India’s tariffs on electronics inputs highest amongst competing economies
- The industry body ICEA has said that the government must begin rationalising of tariffs or import duties to reduce disadvantages and increase competitiveness with rivals like Vietnam and China
New Delhi: India's tariffs on electronics inputs are the highest amongst competing economies, according to a study by the Indian Cellular and Electronics Association. The industry body has said that the government must begin rationalising of tariffs or import duties to reduce disadvantages and increase competitiveness with rivals like Vietnam and China.
The industry body said in its study and in a statement that the department of revenue, under the ministry of finance which takes the call on levying of tariffs, must create a glidepath for input duties to match those of Vietnam and China over next two years. "This will also help prepare the domestic industry in the eventuality that the final decision in the WTO case on the ITA-1 matter is unfavourable," the body said, referring to duties levied by India on fully made smartphones that has been challenged at the forum.
The body which represents many handset and electronics players in the country said that mobile manufacturing will get a further boost on the back of reduced tariffs as the current tariffs had already outlived their utility, transforming the mobile phone sector from a 78% import-dependent sector in 2014 to export oriented market with ₹90,000 crore of exports by March 2023 and 99.2% of phones sold in India are made in India.
Currently, India has the most complicated tariff regimes with six tiers or slabs - 0%, 2.5%, 5%, 10%, 15% and 20%, plus surcharges, which leaves the room for classification misinterpretation, and in turn, disputes between importers and customs authorities.
"Industry seeks a reduction in the number of tiers/slabs from six to three – 0%, 5% and 10%. This will considerably reduce arbitrage, misinterpretation and consequent disputes," the body said.
Further, a structure consisting of customs authorities and nodal ministry for electronics could jointly look at such cases to ensure proper technical classification under respective codes, based on established principles.
Giving examples of competing economies including Vietnam, Mexico, Thailand and China covering 120 tariff lines, the body has said that the change in tariff structures was important since it would impact India’s goals to reach the $300 bn electronics production goal by 2025-26 – including $120 bn of exports.
A line-by-line comparison of India’s non-zero tariffs shows that India’s tariffs are higher for up to 98% lines compared to Vietnam (for FTA tariffs) and 90% of the lines compared to Thailand, the body said, adding that the competing economies have approximately double or more zero tariff lines than India. India’s MFN tariff average is 9.7%, compared to averages from 3.2% in China.
Over 80% of Vietnam’s imports for 120 tariff lines are under free trade agreements (FTAs). The average tariff in Vietnam (considering their FTA imports) is much lower - close to 1%. The study also shows that instead of building a domestic ecosystem, high import duties perpetuate imports as it results in uncompetitiveness of the domestic ecosystem.
High tariffs only work in an import substitution phase, not when a sector like electronics has entered the phase of export-led growth. India’s mobile phone exports increased nearly 100% to $11.1 billion, and electronics exports by about 56% to $23.6 billion by March 2023.
The study shows that between 2015 and 2021, while India’s electronics tariffs have risen in general, those of the competing economies have decreased. In 2022, for smartphone components, the import duty on lens glass of cameras was reduced from 2.75% to zero in India, while others remained unchanged and generally higher than competing economies.
India and Mexico have trade deficits, while China, Thailand and Vietnam have moved to an overall trade surplus. Despite lower tariffs in 2022 and while tariffs continually decreased during 2015 to 2021, each of the four competing economies performed better than India in exports, trade deficit and surplus for electronics, the study added.
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Business NewsIndustryManufacturingIndia’s tariffs on electronics inputs highest amongst competing economies
First Published:6 Jul 2023, 11:27 PM IST
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