ICEA Advocates Tariff Cuts in Budget 2024-25

ICEA Urges Tariff Cuts In Budget 2024-25 To Boost Electronics Industry

The India Cellular & Electronics Association (ICEA) is advocating for substantial tariff reductions in the upcoming Union Budget 2024-25 to enhance the competitiveness of India's electronics industry. This initiative is aimed at attracting Global Value Chains (GVCs), increasing electronics production, and boosting exports over the next five years. The ICEA's recommendations focus on reducing input tariffs and fostering a robust local components ecosystem.

A comprehensive "Tariff Study" by the ICEA underscores the need for these changes. The study, which compares input tariffs for smartphones across seven countries, reveals that India imposes the highest tariffs on inputs among its key competitors. This significantly raises production costs and diminishes the global competitiveness of India's electronics sector.

According to the study, India's average Most Favoured Nation (MFN) tariff for smartphone inputs is 7.4 per cent, a stark contrast to China's near-zero tariffs in bonded zones and Vietnam's 0.7 per cent Free Trade Agreement (FTA)-weighted average tariffs. This discrepancy makes it challenging for India to attract GVCs and scale up its electronics manufacturing sector. In comparison, almost all of Vietnam's weighted average tariffs are between zero and 5 per cent, and 56 per cent of China's tariff lines fall within that range.

Pankaj Mohindroo, Chairman of ICEA, emphasized the urgent need for tariff reductions to sustain the significant growth in mobile phone production and exports. "Our current high tariffs increase manufacturing costs by 7-7.5 per cent on the bill of materials, which hampers local ecosystem development, reduces export potential, and adversely impacts job creation," he stated.

To address these challenges, the ICEA study proposes a phased reduction of tariffs to enhance India's competitiveness. The key recommendations include:Zero Tariffs on Critical Components: Reducing tariffs on essential components of complex subassemblies to zero. This move aims to lower production costs and make India more attractive to GVCs.Simplified Tariff Slabs: Streamlining India's seven tariff slabs for the mobile sector into three primary slabs (0 per cent, 5 per cent, 10 per cent, and 15 per cent) by 2025. Simplification of the tariff structure will reduce administrative complexities and promote ease of doing business.Reduced Duties on Key Inputs: Lowering duties from 20 per cent to 15 per cent on Printed Circuit Board Assemblies (PCBA), charger adapters, and mobile phones, and from 15 per cent to 10 per cent on microphones/receivers. This reduction aims to make India's electronics manufacturing more cost-competitive.Elimination of Minor Tariffs: Removing the 2.5 per cent tariff on various sub-assembly parts and inputs, which currently add unnecessary costs without fostering a domestic industry. This elimination is expected to encourage the development of a local components ecosystem.

The ICEA emphasizes that to create a sustainable it is crucial to develop a components and sub-assembly ecosystem. This calls for policy and financial support to build large-scale manufacturing capabilities, which would provide long-term policy predictability, foster advanced skills, integrate into global value chains, achieve scale, increase exports, and enhance value addition.

In summary, the are geared towards making India a more competitive player in the global electronics market. By aligning India's tariff regime with those of leading manufacturing hubs like China and Vietnam, the country can attract more GVCs, boost local production, and significantly increase exports, thereby contributing to economic growth and job creation.