Handset hangover

Nokia will continue to make phones—but only in India, only for 12 months and only because it has no choice

April 24, 2014
Obsession
Made in India
April 24, 2014

The $7.2 billion sale of Nokia to Microsoft is expected to close tomorrow, bringing the phone-making chapter of a remarkably versatile, adaptive and admired company to a close—almost. Nokia will still make phones, under contract, at its manufacturing plant in the southern Indian city of Chennai (formerly Madras) thanks to a long-running tax dispute between Nokia and Indian tax authorities.

“It’s highly unlikely that the plant will transfer, given that the [deal] closing with Microsoft is tomorrow,” a Nokia spokeswoman told Reuters, adding: “If the asset doesn’t get transferred, we are entering into a service agreement with Microsoft.”

Nokia has previously signaled that it might be forced to keep making phones from its India plant if it couldn’t resolve the tax dispute before completing the deal. But it reiterated today that such a deal would only stay in place for one year.

The dispute centers around what the Indian government believes are unpaid taxes on royalties from downloads made on Nokia phones in India. Nokia says a tax treaty between India and Finland exempts it from having to pay. India’s highest court disagreed, and last month ruled that Nokia must deposit 35 billion rupees ($573 million) in an escrow account before it can transfer its factory to Microsoft. Nokia has not agreed to the terms. The state government of Tamil Nadu, where the factory is located, wants Nokia to cough up a further Rs 24 billion for sales tax on phones it says Nokia sold domestically instead of exporting them.

Winding it down

The India plant employs some 6,600 workers (of whom more than half are women, reports the Times of India), and several thousand more on contract. Production at the factory is down to 2 million units a month from a peak of 12 million, a member of the Nokia workers’ union told the paper. Nokia has started offering voluntary retirement packages to its employees. Only 10 permanent employees have so far accepted one, the Economic Times reports.

Apart from the loss of tax revenue, the factory’s impending closure is a blow for India’s image as a manufacturer. The plant, which opened in 2006, was a source of pride for local industry and was seen as a vote of confidence in India’s ability to attract foreign capital. Employees considered it a prestigious place to work and a route to the middle class. But as it winds down, workers are worried about their futures.

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