Duty cut on smartphone parts to hit electronics ecosystem, trigger job loss: GTRI

Any reduction in the customs duty on smartphone parts in the forthcoming budget will harm India's developing component ecosystem, discourage investment, increase imports, and make local firms uncompetitive, potentially resulting in job losses, think tank GTRI said on Tuesday.

India's smartphone industry is a 'Make in India' success story, with 2023-24 production reaching USD 49.2 billion and exports at USD 15.6 billion, making smartphones the fourth-largest export after diesel, aviation fuel, and polished diamonds.

However, a few industry groups are pushing for further import tariff cuts on smartphone components in the Union Budget for FY26.

The Global Trade Research Initiative (GTRI) warns that this could harm India's growing local manufacturing ecosystem and long-term ambitions in electronics.

"Instead of cutting tariffs, GTRI recommends setting up component hubs near ports to reduce import delays and warehousing costs. This approach, used by countries like Vietnam and China, would support local manufacturing and reduce import dependency," the think tank's founder Ajay Srivastava said.

Highlighting six key risks of reducing tariffs, he said any reduction would harm India's developing component ecosystem, discourage investment, hurt the goal of self-reliance; and would not help pushing exports as current export schemes already allow duty-free imports for manufacturing exports.

He added that the country's success in smartphone manufacturing stems from policies promoting local production through tariffs, incentives, and phased programmes and cutting tariffs could weaken this framework.

"Lower tariffs could encourage unsustainable assembly-based operations, as seen in past policy failures. Besides, the mid-and low-end segments depend on local components and provide employment. Duty cuts would make local firms uncompetitive, resulting in job losses," he added.

He also said that the electronics imports have risen significantly, and further tariff cuts would worsen this trend, increasing India's reliance on foreign suppliers.

Tariffs were already reduced from 15 per cent to 10 per cent last year.

Explaining further, the GTRI said that out of USD 49.2 billion worth of production of smartphones last fiscal, premium phones accounted for about 20 per cent of production, mid-range 30 per cent, and low-end 50 per cent.

"Local components are used in 70 per cent of low-end phones, 50 per cent of mid-range phones, and only 5-30 per cent of premium phones. The rising use of local parts is driven by India's production of key components for mid- and low-end phones like printed circuit boards (PCBs), display modules, camera modules, battery packs, smart phone chargers and adapters, wiring harnesses, microphones and speakers, SIM card holders, and USB connectors," it said.

However, the ecosystem is still developing and needs protection, and reducing import tariffs would allow duty-free imports, making it harder for local firms to compete and would force them to shut down, it said.

"This would discourage further investment in local manufacturing and undo the progress made under the Phased Manufacturing Programme (PMP). It would harm not just the smartphone industry but the entire electronics sector, jeopardizing India's goal of becoming self-reliant in electronics production," it said.

It added that the mid-range and low-end smartphone segments, which heavily rely on locally produced components, provide significant employment opportunities.

"If import duties are reduced, local firms will struggle to compete with duty-free imports, leading to job losses. In contrast, countries like South Korea, Japan, and Taiwan have focused on developing specialised local ecosystems for high-value components, which has helped them sustain their electronics industries and create long-term jobs," it said.

On imports, the GTRI said that India's electronics component imports are rising. It rose from USD 15.8 billion in FY19 to USD 34.4 billion in FY24.

Cutting tariffs further will increase this dependence on foreign suppliers, making India vulnerable to global supply chain disruptions, it said.