IT Ministry wants to beat Vietnam and match China in the smartphone export race, documents show

India risks losing out to China and Vietnam as it seeks to become a major smartphone export hub and needs to “work faster” to woo global companies with lower tariffs, the deputy IT minister said in government documents seen by Reuters. ” Needed.

Smartphone manufacturing is a key plank of Prime Minister Narendra Modi’s ambitions to boost the economy and create jobs by attracting companies like Apple, Foxconn and Samsung to India, the world’s second-largest mobile market with year-on-year growth in production. The year has increased by 16%. $44 billion last year.

PM Modi’s government says this success is mostly due to the financial incentives given to companies to produce more. But lawmakers and lobby groups at Apple and other companies argue that India’s high tariffs are a deterrent to companies looking to expand their supply chains beyond China, and that countries like Vietnam, Thailand and Mexico should have lower tariffs on components. Phones have gone ahead in exports by offering.

A January 3 letter drafted by Indian Deputy IT Minister Rajiv Chandrashekhar and a confidential presentation sent to the Finance Minister shows the extent of his ministry’s concerns about losses due to uncompetitive tariffs.

“Production costs are higher in India due to the highest tariffs in major manufacturing sites,” Chandrasekhar wrote in documents seen by Reuters.

“Geopolitical realignment is forcing supply chains to shift out of China… We must act now, otherwise they will shift to Vietnam, Mexico and Thailand.”

Chandrashekhar and India’s IT ministry did not respond to Reuters requests for comment.

Low tariffs on components are important for India’s ambitions to attract smartphone makers.

“Made in India” phones use many locally made parts, but supply chain limitations cause companies to import many high quality parts from China and elsewhere. These parts are then subject to higher tariffs that the government imposes to protect local manufacturers, increasing the overall cost.

US Ambassador Eric Garcetti recently said that foreign investment in India is not coming at the pace it should, and because of tariffs they are going to countries like Vietnam. “If you tax inputs… you are not protecting the market. What you are doing is restricting the market,” he said.

Chandrashekhar documents how low taxes in China and Vietnam helped promote their exports. He said exports accounted for only 25% of India’s smartphone output last year, compared to 63% of China’s $270 billion output and 95% of Vietnam’s $40 billion output.

“Compete with China, defeat Vietnam”

India wants to account for 25% of global electronics manufacturing by 2029, but official documents showed its share was currently only 4%, even though Apple, Foxconn and Xiaomi had recently increased production.

Chandrashekhar’s papers last month were addressed to India’s Finance Minister Nirmala Sitharaman to advocate for lower tariffs in the annual budget. The Finance Ministry reduced taxes on some components, including battery covers, from 15% to 10%, but did not agree to several other tariff reduction requests.

The Finance Ministry and Sitharaman’s office did not respond to requests for comment.

India still imposes a 20% tax on parts including chargers, some circuit boards and fully assembled phones. The IT Minister wanted those taxes to be reduced to 15% this year.

Chandrashekhar also argued that Vietnam and China do not impose tariffs of more than 10% on their “most favored nation” trading partners or components from countries with which they have free trade agreements. India does not do so and imposes “high” tariffs on many components, he said.

Chandrashekhar wrote, “To attract global supply chains, we will have to match China on tariffs and defeat Vietnam.” “No country with high tariffs can attract them”.

Local market is becoming saturated, focus is on exports

Last week, Xiaomi privately asked New Delhi to reduce tariffs on more components used in cameras and USB cables, saying it would help it “keep pace with competitive manufacturing economies like China and Vietnam.” Will get help.

While growing local demand has helped keep the local manufacturing industry profitable, Chandrashekhar said in his letter that “the domestic market for smartphones will soon be near saturation” and since users do not change phones frequently.

The minister said India’s aim to take mobile phone production to more than $100 billion per year – 50% of which is exported – needed a new strategy.

“Tariffs are becoming a hindrance,” the minister said in his presentation. “We need to change the tariff policy to suit our new ambitions. Exports, not domestic.”

© Thomson Reuters 2024

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