Interim Budget 2024: GTRI says govt should not cut import duty on smartphone components

Global Trade Research Initiative (GTRI) said in a report that the government should not reduce import duties on electronic components used in making smartphones in the upcoming interim Budget 2024 as the existing tariff structures have already proven successful and changing them would be ineffective. Local manufacturing may suffer losses. monday.

The GTRI report said maintaining the current rates will help balance the industry’s growth and long-term growth in India’s growing smartphone market.

“Currently, the tariff on imported parts of smartphones in India ranges between 7.5 percent to 10 percent. The budget must maintain these taxes. GTRI said, there should be no cut in import duty on parts used in making smartphones in the budget. It said the current rate of levy supports duty-free imports to make products for export.

The budget is to be presented on February 1.

The suggestion is contrary to the demand of industry body India Cellular and Electronics Association (ICEA) that cut in import duty on mobile phone components could increase domestic production of handsets by 28 per cent to $82 billion, boost exports and indigenous manufacturing. may get support. The think tank said Indian manufacturers will have to pay duty on smartphones sold within India, but exports should be exempted from such duty.

Ajay Srivastava, co-founder of GTRI, said, “Companies can import inputs or capital goods required for manufacturing and exporting electronic goods duty free. This is facilitated through schemes such as advance authorisation, export promotion of capital goods and operations in special economic zones (SEZs) or 100 per cent export oriented units. Additionally, companies can use the customs bond scheme for duty-free imports without localization requirements.

The GTRI report also said that India’s smartphone industry, with growth from $7.2 billion in 2022 to $13.9 billion in 2023, has become the top performer for the PLI (Production-Linked Incentive) scheme by a wide margin and More than 98 percent of smartphones have been sold. Are made locally in India.

This reflects the success of efficient policy interventions including the PLI incentive that allows 4-6 per cent cash incentive on annual incremental production and maintaining differential tariffs for smartphones and its components.

“Big players like Apple, by using facilities in SEZs, benefit greatly from this, by exporting large quantities without paying import duty on components. Apple has collaborated with contract manufacturers Foxconn and Wistron to manufacture smartphones in India. Both Foxconn and Wistron are located in SEZs in India,” he said.

Srivastava said removing the tariffs could lead to an increase in surface assembly plants that rely on imported parts and contribute little to the local economy. “Such arrangements will disappear once government incentives end, hurting deeper, more sustainable manufacturing efforts in India. “Imported components and sub-assemblies contribute up to 90 per cent of the physical price bill of Indian-made smartphones,” he said.

GTRI said the import bill of electronic components increased from $24.4 billion to $30.7 billion, an increase of 25.5 per cent indicating higher use of imported components in local manufacturing. Over time, it is expected that value addition will increase further due to components. Are made at the local level.

“However, cutting import duties on components will remove any incentive to set up intensive manufacturing operations in India. Companies will be happy to assemble mobile phones from almost ready-made imported kits. As soon as the government incentives end, they will pack up and leave.”

It said that during 2015-17, many companies started assembling smartphones from imported SKD (semi-knocked-down) kits and tax arbitrage provided this opportunity.

“To promote manufacturing, the government announced a differential tax policy. There is only one percent countervailing duty on import of components to make phones. But importing for sale attracted 12.5 percent duty. Disintermediation disappeared with the introduction of GST (Goods and Services Tax) in July 2017. All such companies disappeared together,” the report said.

It said maintaining the existing import duties is important to maintain the growth and depth of India’s smartphone manufacturing sector. “Reducing these tariffs could promote short-term assembly operations over long-term, valuable manufacturing, thereby undermining the success and future potential of the industry. The decision to maintain existing import duties on smartphone components is more than fiscal policy; This is a strategic step towards sustainable economic development.