companies wanting to make India their manufacturing and export hub. Foreign companies may find local contract manufacturing more attractive after the government allowed exports and contract manufacturing to be counted in the mandatory 30% local sourcing norms for single-brand retailers.

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While global contract manufacturers such as Foxconn, Flex and Wistron are expanding their presence in India and exporting on behalf of clients, the government moves open up investment windows for local companies Micromax, Lava, Intex and Jaina India, which use or plan to use their manufacturing facilities for others also.

This will provide an additional revenue stream for local companies that have been pushed to the fringes in the Indian smartphone consumer market by Chinese handset vendors, experts said.

“Brands who want to have more control on quality and design and want to make India an export hub for their operations will now be able to pick up equity in a contract manufacturer or a company that is doing third-party manufacturing,” said Pankaj Mohindroo, chairman of the Indian Cellular and Electronics Association, which represents most handset makers in India.

One company that did not want to be identified said it will wait for the formal notification from the government to get clarity on whether the import of goods at concessional rates – based on end-use of the product – still applies for contract manufacturing.

Currently, a product imported in knocked down condition for contract manufacturing attracts a 10% concessional customs duty, which becomes nil for a company that does the manufacturing in-house.





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