Industry’s Call for Revisiting Chinese FDI Curbs and High Import Tariffs

Industry’s Call for Revisiting Chinese FDI Curbs and High Import Tariffs

Sub: Economy

Sec: External Sector

Context:

• Current Situation: India’s electronics sector is heavily dependent on imports for vital components, leading to high manufacturing costs due to tariffs.
• PLI Scheme: The Production Linked Incentive (PLI) scheme, introduced in April 2020 to offset some cost disadvantages, is now seen as insufficient in countering the high tariff-induced costs.

Key Points from CII Report:

• Inadequate Support: The 4%-6% fiscal support under the PLI scheme is inadequate to negate the overall cost disadvantages compared to China and Vietnam.
• Restrictions on FDI: The restrictions on foreign direct investment (FDI) from countries sharing land borders with India, aimed at preventing predatory acquisitions during the pandemic, are now considered outdated and need reconsideration.
• Non-restrictive Approach: CII advocates for a non-restrictive approach towards investments, component imports, technology transfer, ease of inward movement of skilled manpower, and easing non-trade tariffs.

Proposals:

• Rationalize Import Tariffs: The import tariffs on priority sub-assemblies and components should be rationalized to 5% or lower to make Indian product manufacturers competitive.
• Increase Fiscal Support: A scheme to provide fiscal support in the range of 6%-8% for critical components production should be introduced.
• Balance Between Imports and Exports: A balance between imports and exports of higher value-added products is essential for long-term industrial sustainability.

Current Import Duties:

• High Tariff Ranges: India’s import duties on 118 electronic-related tariff lines range from zero to 27.5%, with the majority falling in the 10%-15% range.
• Zero Tariff Lines: About 47.2% of the electronic imports pass through under zero tariff, while the remaining 52.8% are subjected to tariffs largely over 10%.

Priority Components and Sub-assemblies:

• Import Dependence: Batteries, camera modules, mechanicals, displays, and printed circuit boards are either nominally produced in India or are heavily import-dependent.
• Demand Projections: In 2023, India’s demand for components and sub-assemblies was $45.5 billion to support $102 billion worth of electronics production. This demand is expected to touch $240 billion for $500 billion worth of electronics output by 2030.

Recommendations:

• Tariff Comparison: India should aim to align its tariff rates with those of key competing economies like China and Vietnam to make its electronics sector more competitive.
• Investment Environment: Creating a friendly investment environment by revisiting FDI restrictions and rationalizing tariffs is crucial for the growth of India’s electronics manufacturing sector.

Conclusion: The industry urges the government to revisit and revise the existing FDI curbs and high import tariffs to enhance the competitiveness of India’s electronics sector.

This involves rationalizing tariffs, increasing fiscal support, and fostering a non-restrictive investment environment to transition from an import-dependent assembly-led manufacturing to a component-level value-added manufacturing ecosystem.

Overview of the Production Linked Incentive (PLI) Scheme

Purpose:

• To scale up domestic manufacturing capability.
• To promote import substitution.
• To generate employment.

Launch:

• Date: March 2020.
• Initial Target Industries:
  • Mobile and allied component manufacturing.
  • Electrical component manufacturing.
  • Medical devices.

Coverage:

• 14 Key Sectors:
  • Mobile manufacturing.
  • Medical devices.
  • Automobiles and auto components.
  • Pharmaceuticals.
  • Drugs and specialty chemicals.
  • Telecom and networking products.
  • Electronic products.
  • White goods (ACs and LEDs).
  • Food products.
  • Textile products.
  • Solar PV modules.
  • Advanced chemistry cell (ACC) battery.
  • Drones and drone components.

Mechanism:

• Incentives: Financial rewards for manufacturing in India.
• Criteria: Based on a percentage of revenue over up to five years.
• Eligibility: Both domestic and foreign companies.

The PLI scheme is a cornerstone in India’s strategy to boost domestic manufacturing, reduce import dependency, create employment, and integrate Indian manufacturers into global value chains.