Economy
Will WTO ruling impact Make-in-India plans?
Summary
India will approach WTO’s appellate body but it’s remained non-functional since 2019 as membership to the body has dwindled
The World Trade Organization (WTO) has found India’s tariffs on mobile phones and electronic components inconsistent with global norms. If its appellate tribunal now upholds the ruling, it could slow FDI flow into India’s booming electronics sector. Mint explains:
What is the WTO dispute about?
Over the last few years, India has imposed import duties on electronic items aimed at discouraging Chinese imports. However, India is a signatory to the Information Technology Agreement (ITA) which requires it to eliminate tariffs on a range of tech products. The European Union, China, Japan, Thailand, Singapore and the US have objected to duties on communication components like microphones and transmission apparatus. India denied these charges on the grounds that at the time of signing the ITA, in 1997, smartphones weren’t around and hence, there’s no case to answer.
Where’s the dispute headed?
Hard to say. India will approach WTO’s appellate body but it’s remained non-functional since 2019 as membership to the body has dwindled. The US has been blocking appointment of new members as it believes that WTO is biased against it. Therefore, several cases are pending. Murali Kallummal, professor, Centre for WTO Studies, IIFT, said the panel’s ruling will therefore have no impact on the industry right now as the final order will take a long time. By the time the top body decides, the kind of imports being questioned may change because of newer technologies hitting the market.
What is India’s stance on the matter?
India is unlikely to budge as its mobile phone exports have benefited from the duty, as has the Production Linked Incentive Scheme (PLI) for mobile phone manufacturing. India has decided to appeal in the appellate court instead of using multi-party interim appeal arbitration arrangement, as suggested by EU. This will help India buy time.
Could the ruling hurt the Indian industry?
Industry believes the near-term impact will not be severe. But the ruling does create a dent in the overall ‘Make-in-India’ initiative as foreign direct investors can turn cautious about further investments. It may slow FDIs in the information and communication technology sector. Experts caution that if the ruling affects India’s current duty structure, it could impact the momentum in local value addition. If India loses the appeal, going ahead, the impact could be more severe.
How could the PLI scheme still work?
Ajay Sahai, CEO, FIEO, said PLI works in two ways: by incentivizing production and by providing protection to the industry through higher duty on imports. This seems to be working as India’s mobile phone exports have been on the rise and neared the $10 billion a year mark in FY23. A setback at the appellate tribunal would only mean that India would be forced to remove the protection by reducing duty. It will not affect the incentives offered by the govt under the PLI scheme.
