Top electronics body urges govt to reduce input tariffs to attract GVCs, seeks Rs 45,000-cr sops

Electronics component PLi

The electronics industry has urged the government to reduce input tariffs to build a robust components ecosystem and attract global value chains (GVCs), enabling India to compete with China and Vietnam. The goal is to scale up electronics production and exports in the next five years.

The industry has also sought incentives of Rs 40,000-45,000 crore in the form of direct financial incentives or through the production-linked incentive (PLI) scheme or both, to promote local manufacturing of components that are used in making mobile phones.

"Sustaining the tremendous growth in mobile phone production and exports requires matching the competitive tariff regimes of China and Vietnam. Current high tariffs increase manufacturing costs in India by 7-7.5% on the bill of materials (BoM), deterring local ecosystem development, hampering exports, and adversely impacting job creation," said Pankaj Mohindroo, Chairman of ICEA.

High tariffs on inputs reduce exports because they make products uncompetitive, leading to lower production of the final product, such as mobile phones. Addressing this requires a reduction in tariffs on inputs, Mohindroo emphasised.

On the financial support package, Mohindroo said it will be spread over eight years and meant for components and sub-assemblies. "It can run parallel to the mobile PLI scheme which will have a sunset date."

India Cellular & Electronics Association (ICEA), which represents companies like Apple, Foxconn, Dixon, Xiaomi, Lava, and other Indian and multinational electronics and handset manufacturers, highlighted that electronics manufacturing in India has become a significant sector for economic growth and job creation.

To advance primarily through exports, India must evolve into a globally competitive manufacturing and export hub. Attracting GVCs and developing large-scale Indian companies is essential. These companies need to establish global-scale factories and warehousing to ensure just-in-time delivery.

According to an ICEA study, India continues to have the highest tariffs on inputs among competing economies such as China and Vietnam. High tariffs on inputs increase costs, making the Indian industry less competitive and hindering its ability to join GVCs, thereby discouraging GVCs from shifting to India.

ICEA stressed that competitiveness is critical to building scale and attracting FDI, which positively impacts domestic value addition and job creation. "The study suggests that any revenue foregone under this tariff reduction would be more than compensated by the additional revenue generated from higher affordability, increased production, sales of smartphones, and higher economic activity following job creation," ICEA said.

ICEA based its recommendations on a "tariff study" it conducted across seven competing economies, including India. "We recognise that developing the domestic supply chain is extremely critical, but the right way is not by protecting with high tariffs but by drastically reducing disabilities by creating competitiveness and infusing incentive schemes wherever there are gaps," ICEA stated in its latest report.

To attract GVCs and increase the scale of production, ICEA recommended that all tariff lines significantly increasing costs, including components of complex subassemblies, should be brought down to zero. It also suggested the removal of a 2.5 percent tariff on sub-assembly parts and inputs.

"These tariffs don't serve any purpose. They fail to build a domestic industry while increasing costs, complexity, and compliance for legitimate manufacturers," ICEA said.

The industry body further suggested that the government provide appropriate policy and financial support for building a large-scale components and sub-assembly ecosystem, with a longer gestation and incentive period.

India’s electronics manufacturing output reached a record-breaking $115 billion in FY24, with $29.1 billion in electronics exports, making electronics the fifth-largest export category from India. Mobile phones alone contributed over 54 percent of this export with a production value of $51 billion in FY24. Over the past ten years, mobile phone production has increased 21-fold, while exports have grown 81-fold, reducing import dependency from 78 percent in 2014-15 to less than 3 percent in FY23-24. The growth in mobile phone production is now primarily led by exports.

"Our goal is to further accelerate the current growth in electronics manufacturing to the next level. Through focused policy, financial support, globally competitive tax regimes, and by fostering advanced skills, India can become a leader in the global electronics industry. Now is the moment to seize our future and lead with innovation, self-reliance, and strategic foresight," Mohindroo concluded.