India has the highest tariffs of inputs on electronics manufacturing and the price rise due to high tariffs on inputs perpetuates imports, contrary to policy objectives of building a local ecosystem and increasing domestic value addition, a report has said on Wednesday.

According to a seven-country study on tariffs on components and sub-assemblies for making smartphones, by industry body, India Cellular & Electronics Association (ICEA), competitiveness is critical to building scale, which in turn positively impacts domestic value addition and job creation.

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The study shows that India’s simple average most favoured nation (MFN) tariff for inputs is 8.5 per cent, higher than China’s 3.7 per cent, it said adding that in practice, China’s tariffs are closer to zero because most mobile production takes place in ‘Bonded Zones’, where all inputs are at zero tariffs.

Similarly, nearly 80 per cent of Vietnam’s imported inputs are from countries with whom it has free trade agreements (FTA’s). Hereto, FTA weighted average tariff comparison between India and Vietnam shows that India’s simple average is at 6.8 per cent vis-a-vis Vietnam’s at 0.7 per cent, ICEA said in the report.

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“The highest tariffs for both China and Vietnam are 10 per cent maximum. By contrast, India has many more tariff lines, in addition to higher tariffs. Almost all (97 per cent) of Vietnam’s weighted average tariffs are between zero and five per cent, while 60 per cent of China’s tariff lines are in that range. A line-by-line comparison of India’s non-zero tariffs shows that India has higher MFN tariffs for 85 per cent of these lines compared to China, and 100 per cent of the lines compared to Vietnam,” it said.

High tariffs impact India’s manufacturing competitiveness and as a result there is an overall loss of competitiveness of six to seven per cent compared to Vietnam and China.

The study also indicated that India’s domestic production exceeds domestic demand, while simultaneously, domestic smartphone demand except in the very high-end phones is slowing down.

Exports have become the main driver of future growth and job creation, it said, adding that India’s smartphone exports jumped 100 per cent in FY23 to $11.1 billion over the previous fiscal. The industry expects exports of $15 billion in FY24.

Exports will form 30 per cent of the total production of $49-50 billion in current fiscal. Expanding exports requires competitiveness, which in turn requires large global value chains (GVCs) shifting major production lines to India and bringing Indian companies into the supply chain, it said.

“Unless India can match China and Vietnam’s competitive tariff regime in addition to other factors which impact competitiveness, export growth will also start seeing a slowdown beyond the current fiscal,” ICEA added in the report.

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