India’s smartphone exports rise from 1% to 2.5% in a decade

Subject: Economy

Section: External Sector

Context:

In recent times, India has laid much emphasis on smartphone exports. In FY 2023, Prime Minister Narendra Modi lauded phone exports as they crossed the $10 billion mark.

Smartphone export from India

India is one of the leading players when it comes to cell phone exports by country.
The country aims to accomplish the production of electronics worth US$ 300 billion by FY 2026; manufacturing mobile phones will be the key to achieving India’s ambitious goal.
India’s electronic goods exports surged by approximately 88% from US$ 6,600 million in FY 2013-14 to US$ 12,400 million in FY 2021-22.
Mobile phones, consumer electronics, IT hardware, auto electronics, and industrial electronics were the key products exported from India.

Steps taken by India to promote smartphone exports:

Production-Linked Incentive (PLI) Scheme: The government has launched the PLI scheme to provide financial incentives to smartphone manufacturers to boost local production and exports.
Phased Manufacturing Program (PMP): The PMP program promotes domestic value addition in mobile phones and their sub-assemblies/parts manufacturing.
Foreign Direct Investment (FDI): The government has permitted 100% FDI under the automatic route for manufacturing electronic devices (excluding countries sharing land borders with India). This has helped attract foreign investment in the electronics manufacturing sector.
Incentivized Areas for Export-Oriented Units: Special Economic Zones (SEZs) have been set up across the country to facilitate export-oriented manufacturing and trading. Units for manufacturing and related services set up under the Electronic Hardware Technology Park (EHTP) scheme are major contributors to India’s electronics exports
Design Linked Incentive (DLI) Scheme: The DLI scheme offers financial incentives and design infrastructure support across various stages of development and deployment of chipsets, systems & IP cores, and semiconductor-linked design. The scheme provides both a “Product Design Linked Incentive” and a “Deployment Linked Incentive”.

Challenges to India’s Smartphone Export Ambitions:

Disparity in Export Percentages: The lower taxes in China and Vietnam helped boost their exports. Exports accounted for only 25% of India’s smartphone production in 2023, compared with 63% of China’s $270 billion worth of production and 95% of Vietnam’s $40 billion worth.
Limited Tax Reductions on Components: The finance ministry lowered taxes on some components, including battery covers, to 10% from 15%, but did not agree to many other tariff cut requests.
High Tariffs on Specific Components: India still imposes a 20% tax on parts including chargers, some circuit boards, and fully assembled phones.
Tariff Discrepancies: The lawmakers and lobby groups for Apple and other firms argue India’s high tariffs are a deterrent for companies de-risking their supply chains beyond China, and nations such as Vietnam, Thailand, and Mexico have raced ahead in phone exports by offering lower tariffs on components.
Elevated Production Costs: India has high production costs as we have one of the highest tariffs among the key manufacturing destinations.
Supply chain limitations: Made in India phones use many parts made locally, but companies import many high-end parts from China and elsewhere due to supply chain limitations.