Electronics and smartphone manufacturers have urged the government for reduction in tariffs and duties on components and sub-assemblies imported for making smartphones in the upcoming Union Budget. Besides tariff rationalisation, the industry has also sought a Rs 40,000-45,000 crore electronics components incentive scheme for a duration of at least eight years.
The companies through India Cellular and Electronics Association (ICEA) have put forth the argument that high tariffs on inputs increase costs of production which makes the domestic industry less competitive, thereby hindering the country’s ability to join global value chains (GVCs).
Currently, India has many tariff lines with higher tariffs compared to economies like China and Vietnam. Almost 97% of Vietnam’s weighted average tariffs are between zero to 5%, while 56% of China’s tariff lines are in that range, according to an analysis by ICEA. In India, about 45% of the tariff lines are between zero to 5%.
India’s non-zero tariffs also show that India has higher tariffs with the most-favoured nation for 84% of tariff lines compared to China, and 98% of the lines compared to Vietnam.
This discourages GVCs from shifting to India, ICEA said in its recommendations to the government. It added that competitiveness is critical to building scale and attracting foreign direct investment which in turn, positively impacts domestic value addition and job creation.
“Current high tariffs increase manufacturing costs in India by 7-7.5% on the bill of materials (BoM), deterring local ecosystem development, hampering exports and adversely impacting job creation,” said Pankaj Mohindroo, chairman of ICEA.
“Sustaining the tremendous growth in mobile phone production and exports, requires matching the competitive tariff regimes of China and Vietnam,” Mohindroo added.
India’s simple average MFN (most favoured nation) tariff for inputs is 7.4%, compared to China’s effective zero tariffs offered in bonded zones and Vietnam’s 0.7% weighted average tariffs in free trade agreements.
ICEA has urged the government to reduce duties to 15% on components such as printed circuit boards (PCBs), charger, adapter and mobile phone. On mic/receiver, the industry body said the duty should be reduced to 10% from 15%.
Further, it has asked for removal of 2.5% tariff on sub-assembly parts and inputs such as PCBA parts, connectors, camera modules, etc. “These tariffs don’t serve any purpose. They fail to build a domestic industry while increasing costs, complexity and compliance for legitimate manufacturers,” ICEA told the government.
It said that all tariff lines which increase costs significantly, including components of complex sub-assemblies, should be brought down to zero.
In January, the government reduced the import duty on mobile phone components such as battery cover, front cover, middle cover, main lens, back cover, GSM (global system for mobile communication) antenna, PU case, sealing gasket, SIM socket, screw, LCD foam, film-front flash, conductive cloth, other mechanical items of plastics and metal, to 10% from 15%.
The industry demand is also to reduce India’s seven tariff slabs for the mobile sector to four slabs – 0%, 5%, 10% and 15% by 2025.
ICEA has suggested a glidepath for reducing India’s input tariffs to match the competitiveness of China and Vietnam. It said that any revenue foregone under this tariff reduction would be more than compensated by the additional revenue generated from higher affordability, increased production, sales of smartphones, and higher economic activity following job creation.
According to analysts, tariffs reduction and a components incentive scheme, will be helpful in increasing value addition, attracting GVCs and developing large-scale Indian companies.
The government is also targeting to increase the domestic value addition to around 35-40% in the near term and then to 50% going forward, from the current 15-18%, with the new component incentive scheme.
After smartphone PLI, the value of domestic production of smartphones rose to Rs 4.1 trillion in FY24 from Rs 2.14 trillion in FY20, the year before the scheme was announced. Smartphones exports from the country rose to Rs 1.2 trillion in FY24, compared to Rs 27,225 crore in FY20. Tariff rationalisation could also increase the domestic production of mobile phones to $82 billion (Rs 6.8 trillion) by FY27, thereby creating 3 million jobs, and peg exports at around Rs 3.2 trillion, according to ICEA estimates.
