The World Trade Organisation‘s ruling against India on levy of import duties on information and communications technology (ICT) products, including mobile phones, will not impact the smartphone production-linked incentive scheme, which enjoys the protection of such duties.
Officials said that the government will be challenging the WTO panel’s ruling in the dispute settlement body and this would ensure that the order is kept in abeyance. However, since the appellate body is non-functional since 2017 with its seven-member judges having retired and the United States blocking appointment of new members since then due to lack of consensus, the smartphone PLI scheme as well as the one on IT hardware will complete the five-year tenure with duty protection remaining intact.
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The development will bring relief to the government as the smartphone PLI is the most successful of such schemes with exports doubling to Rs 90,000 crore in FY23, exceeding government’s estimate of Rs 75,000 crore. Total exports of electronic goods in FY23 increased 58% to Rs 1.85 trillion and mobile phone now comprises 46% of the overall electronic goods exports.
The scheme is also the largest of all the PLIs with an outlay of Rs 40,951 crore. Under the scheme, the government expects a total incremental production of Rs 10.05 trillion, exports of Rs 6.5 trillion, and direct and indirect jobs of up to 800,000 by 2026.
“By this time the PMP (phased manufacturing plan) would have run its course and the industry would have developed indigenous supply chain of manufacturing electronic products,” officials said.
The same approach worked out in the case of auto industry several years back when foreign manufacturers were setting up base in India and a PMP was put in place for them to meet local sourcing guidelines. By the time the case went against India in WTO, the indigenous supply chain was in place and higher duties were not required, officials added.
The PLI scheme relating to smartphones and IT hardware have local sourcing clauses according to PMP, which otherwise are against WTO rules.
However, India had taken the stand that the Information Technology Agreement (ITA), to which it was a signatory in 1997, was related to different technology products which are not used in smartphones. In those times, there were no smartphones and the components in use were different from the ones which are used now, hence they fall outside the purview of bound rate of zero duty.
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The ITA is an umbrella agreement under which all member countries are bound to eliminate basic custom duties on all IT products. However, to promote domestic manufacturing and to bring down its high import bill on electronics, the government came out with a PMP. Under it, duties are kept at zero for products in the initial years and the industry is expected to create an ecosystem for local component manufacturing. As the industry develops the same according to a fixed time schedule, import duties on those products are hiked.
In April 2016, European Union, Japan and US had written to WTO seeking justification from India for increasing basic customs on a host of ICT products.
In 2017, government levied an import duty of 7.5%, which later increased to 15% on a host of ICT products to encourage domestic production. This was challenged in WTO by EU in 2019. Japan and Taiwan also filed complaints subsequently. The duties were raised to 20% by the government later.