ICEA Urges Tariff Rationalisation In Budget To Boost Industry Amid PLI Challenges

The association recommended simplifying India's complex seven-tier tariff structure for the mobile sector into a more streamlined 3+1 structure (0 per cent, 5 per cent, 10 per cent, and 15 per cent)

The India Cellular & Electronics Association (ICEA) has advocated for a reduction in input tariffs on smartphone components in the upcoming Budget, which is scheduled for later this month. According to ICEA, higher input tariffs perpetuate import dependence and undermine the potential impact of the Production Linked Incentive (PLI) scheme. 

The association has outlined three key recommendations: rationalising tariffs on mobile phone parts and sub-assemblies, providing policy and financial support to develop a large-scale ecosystem, and establishing global-scale factories and warehousing for efficient delivery.

"Higher tariffs make India incompetent beyond import substitution and creates a vicious cycle of high prices by domestic suppliers and global suppliers, including those operating in India," stated ICEA. The association highlighted that these tariffs deter global firms from relocating production to India, attributing the slow development of local supply chains to technological gaps, high financing costs, and skill shortages exacerbated by import tariffs.

ICEA's proposals are based on a comprehensive "Tariff Study" across seven competing economies, including India, where it identified China and Vietnam as primary rivals in the global mobile phone market. The study revealed that India's input tariffs significantly surpass those of its competitors, resulting in higher costs for finished goods and reducing overall industry competitiveness.

The association recommended simplifying India's complex seven-tier tariff structure for the mobile sector into a more streamlined 3+1 structure (0 per cent, 5 per cent, 10 per cent, and 15 per cent), advocating that reducing tariffs on sub-assemblies and components thereof would enhance their competitiveness against global counterparts.

ICEA emphasised that any revenue reduction from tariff cuts would be offset by increased affordability, higher smartphone production and sales, and expanded economic activity through job creation. It called for zero tariffs on critical components to attract Global Value Chains (GVCs) and expand production scale.

Furthermore, ICEA urged the government to provide consistent policy and financial backing for establishing large-scale component and sub-assembly ecosystems. This, it argued, would ensure long-term business predictability, foster job creation, nurture advanced skills, integrate into global electronics value chains, boost exports, and enhance value addition.

Highlighting India's growing stature in electronics manufacturing, with an output of $115 billion in FY24 and electronics exports reaching $29.1 billion, ICEA underscored the pivotal role of mobile phones, contributing over 54 per cent to total electronics exports. ICEA's Chairman, Pankaj Mohindroo, emphasised that with focused policies, competitive tax regimes, and skill development initiatives, India has the potential to lead the global electronics industry.

ICEA concluded that developing a robust and sustainable large-scale electronics manufacturing sector hinges on nurturing a comprehensive components and sub-assembly ecosystem.