The mobile phone industry has demanded a sharp cut in tariffs on components and sub-assemblies for boosting smartphone exports from India, adding that the country has the highest tariffs (read: import duties) on inputs compared to seven countries, including Vietnam, China, and Mexico.
In a report tabled by the India Cellular and Electronics Association (ICEA) Wednesday, the mobile handset industry said that with domestic smartphone production exceeding local demand, exports have become the main driver of future growth and jobs creation.
Fuelling mobile phone exports, expected to hit 30% of the total production of $49-50 billion in the current fiscal, require matching China and Vietnam’s competitive tariff regime in addition to other factors which impact competitiveness, the report said.
“In the situation currently prevailing in India where exports are the key source of growth, high tariffs on inputs limit the very engine of growth that would lead to higher production,” the report said.
Notably, a simple average of India’s MFN (most favoured nation) import duties on inputs is 8.5%, higher than China’s 3.7%, while in practice, China’s tariffs are closer to zero because most mobile phone production takes place in ‘Bonded Zones’ where all inputs are at zero tariffs, the ICEA report said.
Similarly, nearly 80% of Vietnam’s imported inputs are from countries with whom it has FTAs (free trade agreements), allowing Vietnam’s average input tariff to be at 0.7%, compared to India’s 8.5%.
As per ICEA estimates, China and Vietnam dominate nearly 85% of the over $190 billion mobile exports, as compared to India’s $11.1 billion in FY2023, which India now wants to raise to $50 billion over the next few years.
The ICEA report recommends that to achieve the target, policy interventions are needed to ensure that global value chains (GVCs) can expand operations in India, build an ecosystem and increase domestic value addition.
“The cost disadvantage due to tariffs alone to India vs Vietnam and China is between 8-10% of BoM (Bill of Materials), or 5-7% of the total cost, thus outweighing the benefits of PLI (Production-linked Incentive scheme for mobile phones),” the report concluded.
An argument for tariff reduction is also that domestic producers of input components benchmark their prices to the post-tariff price of the inputs, resulting in inefficient and uncompetitive pricing, especially for exports, ICEA said.
Source Name : Economic Times