Exclusive: India's IT Ministry is concerned that it is behind China and Vietnam in the race to sell smartphones

Exclusive: India's IT Ministry is concerned that it is behind China and Vietnam in the race to sell smartphones

In government papers obtained by Reuters, the deputy IT minister said that India needed to "work faster" to court international businesses with reduced tariffs since it fears losing out to China and Vietnam in its quest to become a major center for smartphone exports. Required.

Prime Minister Narendra Modi wants to bring in corporations such as Apple, Foxconn, and Samsung to India, which is the world's second-largest mobile market with annual increase in output, and he sees smartphone manufacturing as a vital component of his strategy to do so. The year has seen a 16% rise. $44 billion in the previous year.

The Modi administration claims that financial incentives provided to corporations to increase production are primarily responsible for this accomplishment. However, politicians and advocacy organizations representing Apple and other businesses contend that Mexico, Vietnam, and Thailand have lower component tariffs than India, and that India's high tariffs discourage businesses from expanding their supply chains outside of China. By providing, phones have advanced in terms of exports.

Indian Deputy IT Minister Rajiv Chandrashekhar's letter from January 3 and the private presentation he delivered to the Finance Minister on January 4 demonstrate the depth of his ministry's worries about losses brought on by unfair pricing.

In papers seen by Reuters, Chandrasekhar said, "Production costs have increased in India due to the highest tariffs in important manufacturing sites."

The need for supply networks to reorient from China stems from geopolitical realignment. If we don't take action right now, they will go to Thailand, Vietnam, and Mexico."

When Reuters asked Chandrashekhar and the Indian IT ministry for comments, they did not reply.

India needs low component pricing if it hopes to draw in smartphone manufacturers.

Even though "Made in India" phones mostly employ locally manufactured components, supply chain constraints force manufacturers to import large quantities of high-quality parts from China and other countries. The government then levies higher taxes on certain components in order to shield regional firms, raising the total cost.

According to US Ambassador Eric Garcetti, tariffs are causing foreign investment to flow to nations like Vietnam rather than India, where it should be occurring at a faster rate. "Taxing inputs does not safeguard the market. You are limiting the market by what you are doing," he said.

Chandrashekhar provides evidence of how Vietnam's and China's low taxation policies aided in boosting exports. According to him, only 25% of India's production last year came from smartphones, but 63% of China's $270 billion and 95% of Vietnam's $40 billion came from exports.

"Be at war with China, vanquish Vietnam."

India intends to produce 25% of the world's electronics by 2029, yet official records indicate that its contribution was small. Currently at only 4%, despite recent production increases by Xiaomi, Foxconn, and Apple.

In an effort to push for reduced pricing in the yearly budget, Chandrashekhar sent letters to Nirmala Sitharaman, India's finance minister, last month. The Finance Ministry denied demands to lower tariffs on many other components, such as battery covers, but did agree to lower taxes on other components from 15% to 10%.

Requests for comments received no response from Sitharaman's office or the Finance Ministry.

Parts like as chargers, certain circuit boards, and fully completed phones are still subject to a 20% tax in India. This year, the IT Minister want to see those levies lowered to 15%.

Furthermore, Chandrashekhar maintained that neither China nor Vietnam apply tariffs of more than 10% on goods that are part of their trading partners' "most favored nation" lists or on nations with whom they have free trade agreements. India doesn't and levies "higher" tariffs instead.

On several fronts, he said.

Chandrashekhar stated, "We need to beat Vietnam and match China on tariffs in order to draw in global supply chains." High tariff nations are unable or unwilling to draw them."

Saturated local market; concentrate on exports

Xiaomi requested in private last week that New Delhi lower tariffs on a greater number of components used in USB connections and cameras, citing the benefit of being able to "keep pace with competitive factories like China and Vietnam." will get assistance.

Even though the local manufacturing sector has been able to maintain profitability due to increased demand, Chandrashekhar said in a letter that "the local marketplace for smartphones will soon be near saturation" since consumers do not switch phones regularly.

According to the Minister, India wants to increase the manufacturing of mobile phones to over $100 billion annually, with 50% of that amount going to exports. This calls for a new approach.

In his address, the minister said that tariffs are starting to become a barrier. "To align with our new goals, we must modify the tariff policy. Export rather than domestic.