Study Reveals India’s Tariffs Hindering Electronics Sector, Urges Government to Match Competitors’ Rates
The Indian Cellular and Electronics Association conducted a study highlighting that India’s tariffs on electronics inputs are the highest among competing economies like Vietnam and China. The industry body is advocating for a rationalization of tariffs or import duties to eliminate disadvantages and enhance competitiveness. By aligning with global rates, the Indian electronics industry aims to strengthen its position in the international market and overcome challenges posed by tariffs.
The industry body emphasizes the importance of reducing tariffs as a preparatory measure for a potentially unfavorable decision in the ongoing WTO case on the ITA-1 matter. The association suggests that implementing a glide path for input duties aligned with Vietnam and China’s rates would provide the domestic industry with the necessary resilience and preparedness.
The Indian electronics industry foresees significant advantages in terms of mobile manufacturing and export growth if the current tariffs are reduced. The study reveals that reduced tariffs would further fuel the mobile phone sector, which has already transformed from being 78% import-dependent in 2014 to becoming an export-oriented market, with ₹90,000 crore of exports by March 2023. Moreover, 99.2% of phones sold in India are now domestically manufactured.
Currently, India’s tariff structures consist of six tiers or slabs, ranging from 0% to 20%, with surcharges. The industry body proposes reducing the number of tiers to three – 0%, 5%, and 10%. This streamlining would significantly reduce arbitrage, misinterpretation, and subsequent disputes between importers and customs authorities.
To ensure proper technical classification under respective codes, the industry body suggests the formation of a joint structure consisting of customs authorities and a nodal ministry for electronics. This collaboration would facilitate the resolution of classification-related issues and disputes, promoting smoother operations within the industry.
Drawing comparisons with competing economies such as Vietnam, Mexico, Thailand, and China, the study highlights the importance of revising India’s tariff structures. The analysis reveals that India’s non-zero tariffs are higher for up to 98% of the lines compared to Vietnam (FTA tariffs) and 90% compared to Thailand. Furthermore, the competing economies possess a significantly higher number of zero tariff lines, emphasizing the need for change to support India’s ambitious $300 billion electronics production goal by 2025-26, including $120 billion of exports.
The study underscores the negative impact of high import duties on India’s domestic electronics ecosystem. Rather than fostering a self-sustaining ecosystem, high tariffs perpetuate imports and hinder competitiveness. The industry body argues that high tariffs are suitable during an import substitution phase but not when the sector, such as electronics, has transitioned into export-led growth. Highlighting the positive growth in mobile phone and electronics exports, the study emphasizes the potential for further expansion if tariff reforms are implemented.
The Indian electronics industry faces a critical need for tariff reforms to level the playing field and enhance competitiveness in the global market. Aligning tariffs with those of competitors like Vietnam and China is crucial for achieving the industry’s ambitious production and export targets. By reducing tariffs, streamlining structures, and fostering a supportive domestic ecosystem, the Indian electronics industry aims to cement its position as a global player in the rapidly evolving landscape of electronics design and manufacturing.
