Urges central government to match the competitive landscape of China and Vietnam
BENGALURU: The electronics industry in India has been making significant strides over the years, with a noteworthy focus on mobile phone production and exports.
However, to further strengthen its position and excel on the global stage, the industry is urging the central government to consider key reforms in the upcoming budget.
These reforms primarily revolve around lowering tariffs on inputs and ramping up local manufacturing capabilities to outpace competitors like China and Vietnam.
A recent “Tariff Study” conducted by the electronics industry across seven countries has shed light on the disparity in input tariffs for smartphones. India’s average most favoured nation (MFN) tariff for inputs stands at 7.4 per cent, in stark contrast to China’s effectively zero tariffs in bonded zones and Vietnam’s mere 0.7 per cent FTA-weighted average tariffs. This glaring difference poses a challenge to India’s mobile phone manufacturing and export competitiveness.
Financial support
The study which analysed data from eight tariff lines found that India has far higher number of components on higher duty slabs, compared to other nations. Almost all (97 per cent) of Vietnam’s weighted average tariffs are between zero and 5 per cent, while 56 per cent of China’s tariff lines are in that range.
According to Pankaj Mohindroo, Chairman of the India Cellular and Electronics Association (ICEA), aligning India’s tariff structure with that of China and Vietnam is imperative to sustain the remarkable growth witnessed in mobile phone production and exports.
“The high tariffs prevalent in India inflate manufacturing costs by 7-7.5 per cent on the bill of materials (BoM), acting as a deterrent to the development of a robust local ecosystem, impeding exports, and hindering job creation.”
Moreover, he said a financial support package of Rs40,000-Rs45,000 crore has been recommended to the finance ministry.
“It will be spread over eight years and meant for components and sub-assemblies. It can run parallel to the mobile PLI scheme which will have a sunset date.”
The study puts forth recommendations for a phased reduction of India’s input tariffs to match the competitive landscape of China and Vietnam. It argues that any revenue loss resulting from this tariff reduction would be offset by the enhanced affordability, increased production, greater smartphone sales, and heightened economic activity stemming from job creation.
Key recommendations
Key recommendations include consolidating India’s seven tariff slabs for the mobile sector into 3+1 slabs consisting of 0 per cent, 5 per cent, 10 per cent, and 15 per cent by 2025.
Moreover, all tariff lines significantly inflating costs, including components of complex subassemblies, should be brought down to zero. Specific examples include reducing the duty on printed circuit board assembly (PCBA), charger adapters, and mobile phones from 20 per cent to 15 per cent, and lowering the duty on mic/receiver from 15 per cent to 10 per cent, with minimal impact on current domestic manufacturing.
India’s electronics manufacturing output has reached a record-breaking $115 billion in FY24, with $29.1 billion in electronics exports, making electronics the fifth-largest export category from India.
Mobile phones alone contributed over 54 per cent of this export, with production out of $51 billion in FY24.
