The India Cellular & Electronics Association (ICEA) is urging the central government to consider significant changes in the upcoming Union Budget 2024-25 to enhance the competitiveness of India’s electronics industry. Their recommendations, aimed at attracting Global Value Chains (GVCs), as well as boosting electronics production and exports over the next five years, include reducing input tariffs and supporting the development of a local components ecosystem.
These proposals are grounded in a comprehensive “Tariff Study” that compares input tariffs for smartphones across seven countries. The study highlights that India currently imposes the highest tariffs on inputs among its major competitors, which raises production costs and reduces the sector’s global competitiveness.
According to the study, India’s average Most Favoured Nation (MFN) tariff for smartphone inputs stands at 7.4 per cent, significantly higher than China’s near-zero tariffs in bonded zones and Vietnam’s 0.7 per cent Free Trade Agreement (FTA)-weighted average tariffs. This disparity makes it difficult for India to attract GVCs and scale up its electronics manufacturing sector. In contrast, almost all of Vietnam’s weighted average tariffs are between zero and 5 per cent, and 56 per cent of China’s tariff lines fall within that range.
“Sustaining the significant growth in mobile phone production and exports requires aligning with the competitive tariff regimes of countries like China and Vietnam. Our current high tariffs increase manufacturing costs by 7-7.5 per cent on the bill of materials, which hampers local ecosystem development, reduces export potential, and adversely impacts job creation,” stated Pankaj Mohindroo, Chairman of ICEA.
The ICEA study proposes a phased reduction of tariffs to enhance India’s competitiveness. The key recommendations include:
- Reducing tariffs on critical components of complex subassemblies to zero.
- Simplifying India’s seven tariff slabs for the mobile sector to three primary slabs (0 per cent, 5 per cent, 10 per cent, and 15 per cent) by 2025.
- Lowering duties from 20 per cent to 15 per cent on PCBA, charger adapters, and mobile phones, and from 15 per cent to 10 per cent on microphones/receivers.
- Eliminating the 2.5 per cent tariff on various sub-assembly parts and inputs, which currently add unnecessary costs without fostering a domestic industry.
To create a sustainable electronics manufacturing sector, ICEA emphasises the importance of developing a components and sub-assembly ecosystem. It calls for policy and financial support to build large-scale manufacturing capabilities, which would provide long-term policy predictability, foster advanced skills, integrate into global value chains, achieve scale, increase exports, and enhance value addition.
India’s electronics manufacturing sector has seen remarkable growth, with output reaching $115 billion in FY24 and electronics exports totalling $29.1 billion, making it the country’s fifth-largest export category. Mobile phone production alone accounted for $51 billion, with exports increasing 81-fold over the past decade.
“Our vision is to elevate the current growth trajectory of electronics manufacturing to new heights. By implementing focused policies, providing financial support, and maintaining globally competitive tax regimes, India can emerge as a leader in the global electronics industry. This is the moment to harness our potential through innovation, self-reliance, and strategic planning,” Mohindroo emphasised.
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