High import duties to hurt PLI scheme, rationalise in Budget: Mobile players

Smartphone manufacturers have urged the government that the duties on the inputs of the parts and components of mobile phones must be carefully calibrated, and rationalised in the upcoming Budget so that the maximum manufacturing can happen in India. In a letter to the minister of state for electronics and IT (Meity), the major players through their association, India Cellular & Electronics Association (ICEA), have said this is the only way to build a competitive export-oriented ecosystem in the country.

The manufacturers have stated that several companies approved under the productivity-linked incentive (PLI) scheme for large-scale electronics manufacturing have made significant investments and have ramped up production to meet the high production threshold targets already.

They have said the PLI scheme offers an incentive for meeting partial cost disability for manufacturing in India compared with other countries such as China and Vietnam that existed before January 2020. Post the change in the duty structure in the Union Budgets for FY 2020-21 and FY 2021-22, the cost disability gap has increased further. “Increasing tariffs on inputs will lead to serious impact on the cost structures of PLI approved companies rendering their product uncompetitively priced for global markets,” ICEA has said.

In the Union Budget for FY22, there were duty rate increases on the inputs of mechanics, power banks, connectors, PCBA, camera modules, chargers, and true wireless stereo. “These were not envisaged by us or Meity, and were not even a part of the phased manufacturing programme (PMP) architecture. They were imposed suo moto by the department of revenue,” ICEA has written to the MoS.

While acknowledging the necessity of placing basic customs duty (BCD) on mobile phones, and supporting its continued levy at 20% till 2023, the manufacturers have said some crucial differences need to be incorporated in the case of high-end mobile phones of more than Rs 20,000.

According to them the grey market in high-end phones is greater than 50%. Price arbitrage is 43.96% in high-end phones (of which 22% is the BCD and 18% is the GST). There is a loss of Rs 2,500 crore per annum to the exchequer on account of smuggling of high-end phones. The ICEA has emphasised that a high BCD will not encourage companies to manufacture high-end phones in India, and its removal or certainly a rationalisation to a fixed ad valorem beyond a threshold will not change their plans to shift manufacturing from China to India. The pitiful RoDTEP rates have not helped matters. “Therefore, ICEA recommends that the maximum BCD should be pegged at Rs 4,000 with base cost and freight price of Rs 20,000 and above, which will help the market environment become much cleaner and more regularised, and check smuggling and price arbitrage to a considerable degree.”

According to ICEA, this will also have the direct impact of increasing duty collection by increasing volumes; the GST collection will also go up by over Rs 1,000 crore. Further, the industry will feel more confident in introducing newer models in the Indian market, something that even yet is taking time.