As Finance Minister Nirmala Sitharaman prepares to present the Union Budget for 2024-25, the Global Trade Research Initiative (GTRI) has issued a firm appeal to retain the current import duties on smartphone components. The economic think tank cautions that reducing these tariffs risks undermining India’s rapidly growing smartphone manufacturing sector by encouraging superficial assembly plants reliant on imported parts.
This plea from GTRI precedes the budget announcement, underscoring the pivotal role of the existing tariff structure in driving the sector’s success. The current framework supports duty-free imports of components for export purposes while bolstering the local economy by incentivizing deeper manufacturing processes.
Ajay Srivastava, Founder of GTRI, emphasized the necessity of maintaining current import tariffs—20% for finished products and 0-20% for components. Srivastava warned, “Do not cut import duty on smartphone components in this Budget. Removing tariffs could lead to an increase in superficial assembly plants that rely heavily on imported parts, contributing little to the local economy.” Imported components and subassemblies currently constitute up to 90% of the bill of material value for India-made phones.
India’s smartphone production soared to $49 billion in FY24, with exports surging from $10.96 billion in FY23 to $15.57 billion in FY24, a 42% increase. Over 98% of smartphones sold in India are now locally manufactured, thanks to initiatives like the Production Linked Incentive (PLI) scheme, which offers a 4-6% cash incentive on annual incremental production.
GTRI highlighted that Indian manufacturers can import essential inputs or capital goods duty-free for manufacturing and exporting electronic items through schemes such as Advance Authorisation, Export Promotion Capital Goods (EPCG), Special Economic Zones (SEZs), and 100% Export Oriented Units (EOUs). Companies like Apple, via contract manufacturers Foxconn and Wistron, have reaped substantial benefits from SEZs, enhancing India’s global competitiveness in smartphone manufacturing.
In FY24, India’s electronics imports exceeded $83.92 billion, with component imports climbing from $25.13 billion in FY23 to $34.36 billion in FY24, a 36.8% increase. Despite this high reliance on imported parts in local manufacturing, cutting import duties would likely disincentivize deeper manufacturing operations in India.
GTRI contends that maintaining current import tariffs remains vital for sustaining the growth and complexity of India’s smartphone manufacturing sector. Srivastava cautioned, “Reducing these tariffs could encourage short-term assembly operations over long-term, valuable manufacturing, undermining the industry’s success and future potential.” These tariffs act as catalysts for developing a robust, self-reliant smartphone manufacturing ecosystem in India.
“Preserving these tariffs is essential for continuing the remarkable growth trajectory and nurturing the deep manufacturing capabilities of India’s smartphone sector,” he added. GTRI’s stance underscores the significance of strategic policies in driving local employment, technological advancement, and global competitiveness.
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