India needs to lower tariffs on smartphone components : ICEA

Unless India can match China and Vietnam’s competitive tariff regime in addition to other factors which impact competitiveness, export growth will also start seeing a slowdown beyond the current fiscal, revealed the ICEA report.

New Delhi: The India Cellular and Electronics Association (ICEA) on Wednesday released a study of tariffs on smartphone input components and which found that India has the highest tariffs amongst six other manufacturing competitors.

Unless India can match China and Vietnam’s competitive tariff regime in addition to other factors which impact competitiveness, export growth will also start seeing a slowdown beyond the current fiscal, revealed the report.

The study carried out by the premier electronics manufacturing industry body across seven countries, further underlines that the high tariff rates lead to increased costs, making it difficult for companies to join Global Value Chains (GVCs), ultimately reducing India's competitiveness among other countries.

"India has an immense opportunity to increase its competitiveness and large-scale manufacturing to address the global market and integrate into GVC by making our tariffs competitive vis-à-vis competing nations,” said Pankaj Mohindroo, Chairman, ICEA.

India’s smartphone manufacturing has descended from 78 per cent import dependency in revenue terms in 2014-15 to only 4 per cent in 2022-23.

With more than 99 per cent of smartphones sold in India being assembled locally, India has now been producing more than the domestic demand, which presents a huge export opportunity for local manufacturers.

To tap into this, India needs large GVCs to shift production lines to the country and get local companies into the supply chains, for which the country needs to have a tariff regime that matches with the competing nations like China and Vietnam, the study explained.

"To achieve this target of high export, India needs more than just ambition; it requires a tangible shift of global value chains, bringing major production lines to India and integrating our businesses into the international supply web,” said Mohindroo.

India’s simple average most-favoured nation (MFN) tariff for inputs is 8.5 per cent, higher than China’s 3.7 per cent. In practice, China’s tariffs are closer to zero because most mobile production takes place in ‘Bonded zones’ where all inputs are at zero tariffs, said the report.

“Higher tariffs of India result in an overall loss of competitiveness of about 6 to 7 per cent compared to Vietnam and China,” it further added.

The industry body demands identification and reduction of all tariff lines that incur significant costs, in order to increase India’s competitiveness in electronics manufacturing in the future.