Duty Cut on Smartphone Parts: Impact on Local Firms and Jobs – GTRI Report

Duty Cut on Smartphone Parts: Impact on Local Firms and Jobs – GTRI Report

Sub: Eco

Sec: External sector

Why in News

• The Global Trade Research Initiative (GTRI) has raised concerns over a proposed customs duty cut on smartphone parts in the upcoming Union Budget FY26, stating it could harm India’s local manufacturing ecosystem, increase imports, discourage investment, and result in job losses.

Context

• India’s smartphone industry, a ‘Make in India’ success story, achieved $49.2 billion in production and $15.6 billion in exports in FY24. Proposed duty cuts on components risk undermining the growth of local firms and jeopardizing self-reliance efforts in the electronics sector.

Key Points

GTRI’s Concerns Over Duty Cuts

• Harm to Local Ecosystem: Reduction in customs duties could harm the developing component manufacturing ecosystem, discourage investments, and make local firms uncompetitive.
• Job Losses: Mid- and low-end phone segments heavily rely on local components and provide significant employment.

Data Highlights

• Production & Exports (FY24):
  • Production: $49.2 billion.
  • Exports: $15.6 billion, making smartphones the fourth-largest export category after diesel, aviation fuel, and polished diamonds.
• Component Usage in Smartphones:
  • Premium phones: 5–30% local components.
  • Mid-range phones: 50% local components.
  • Low-end phones: 70% local components.

Import Trends

• Electronics imports increased from $15.8 billion (FY19) to $34.4 billion (FY24).
• Further duty cuts could worsen dependency on foreign suppliers, increasing vulnerability to global supply chain disruptions.

Risks of Tariff Reductions

• Encourages Imports: Could increase import dependency and disrupt self-reliance goals.
• Unsustainable Operations: Promotes assembly-based manufacturing, weakening the focus on local production.
• Reversal of Gains: Could undo progress made under the Phased Manufacturing Programme (PMP).

GTRI Recommendations

• Setting up of Component Hubs Near Ports will lead to reduce import delays and warehousing costs and follow the models of Vietnam and China to support local manufacturing.
• Focus on Local Production: Promote indigenous components instead of encouraging duty-free imports and reduce import dependency.