High tax regime taking toll on cellular segment

Building local supply chains is a slow process due to lack of technology, high cost of finance, and skill gap, and importing inputs involves a high tariff, so what we were intending to do with PLI, because of these restrictions, it is not growing as expected - Pankaj Mohindroo, Chairman, ICEA

New Delhi: India Cellular & Electronics Association (ICEA) has made a case for reduction in input tariffs on smartphone components in the forthcoming Budget to be unveiled later this month. ICEA said higher input tariffs perpetrate import dependency and restrict the potential impact of PLI.

ICEA outlined three major recommendations: rationalise tariffs on mobile phone parts and sub-assemblies, policy and financial support to develop a largescale ecosystem, and establish global-scale factories and warehousing to ensure timely delivery.

“Higher tariffs make India incompetent beyond import substitution, and creates a vicious cycle of high prices by domestic suppliers, and global suppliers, including those operating in India,” ICEA said. High tariffs also significantly lower the tendency of global firms to shift production to India, it said.

“Building local supply chains is a slow process due to lack of technology, high cost of finance, and skill gap, and importing inputs involves a high tariff, so what we were intending to do with PLI, because of these restrictions, it is not growing as expected,” ICEA Chairman Pankaj Mohindroo said.

Tariffs on smartphones have been successful, and have built a $51 billion industry, but it has not worked the same way for inputs, ICEA said, adding that working and focusing on aggregate value addition is the need of the hour.

“Domestic supply chain can only be built with scale and from orders placed by global value chains (GVCs). GVCs choose the most competitive countries, not companies. Tariffs are unhelpful,” it said.

ICEA based its recommendations on a ‘Tariff Study’ it conducted across seven competing economies, including India, wherein China and Vietnam are the main competing economies for India in the global mobile phone market. “India’s tariffs on inputs are much higher than its competing economies, and these high tariffs lead to higher costs for finished goods,” the report said.

“High tariffs on inputs increase costs, making Indian industry less competitive, and hindering its ability to join GVCs. This discourages GVCs from shifting to India. Competitiveness is critical to building scale and attracting FDI which in turn, positively impacts domestic value addition and job creation,” ICEA said.