The Indian government has reduced the import duty on mobile phone components from 15% to 10%. This decision impacts a variety of components including battery covers, lenses, antennas, SIM sockets, and various mechanical and plastic items.

What Happened? The reduction contrasts with the Global Trade Research Initiative (GTRI)’s recommendation. The GTRI had advised against such cuts in its report, arguing that the existing tariff structure was already benefiting local manufacturing, and changes could disrupt this success. They suggested that current rates should be maintained to support the growth and development of India’s burgeoning smartphone market.

On the other hand, the India Cellular and Electronics Association (ICEA) advocated for these cuts, believing they could boost domestic handset production by 28% to $82 billion, increase exports, and support local manufacturing.

GTRI co-founder Ajay Srivastava highlighted the use of schemes like Advance Authorisation and Export Promotion Capital Goods, which allow duty-free imports for manufacturing and exporting electronic items, particularly in Special Economic Zones (SEZs) and Export Oriented Units.

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Why it matters? India’s smartphone industry has shown remarkable growth, with exports jumping from $7.2 billion in 2022 to $13.9 billion in 2023. Policies like the Production Linked Incentive (PLI) scheme, which offers 4-6% cash incentives on annual incremental production, largely contribute to this success.

Major companies like Apple, using facilities in SEZs, have greatly benefited from these policies, exporting substantial volumes without paying import duties on components. Apple collaborates with Foxconn and Wistron, both located in SEZs in India, for smartphone manufacturing.

Despite this progress, the GTRI warns that reducing import duties could discourage deeper manufacturing operations in India. They fear firms will resort to assembling mobile phones from nearly ready imported kits and leave once government incentives end. This concern echoes the events of 2015-17 when many firms ceased operations following the introduction of GST, which eliminated the tax arbitrage from assembling smartphones from imported Semi Knocked-Down (SKD) kits.

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