Budget 2024: GTRI urges govt not to cut import duty on smartphone parts

The Global Trade Research Initiative (GTRI) said the current schemes and tariff structure resulted in great success, and current framework is also ensuring duty-free imports of components for export

Economic think tank GTRI on Monday urged the government to cut import duty on smartphone components in the Budget as it could lead to an increase in superficial assembly plants that rely heavily on imported parts.

Finance Minister Nirmala Sitharaman will present the Union Budget for 2024-25 tomorrow.

The Global Trade Research Initiative (GTRI) said the current schemes and tariff structure resulted in great success, and the current framework is also ensuring duty-free imports of components for exports.

"Do not cut import duty on smartphone components in this Budget. Removing tariffs could lead to an increase in superficial assembly plants that rely heavily on imported parts, contributing little to the local economy.

"Imported components and subassemblies account for up to 90 per cent of the bill of material value for an India-made phones," GTRI Founder Ajay Srivastava said.

Currently, import tariffs on the product is 20 per cent while duty on components range between 0 and 20 per cent. The Budget should maintain these tariffs for several compelling reasons, he said.

"Smartphone is the most celebrated success story pushed by PLI (production linked incentive) incentives and a clever tariff arbitrage between these phones and its components," he added.

India's production of this item has crossed USD 49 billion in FY24, and its exports grew from USD 10.96 billion in FY23 to USD 15.57 billion in FY24, a growth of 42 per cent.

Additionally, over 98 per cent of smartphones sold in India are made locally, demonstrating the success of policies like the PLI scheme, which offers a 4-6 per cent cash incentive on annual incremental production. No need to change a policy giving great results, it said.

The GTRI added that Indian manufacturers can import necessary inputs or capital goods duty-free for manufacturing and exporting electronic items, facilitated through schemes like Advance Authorisation, Export Promotion Capital Goods, Special Economic Zones (SEZs), and 100 per cent Export Oriented Units.

Firms can also use the customs bond scheme for duty-free imports without localisation requirements.

"Apple, for example, through its contract manufacturers Foxconn and Wistron, benefits from SEZs to manufacture and export smartphones. In 2023, Apple's iPhone production in India exceeded Rs 1 lakh crore (about USD 13.5 billion), with Rs 65,000 crore worth of exports," the think-tank said.

Schemes like SEZs thus allow import of all inputs at zero duty, thus making Indian smartphone globally competitive, it added.

In FY24, electronics imports crossed USD 83.92 billion, with components growing from USD 25.13 billion in FY23 to USD 34.36 billion in FY24, a 36.8 per cent increase.

It added that the high reliance on imported parts in local manufacturing suggests that cutting import duties would eliminate incentives to establish deeper manufacturing operations in India, leading firms to assemble mobile phones from nearly complete imported kits and exit once incentives disappear.

"Maintaining current import tariffs is crucial for sustaining the growth and depth of India's smartphone manufacturing sector. Reducing these tariffs could encourage short-term assembly operations over long-term, valuable manufacturing, undermining the industry's success and future potential," it said.

Srivastava said these tariffs are not just protective measures but catalysts for fostering a robust, self-reliant smartphone manufacturing ecosystem in India.

This ecosystem can compete globally while driving local employment and technological advancement, he added.

"Preserving these tariffs is essential for continuing the remarkable growth trajectory and nurturing the deep manufacturing capabilities of India's smartphone sector," he said.