Indian robotics is shackled by high duties. The government must free it | Mint

Indian robotics is shackled by high duties. The government must free it

The Indian robotics market is projected to generate revenue of $810.50 million in 2023, which is just one-eighth of the Chinese robotics market’s projected revenue (Photo: iStock)
The Indian robotics market is projected to generate revenue of $810.50 million in 2023, which is just one-eighth of the Chinese robotics market’s projected revenue (Photo: iStock)

Summary

  • While India dreams big with its National Strategy on Robotics, high customs duties and other taxes remain a hurdle to competing with the likes of Vietnam and Thailand, let alone China

The government of India recently released a draft of the National Strategy on Robotics. Robotics has been receiving a lot of attention lately as one of the27 focus sectors under the Make In India 2.0 initiative. Here you can hear the union minister of electronics and information technology talk about the potential of AI and robotics in India.

With this strategy document, the government aims to position India as a global leader in robotics manufacturing and enhance its integration with the global robotics chain.

India is far from becoming a robotics manufacturing giant. The Indian robotics market is projected to generate revenue of $810.50 million in 2023, which is just one-eighth of the Chinese robotics market’s projected revenue. A big reason for this disparity is high costs, which tie the hands of manufacturers, crippling their ability to scale production and exports. High import duties in particular play an important role in increasing the cost of production.

Robotics manufacturers in India are heavily reliant on imports for raw materials. A typical robotics bill-of-materials has the following components: core computer components like microcontrollers, actuators like motors and wheels, and sensors like lidars and cameras. India is one of the top three importers of microcontrollers, actuators and sensors. Duties, therefore, have an undue impact on our ability to be competitive in this market.

Indian customs duty on robotics components is significantly higher than that of Southeast Asian competitors such as Vietnam and Thailand. These countries levy no basic customs duty on key robotics components, something Vietnam has been doing since 2015. (Here’s the Vietnam tariff schedule).

Source: Tariff schedules of India, Vietnam, and Thailand
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Source: Tariff schedules of India, Vietnam, and Thailand

In addition to customs duty, other taxes and charges affect our costs and competitiveness. For example, in India, the goods and services taxon most electronic goods is 18% while Vietnam and Thailand levy a value-added tax of no more than 10%. And since 2018, India has levied a social welfare surcharge (SWS) at 10% of the aggregate duties, taxes, and cesses paid on imported goods. Researchers could not find an equivalent surcharge in Vietnam and Thailand.

Take the case of lithium batteries, for which the government has reduced import duties to encourage the production of electric vehicles in India. In her 2023 budget speech, the finance minister announced a temporary slashing of duties on lithium batteries by almost half. Earlier, lithium batteries could attract customs duty as high as 21%.

Indian robotics assemblers and manufacturers will benefit from a reduction in – or at least a temporary exemption from – customs duties on components. In the absence of a domestic ecosystem for ancillary products, India first needs to globalise, then localise. The goal should be to mass manufacture or assemble robots at low cost for the world, and use the gains to innovate and invest in building a local market for ancillaries.

The success of the electronics industry in China and Vietnam could be attributed to this strategy. One of the key measures adopted by these countries was sourcing intermediate products at low cost by slashing duties (ICRIER, 2022). Today, China exports electronic products worth $900 billion annually and Vietnam exports products exceeding $100 billion, while India’s electronics exports lag far behind at $15 billion (ICRIER, 2022).

The China-plus-one strategy is on every policymaker's mind. Vietnam’s electronics success was kickstarted by companies seeking an alternative to China. Multinationals are also testing India as a manufacturing alternative. There is a huge market to capture, as the world robotics installations are expected to grow at 7% per annum.

In the run-up to the next budget, the government should consider systematically reducing duties on products that robot manufacturers need. The time is ripe; this may be our window of opportunity to encourage enterprises and manufacture robots for the world.

Gaurav Vikhe is chief of product at Acceleration Robotics. Sargun Kaur is a researcher at Prosperiti.

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