The new government’s first full budget is due this month. The industry has high expectations from the finance minister. Electronics and smartphone manufacturers have urged the government to reduce tariffs and duties on imported components and sub-assemblies for making smartphones in the upcoming Union Budget. Apart from tariff rationalisation, the industry has also demanded an electronics component incentive scheme of Rs 40,000-45,000 crore for a period of at least eight years, reports Financial Express. Through the India Cellular and Electronics Association, the companies have argued that high tariffs on inputs increase the cost of production which makes the domestic industry less competitive. This hampers the country’s ability to join global value chains.
In India, about 45% of tariff lines range between zero and 5%
According to the news, India currently has many tariff lines with higher tariffs than economies like China and Vietnam. According to an analysis by the Indian Cellular and Electronics Association (ICEA), about 97% of Vietnam’s weighted average tariffs are between zero and 5%, while 56% of China’s tariff lines are in that range. In India, about 45% of tariff lines are between zero and 5%. India’s non-zero tariffs also show that India has higher tariffs with most favoured nation for 84% of tariff lines than China, and 98% of lines than Vietnam.
The government was asked to make recommendations
ICEA, in its recommendations to the government, said this discourages GVCs from being transferred to India. It said competitiveness is key to building scale and attracting foreign direct investment which, in turn, positively impacts domestic value addition and job creation. The association says the current high tariffs increase manufacturing costs by 7-7.5% on the bill of materials in India, hinder the development of the local ecosystem, hamper exports and adversely impact job creation.
Demand to reduce duty on components
ICEA said that to sustain the tremendous growth in mobile phone production and exports, there is a need to match the competitive tariff regimes of China and Vietnam. India’s simple average of most favoured nation tariff for inputs is 7.4%, as against the effective zero tariff offered in China’s bonded zones and a weighted average tariff of 0.7% in Vietnam’s free trade agreements. The association has urged the government to reduce the duty on components such as printed circuit boards, chargers, adapters and mobile phones to 15%. The duty on mic/receiver should be reduced from 15% to 10%.
Value of domestically produced smartphones
After the smartphone PLI, the value of domestic production of smartphones grew from Rs 2.14 trillion in FY20 to Rs 4.1 trillion in FY24, a year before the scheme was announced. Smartphone exports from the country rose to Rs 1.2 trillion in FY24 compared to Rs 27,225 crore in FY20. According to ICEA estimates, tariff rationalisation could increase domestic production of mobile phones to $82 billion (Rs 6.8 trillion) by FY27, creating 3 million jobs and exports to around Rs 3.2 trillion, Financial Express reported.
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