Lately, with the ease of doing business, improvement in logistics chains, and contribution of domestic players, rationalisation of tariffs, the industry expects mobile phone exports to jump to $50 billion by FY27.
Reiterating the demand for a reduction in tariffs and duties on components and subassemblies imported for making smartphones in India, the India Cellular and Electronics Association (ICEA) on Wednesday said such a reduction in input tariffs could increase the country’s smartphone exports by nearly four times to $39 billion (around Rs 3.2 trillion) by FY27, from $11 billion (Rs 90,000 crore) in FY23. Similarly, the tariff rationalisation could also increase the domestic production of mobile phones to $82 billion (Rs 6.8 trillion) by FY27 from $44 billion (Rs 3.5 trillion) in FY23, thereby creating 3 million jobs.
In the absence of any duty reduction on smartphone components such as printed circuit board assembly (PCBA), charger/adapter, cell, mic and receiver, speaker, etc, the growth in smartphone exports from the country would be limited to $27 billion by FY27. On the other hand, the domestic production would also be limited to $64 billion, and may limit job creation to 2.4 million comparatively, according to an analysis by ICEA, which represents companies across the mobile and electronics industry.
The smartphone companies are batting for a reduction in duties and tariffs on components as the current higher duty structure increases cost of production, and makes India less competitive compared to economies like China and Vietnam. A higher duty structure also makes it difficult for companies to join global value chains (GVCs) and simultaneously discourages companies from shifting large-scale production to India. Further, higher tariffs also diminish the benefits of the production-linked incentive (PLI) scheme.
Currently, India’s average tariff on inputs from the most favoured nation (MFN) is 8.5%, compared to China’s 3.7%. In comparison with Vietnam on imports of components under free trade agreements (FTAs), India’s average tariff is at 6.8%, compared to Vietnam’s at 0.7%.MFN tariffs are what countries promise to impose on imports from other members of the World Trade Organisation (WTO). “To achieve the 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 Pankaj Mohindroo, chairman at ICEA.
In its recommendations for the Union Budget of 2024-25, ICEA has urged the government to simplify the input tariff structure first from multiple slabs to three slabs of 0%, 5%, and 10%. The industry association said all the components tariff lines which increase costs of production significantly should be brought down to zero. To get started, ICEA wants the government to reduce duties to 15% on components such as charger/adapter, PCBA, which attract 20% import duty at present. For mechanics, mic and receiver, and speaker, the association wants the duty to be reduced to 10% from 15% at present. For other products such as parts of camera modules, parts of connectors, parts of PCBA, ICEA wants the duty structure to be zero from 2.5% at present.
“We need three tariff slabs so that the disputes on the classification of items between the authorities and companies can be resolved. Currently, owing to confusion on the interpretation of display components, Rs 20,000 crore duty differential is there,” said Rajesh Sharma, executive director & principal advisor at ICEA.Therefore, the industry association has also urged the government to reduce tariffs on ‘others’ category of parts of smartphones/mobile phones to 10% from 15% to reduce instances of misinterpretation, and avoid any litigation or ease of doing business issues.
“To seize the opportunity, India should address tariff competitiveness. This is vital to unlock our potential in global electronics manufacturing and trade and integrating India into GVCs,” Mohindroo said.”The lower tariffs of these countries (Vietnam and China) actually lead to lower impact on costs…Of the 65 tariff/input lines in India, more than half have tariffs of more than 10%. In the case of China and Vietnam, there are no tariff lines with a tariff higher than 10%,” said Harsha Vardhana Singh, chairman IKDHVAJ Advisers LLP, which jointly analysed the smartphone market with ICEA.
The demand from the smartphone industry on duty reduction also assumes significance owing to changes in the Indian market landscape, wherein the domestic market is slowing down and growth is dependent on exports majorly.Industry estimates suggest that India’s domestic mobile phone market, which was growing at a compound annual growth rate (CAGR) of 21% from 2014-2019, has witnessed a slowdown in its year-on-year growth to 4.8% from 2019-2020 to 2022-2023 period.
A reduction in Indian tariffs on inputs in the current phase when India’s domestic production exceeds domestic demand, will improve competitiveness, and increase exports and scale of production, thus creating conditions for a stronger domestic ecosystem and further growth.
India’s smartphone exports jumped 100% in FY23 to $11 billion over FY22. The industry expects exports of $15 billion in FY24, largely led by Samsung and Apple. Exports will form 30% of the total production of $49-50 billion (around Rs 4.1 trillion) in the current financial year ending March.
Lately, with the ease of doing business, improvement in logistics chains, and contribution of domestic players, rationalisation of tariffs, the industry expects mobile phone exports to jump to $50 billion by FY27.
Source:financialexpress.com