Union Budget 2024: GTRI Urges Govt Not to Cut Import Duty on Smartphone Components

The Global Trade Research Initiative (GTRI) has advised the government to maintain current import duties on smartphone components in Budget 2024. They argue that reducing these tariffs could lead to an increase in superficial assembly plants that rely heavily on imported parts, offering minimal benefit to the local economy.

Finance Minister Nirmala Sitharaman is set to present the Union Budget for 2024-25. GTRI Founder Ajay Srivastava highlighted that imported components and subassemblies constitute up to 90 per cent of the bill of material value for phones manufactured in India. He stated, "Do not cut import duty on smartphone components in this Budget. Removing tariffs could lead to an increase in superficial assembly plants that rely heavily on imported parts, contributing little to the local economy."

Current Tariff Structure

Currently, import tariffs on smartphones are set at 20 per cent, while duties on components range from 0 to 20 per cent. Srivastava believes maintaining these tariffs is crucial for several reasons. He highlighted that India's smartphone production has surpassed USD 49 billion in FY24, with exports growing by 42 per cent from USD 10.96 billion in FY23 to USD 15.57 billion in FY24.

The success of policies like the Production Linked Incentive (PLI) scheme, which offers a 4-6 per cent cash incentive on annual incremental production, is evident as over 98 per cent of smartphones sold in India are made locally. "Smartphone is the most celebrated success story pushed by PLI incentives and a clever tariff arbitrage between these phones and its components," Srivastava further added.

The GTRI noted that Indian manufacturers can import necessary inputs or capital goods duty-free for manufacturing and exporting electronic items through schemes like Advance Authorisation, Export Promotion Capital Goods, Special Economic Zones (SEZs), and 100 per cent Export Oriented Units. Companies can also use the customs bond scheme for duty-free imports without localisation requirements.

"Apple, for example, through its contract manufacturers Foxconn and Wistron, benefits from SEZs to manufacture and export smartphones. In 2023, Apple's iPhone production in India exceeded Rs 1 lakh crore (about USD 13.5 billion), with Rs 65,000 crore worth of exports," GTRI stated.

In FY24, electronics imports reached USD 83.92 billion, with component imports growing by 36.8 per cent from USD 25.13 billion in FY23 to USD 34.36 billion in FY24. The high reliance on imported parts suggests that cutting import duties would eliminate incentives for deeper manufacturing operations in India.

The think tank added that reducing these tariffs could encourage firms to assemble mobile phones from nearly completely imported kits and exit once incentives disappear. "Maintaining current import tariffs is crucial for sustaining the growth and depth of India's smartphone manufacturing sector," it said.

Srivastava said that these tariffs are not merely protective measures but essential catalysts for fostering a robust smartphone manufacturing ecosystem in India. This ecosystem can compete globally while driving local employment and technological advancement.

"Preserving these tariffs is essential for continuing the remarkable growth trajectory and nurturing the deep manufacturing capabilities of India's smartphone sector," he concluded.