According to a study by the India Cellular and Electronics Association (ICEA), India has the highest tariffs amongst six other manufacturing competitors. The study underlines that the high tariff rates lead to increased costs, making it difficult for companies to join global value chains (GVCs), ultimately reducing India’s competitiveness among other countries.
As per the study, India’s simple average most favoured nation tariff for inputs is 8.5 per cent, higher than China’s 3.7 per cent. Additionally, the free trade agreement weighted average tariff comparison between India and Vietnam shows that India’s simple average is at 6.8 per cent vis-à-vis Vietnam’s at 0.7 per cent. India’s smartphone manufacturing has descended from 78 per cent import dependency in revenue terms in 2014-15 to only 4 per cent in 2022-23. With more than 99 per cent of smartphones sold in India being assembled locally, India has now been producing more than the domestic demand, which presents a huge export opportunity for local manufacturers.
The report states that India needs large GVCs to shift production lines to the country and get local companies into the supply chains, for which the country needs to have a tariff regime that matches with the competing nations such as China and Vietnam. The study identifies having too many slabs as another key issue in India’s tariff regime. The highest tariffs for both China and Vietnam are 10 per cent maximum. By contrast, India has many more tariff lines, in addition to higher tariffs. Higher tariffs result in an overall loss of competitiveness of about 6 to 7 per cent compared to Vietnam and China.
ICEA demands identification and reduction of all tariff lines that incur significant costs, in order to increase India’s competitiveness in electronics manufacturing in the future. Additionally, it also demands the simplification of the current complex tariff structure to only three slabs by 2025: 0, 5, and 10 per cent.
