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Tariff cuts for smartphone components UPSC NOTE

 

  • The Indian 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. 

  • The demand appears, at first blush, to be at odds with the goal of the government — and domestic players — to expand the domestic industrial base for components. 

  • However, the ICEA, whose members have included Apple and Foxconn, has argued that it opposes tariff cuts for components that are widely manufactured in India, such as open cells and LED light parts.

  • 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

  • The second justification, the industry cites, is the nature of the specific components that it is 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

  • Also, 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

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,” ICEA argues. 

  • “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,” the ICEA report says. 

  • “But, today, Chinese firms have captured about 25% of the manufacturing value added by providing battery, camera filter, glass back-cover, stainless frame, PCB assembly, and other parts, which are technology intensive and offer higher value added than pure assembly service,” the ICEA points out. 

  • There is a need to scale up production of smartphones. 

  • At this stage this can only be done by increasing exports. 

  • 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.


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Learnerz IAS | Concept oriented UPSC Classes in Malayalam: Tariff cuts for smartphone components UPSC NOTE
Tariff cuts for smartphone components UPSC NOTE
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Learnerz IAS | Concept oriented UPSC Classes in Malayalam
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