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Mahesh

12/07/24 09:31 AM IST

Reducing tariffs for smartphone components

In News
  • The India Cellular and Electronics Association (ICEA), an industry body representing mobile and other electronics assembly and manufacturing units, has called for a reduction of tariffs on certain components for smartphones.
Tariff cuts
  • Reducing input costs for smartphone assembly units is the obvious reason for these demands.
  • However, a principal justification makers cite for reduced tariffs on components is the saturation of the domestic market: nearly every phone made in India is assembled domestically, and the surplus is exported.
  • By units, smartphones were the fifth largest classifiable commodity exported in the financial year 2022–23, compared to 2015–16, when the rank was 178.
  • The implication goes, now that domestic demand is fulfilled, the need for high component tariffs has dimmed. 
  • The industry seeking duty cuts for: Printed Circuit Boards (PCBs) and sub-assemblies, which are highly complex, and miniaturised inputs for smartphones, are not close to being made in India, increasing costs for local assembly operations.
  • Domestic manufacturing of these components’ could take around eight years.
  • The overall aggregate demand necessary for domestic investment in some inputs is much larger than the demand created by the prevailing production level.
  • This effectively means that current tariff levels on PCBs (20%) and other inputs are not resulting in increased domestic production of these components; rather, they are increasing the costs of assembly, as the components have to be assembled anyway.
  • The tariffs are also leading to a strange consequence: domestic component makers are jacking up prices they quote to assembly units to a “just noticeable difference” below the net cost of an imported component.
  • Cutting tariffs would force domestic component makers to cut their prices and relieve operating expense pressure for assembly units. 
Foreign Competitors
  • The industry is casting these proposed changes as a “competitive re-alignment” to keep up with other main electronics manufacturing giants in China, Vietnam, Thailand and Mexico.
  • Vietnam’s “bonded zones,” which have special exemptions on duties, allow assembly and manufacturing units based there to enjoy much lower tariffs on component imports.
  • “If Indian companies such as Micromax and Lava want their phone to be competitive in the global market, they should not think of import substitution when selecting parts and components.
  • They should use the best available technologies to make their phones, regardless of the fact the technologies are made in India or not.
  • When China started to assemble smartphones 15 years ago, Chinese firms’ only contribution was labour intensive assembly, accounting for about 3.6% of the total manufacturing value addition.
  • But, today, Chinese firms have captured about 25 per cent of the manufacturing value added by providing battery, camera filter, glass back-cover, stainless frame, printed circuit board assembly, and other parts, which are technology intensive and offer higher value added than pure assembly service.
  • To increase exports, smartphones have to be competitive vis a vis China and Vietnam. This would require reducing tariffs and most importantly maintaining a stability in the tariff regime.
  • Smartphone assembly units have been buoyed by the production linked incentive scheme for mobile manufacturing, which subsidises phones which are domestically assembled. 
Source- The Hindu

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