Written by Aditya Kalra and Munsif Vengattil
NEW DELHI (Reuters) – India risks losing out to China and Vietnam as it seeks to become a major smartphone export hub and needs to “act quickly” to attract global companies with lower tariffs, IT says The deputy minister said in a government document seen by Reuters.
Smartphone manufacturing will boost the economy and create jobs by attracting companies such as Apple, Foxconn and Samsung to India, the world’s second-largest mobile market, where production has increased by 16% year-on-year, Narendra said. It has become a key pillar of Prime Minister Modi’s ambitions. Last year it was $44 billion.
The Modi government says its success is mainly due to financial incentives given to companies to increase production. But lawmakers and lobby groups for Apple and other companies say India’s high tariffs are a deterrent for companies looking to avoid risks in supply chains outside of China, and countries like Vietnam, Thailand and Mexico are They claim that they are competing to be first in mobile phone exports by lowering component tariffs.
A January 3 letter and confidential presentation drafted and sent to the Finance Minister by India’s Deputy IT Minister Rajeev Chandrasekhar shows the extent of the ministry’s concern about losses from uncompetitive tariffs.
“India has the highest tariffs of any major manufacturing destination, resulting in high production costs,” Chandrasekhar wrote in a document seen by Reuters.
“Geopolitical realignment is forcing supply chains to move out of China…If we don’t act now, supply chains will move to Vietnam, Mexico and Thailand.”
Chandrasekhar and India’s IT Ministry did not respond to Reuters’ requests for comment.
Reducing component tariffs is key to India’s ambitions to attract smartphone makers.
Although “Made in India” phones use many locally manufactured components, supply chain constraints mean companies import many high-end components from countries such as China. These parts are subject to high tariffs introduced by the government to protect local manufacturers, increasing overall costs.
U.S. Ambassador Eric Garcetti recently said that because of tariffs, foreign investment is not coming into India as fast as it should, and is instead going to countries like Vietnam. “If you tax inputs… you’re not protecting the market. What you’re doing is restricting the market,” he said.
In the document, Chandrasekhar pointed out how tax cuts in China and Vietnam contributed to the increase in exports. According to him, exports accounted for only 25% of India’s smartphone production last year, compared to 63% of China’s $270 billion worth of production and 95% of Vietnam’s $40 billion worth of production. %.
“Win against China, win against Vietnam”
India aims to account for 25% of global electronics manufacturing by 2029, but official documents show India’s stake is currently small despite recent increases in production by Apple, Foxconn and Xiaomi. It remains at 4%.
Mr Chandrasekhar’s letter was addressed to India’s Finance Minister Nirmala Sitharaman last month, lobbying for lower tariffs in the annual budget. The Ministry of Finance cut taxes on some parts, including battery covers, from 15% to 10%, but did not agree to many other requests for tariff reductions.
The Treasury Department and Sitharaman’s office did not respond to requests for comment.
India still imposes a 20% tax on components such as chargers, some circuit boards, and fully assembled phones. The IT minister wanted these taxes to be reduced to 15% this year.
Chandrasekhar also asserted that Vietnam and China do not impose tariffs of more than 10% on parts from “most favored nation” trading partners or countries with which they have free trade agreements. India does not do that and imposes “high” tariffs on many components, he said.
“To attract global supply chains, we must match China and beat Vietnam on tariffs,” Chandrasekhar wrote. “Countries that impose high tariffs are not attracting them and cannot attract them.”
Local market is saturated, export focus
Xiaomi last week privately asked New Delhi to lower tariffs on more components used in cameras and USB cables, saying it hoped to “work with competitive manufacturing economies such as China and Vietnam”. ” said it would be useful.
Chandrasekhar said that while the surge in local demand is helping local manufacturers maintain profitability, “the domestic smartphone market will soon approach saturation as users do not replace their phones as often. ” he said in the letter.
The minister said India’s goal of increasing mobile phone production to more than $100 billion a year and exporting 50% of it requires a new strategy.
“Tariffs are becoming a hurdle,” the minister said in a presentation. “Customs policy needs to shift to meet new goals: exports, not domestic.”
(Reporting by Aditya Kalra and Munsif Vengattil; Additional reporting by Shivangi Acharya, Nikunj Ohri and Aftab Ahmed; Editing by Miral Fahmy)