The ministry of electronics and information technology (MeitY), as part of its recommendations for the interim Budget to the finance ministry, has suggested that import duty on mobile phone components such as printed circuit board assembly (PCBA), charger/adapter, cell, mic and receiver, speaker, etc, should be lowered.
Smartphone manufacturers have been 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, the India Cellular and Electronics Association (ICEA) said in its recent report on the subject.
In an interview to CNBC-TV18 in Davos on Friday, communications and IT minister Ashwini Vaishnaw endorsed the industry’s demand for a reduction in duties on imported mobile phone components.
“We’ve had a detailed discussion with the industry. Most of the industry gave clear, cogent reasons for the demand for duty cuts. We have also made recommendations,” Vaishnaw told the TV channel. The demand from the smartphone industry on duty reduction is in the context that the domestic market is slowing down and growth is dependent on exports.
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.
Industry estimates suggest that 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. The same 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.
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).
