Clouds over Nokia's Chennai plant as the company says India is 'least favourable'

It looks like cracks are starting to appear between Finnish mobile maker Nokia and one-time big market India. Reports have emerged that Nokia as made its displeasure evident against India and told the Centre that the country has suddenly become the “least favourable market” for the company.

According to a report by the Indian Express, Nokia has been mulling shutting down its Chennai plant to make an exit out of the country. The company allegedly wrote a letter to the government in June cautioning that the “political risk” of operating in India could impact future investment decisions.

Nokia trouble in India? (Image credit: Reuters)

The warning bell comes even as Nokia has locked horns with the authorities over tax issues and delays in refunding VAT amounts. Nokia allegedly sent a “non-paper” – an unofficial document – to the Ministry of Commerce & Industry that said that the non-refund of VAT by the Tamil Nadu (TN) government made it “more cost efficient for Nokia to have transferred the manufacture of mobile phones to China and to import them to Indian market rather than manufacture them in Chennai”.

More from News & Analysis

What is the US HIRE Bill and why is India’s $250-billion IT sector worried? Is the internet dead? What's this theory that OpenAI's Sam Altman says might be true?

An MoU signed with TN states that the government was to refund four percent VAT Nokia pays on the phones sold in the domestic market from its plant in the Special Economic Zone (SEZ). The lower end models of Nokia are especially bearing the brunt, thanks to competition with China and Vietnam and currency fluctuations. Nokia even speaks about a bilateral tax treaty between India and Finland that says that the software business is to be taxed in Finland.

Facing the trouble is Nokia’s Chennai based handset factory that was set up in 2006 and is by far one of the largest by the Finnish company. The factory employs more than 38,000 people and has produced 800 million phones.

While the matter seems tense for the government, Nokia released a general statement to the press assuring all was well with the company in India. “Nokia is committed to India. The country is a priority market for us, and Chennai plays an integral part in our global manufacturing strategy. To date, Nokia has invested USD 285 million in its manufacturing operations in Chennai, providing direct and indirect benefits for tens of thousands of residents,” it said, trying to douse the rumours started by the “non-paper”.

A wait-and-watch policy seems to be the need of the hour as far as Nokia’s flip-flop over being in India is concerned. Nokia and the TN government will have to work together to iron out differences between the two since the future of not just the economy, but thousands of employees of one of Nokia’s biggest factories is concerned.