Mobile phones could become cheaper if the government accepts a Niti Aayog proposal to drop the 2% import duty imposed on a critical component for handsets in the Union Budget for 2017-18.
The Aayog, in its draft three year action plan, has said the duty will hurt mobile phone makers in the country and the government must ensure that industries are not built behind ‘a wall of protection.’
The Budget had imposed a 2% special additional duty on imports of populated printed circuit boards (PCBs) used for mobile phones, as a measure to push the Make in India campaign.
The duty is aimed at providing ‘adequate protection to domestic industry,’ the government had said, so that local manufacturers of PCBs get an incentive of sorts. Handset prices were expected to rise by over 1% owing to the duty.
Calling for a ‘low or no duty regime’ for key inputs of electronic products, the Aayog has said that the 2% customs duty on PCBs would provide modest protection to domestic manufacturers, but hurt the mobile phone manufacturers.
‘Tariffs a handicap’
“At this stage, it is best for us to let mobile phone manufacturing flourish and not be handicapped by tariffs on its components. As this happens and we begin to export mobile phones in large volumes, the way to the manufacture of other components will be automatically paved,” the Aayog has noted in its recommendations on the electronics sector.
“We should return to zero duty on PCBs. We must build industries that are globally competitive and do not need to operate behind a wall of protection,” it stressed.
A senior official in the electronics and IT ministry expressed surprise at the Aayog’s suggestion and said that though some mobile phone producers had initially expressed apprehensions about the levy of the duty on PCBs, they recognise that the idea is to incentivise domestic production of PCBs. “The duty is being levied at a nominal rate and is just a signal in favour of local manufacturing,” the official said.
Though India has the potential to become a large electronics manufacturer and exporter due to its large labour force, a growing domestic market and proximity to other economies on the electronics value chain, the sector accounted for just 3% of India’s merchandise exports in 2015, the Centre’s think tank has pointed out.
$2 trillion market
“The world market in electronics products is $2 trillion compared with only $65 billion in the domestic market. Therefore, an aggressive export strategy is essential to credibly prepare ourselves for the fourth Industrial Revolution. To increase India’s electronic manufacturing volumes and create jobs in the sector, we must address the high costs of inputs, reduce the administrative burden and provide appropriate incentives to producers,” the Aayog said.
Ideally, the think tank has said, it will be best to simply eliminate the duties but ‘failing that we must make duty exemption or drawback swift and administratively costless.’ Though exporters get drawbacks on import duties paid on inputs, they are subject to ‘undue delays due to complex and burdensome procedures.’
“Sometimes exporters choose to forgo the drawback due to administrative requirement. In turn, this adds to the cost of production and undermines the competitiveness of our products in the world markets,” the Aayog has pointed out.
