The India Cellular & Electronics Association (ICEA) and IKDHVAJ Advisers LLP said in a report Thursday that high import tariffs made India less competitive in global markets as well. as canceling out the effect of supporting policies such as performance-linked incentives (PLIs).
India’s tariffs had to be compared to those of competing countries such as China, Mexico, Thailand and Vietnam, according to the report, which includes a detailed study of 120 priority electronics tariff lines in India and these four major competing investment destinations. These imports account for 80% of the cost of cellphones, India’s biggest product in a $ 75 billion electronics industry.
The report says that like India, its competing economies have also relied on a combination of trade and investment policies for their economic progress, with an emphasis on improving national capacities to participate. to global value chains and to attract and facilitate investment through subsidies, trade facilitation and improving operational conditions for domestic investors and producers.
âHowever, among the policies followed by India and its competing economies, there is a major difference. India has higher tariffs and relies much more on increasing tariffs compared to its competing economies. India’s policies are therefore driven by the domestic market rather than by opportunities in global markets, âhe said.
He added that an important implicit reason for India’s tariff increase is that the large size of the Indian market, combined with the tariff increase, would attract FDI. âThis presumption may not be true for the electronics industry as a wholeâ¦ India’s domestic market is not very large compared to the world market. Moreover, the comparison with competing economies suggests that the size of the domestic market does not necessarily lead to increased exports or closer links with GVCs. This implies the need to carefully consider the possible negative impact of an increase in tariffs on exports and even on investment. “
Further, he said that although India’s large electronics markets may look attractive, they are very small in global terms and India does not produce around 50% of the components on which tariffs have been cut. increased. âTherefore, the impact of tariffs is likely to be unfavorable to India’s competitiveness. India’s tariffs should be compared to those of competing countries. The tariff increase has a negative effect on costs, prices, production, exports and imports. It also cancels out the effect of supportive policies, âthey said.
The comparative study points out that while India has zero tariffs on 32 of the 120 tariff lines, others have zero tariffs, ranging from 53 (China) to 74 lines (Mexico). For non-zero tariffs, India’s tariffs are higher for 85% (Thailand, Vietnam) to 95% (China) of these tariff lines. Vietnam’s effective tariffs are also lower due to its free trade agreements with major input suppliers. “India has the most important tariff lines for the selected products, the tariffs in 2020 being higher than in 2014,” he said.
âA manufacturing target of $ 300 billion by 2026 requires stability and prior consultation before finalizing tariffs. Tariffs are at the heart of competitiveness and scale. For the Union budget 2022-2023, we ask the government to review all tariffs on inputs for PLI schemes and to reduce tariffs in areas where there is no local capacity â, said Pankaj Mohindroo, President of ICEA.
The study added that for India to integrate into global supply chains, its tariffs on inputs would have to at least match or be lower than those of its competitors. Consideration of tariff increases should only be considered in cases where there is significant domestic capacity or a clear roadmap with specific and well identified suppliers who can produce components for manufacturers at cost, quality and scale. globally competitive. Not otherwise.