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India risks losing out to China and Vietnam as it seeks to become a major smartphone export hub and must take “quick action” to attract global companies with lower tariffs, its deputy IT minister said in a government document seen by Reuters.

Smartphone manufacturing is at the heart of Prime Minister Narendra Modi’s ambitions to attract companies like Apple, Foxconn and Samsung to India to boost the economy and create jobs. $44 billion last year.

Prime Minister Modi’s government says this success is largely due to providing financial incentives to companies to produce more products. But lawmakers and lobby groups for Apple and other companies argue that India’s high tariffs prevent companies from reducing supply chain risks beyond China, and countries such as Vietnam, Thailand and Mexico have lowered tariffs on components to export cellphones. is ahead in

A January 3 letter and confidential presentation to the finance minister drafted by India’s IT deputy minister Rajeev Chandrasekhar shows how concerned the finance ministry is about losses from uncompetitive tariffs.

“India has high production costs due to the highest tariffs among major manufacturing destinations,” Chandrasekhar wrote in a document released by Reuters.

“Geopolitical realignment is causing supply chains to shift out of China. We need to act now or we will see supply chains shift to Vietnam, Mexico and Thailand.”

Chandrasekhar and India’s IT ministry did not respond to Reuters’ requests for comment.

Reducing tariffs on components is key to India’s ambitions to attract smartphone manufacturers.

“Made in India” phones use many locally produced components, but supply chain constraints force the company to import many high-end components from China and other regions. These parts are subject to high tariffs imposed by governments to protect local manufacturers, increasing overall costs.

US Ambassador Eric Garcetti recently said that foreign investments are not flowing into India at the rate they should and are instead flowing into countries like Vietnam due to tariffs. “If you tax inputs… you’re not protecting the market. What you’re doing is restricting the market,” he said.

In his paper, Chandrasekhar indicated how low taxes in China and Vietnam have helped boost exports. He said exports accounted for only 25% of India’s smartphone production last year, while they accounted for 63% of China’s $270 billion smartphone production and 95% of Vietnam’s $40 billion production.

“Fight with China and beat Vietnam.”

India is seeking to capture 25% of global electronics manufacturing by 2029, but its share currently stands at just 4%, despite Apple, Foxconn and Xiaomi all recently increasing production, according to official documents.

Chandrasekhar’s document was forwarded to India’s Finance Minister Nirmala Sitharaman last month to lobby for tariff cuts in the annual budget. The Treasury lowered taxes on some parts, including battery covers, from 15% to 10%, but did not agree to many other calls for tariff cuts.

The Treasury and Sitharaman’s office did not respond to requests for comment.

India still imposes a 20% tax on parts, including chargers, some circuit boards, and fully assembled phones. The IT minister wanted the tax to be reduced to 15% this year.

Chandrasekhar also insisted that Vietnam and China do not impose tariffs of more than 10% on components from “most favored nation” trading partners or countries with which they have free trade agreements. India doesn’t do that and imposes “high” tariffs on many components, he said.

“To attract global supply chains, we need to take on China and beat Vietnam on tariffs,” Chandrasekhar wrote. “No country with high tariffs can or will attract them.”

Domestic market saturation, export focus

Last week, Xiaomi privately asked New Delhi to lower tariffs on more components used in cameras and USB cables. This “will help us align with competitive manufacturing economies such as China and Vietnam,” he said.

While surging local demand has helped keep the local manufacturing industry profitable, Chandrasekhar said in the letter that “the domestic smartphone market will soon be close to saturation” as users do not switch phones often.

The Indian minister said the goal of boosting mobile phone production to more than $100 billion a year (50% of exports) requires a new strategy.

“Tariffs are becoming an obstacle,” the minister said in his presentation. “We need to change our tariff policy to match our new ambitions: exports, not domestic.”

© Thomson Reuters 2024

(This story has not been edited by NDTV staff and is auto-generated from a syndicated feed.)

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