“India has high production costs due to highest tariffs amongst key manufacturing destinations,” wrote Chandrasekhar in the documents, which were seen by Reuters. “The geopolitical realignment is forcing supply chains to shift out of China … We must act now, or they will shift to Vietnam, Mexico and Thailand,” he reportedly wrote.
“Made in India” phones use many parts made locally, however, companies import many high-end parts from China and elsewhere due to supply chain limitations. These parts are then said to be subject to the high tariffs the government has put in place to protect the local manufacturers, raising overall costs.
“Tariffs are becoming a hurdle”
Chandrasekhar in his documents is said to have flagged how lower taxes in China and Vietnam helped boost their exports. Exports accounted for 25% of India’s smartphone production last year, compared with 63% of China’s $270 billion worth of production and 95% of Vietnam’s $40 billion worth, he said.
Chandrasekhar is also said to have argued that Vietnam and China do not levy tariffs above 10% on components from their “most-favoured nation” trading partners or nations with whom they have free-trade agreements. India does not do that and imposes “high” tariffs on many components, he reportedly said.
“We have to match China and beat Vietnam on tariffs to attract ” global supply chains, Chandrasekhar wrote. “No country with high tariffs has or can attract” them. Chandrasekhar is reported to have further said in his letter that while surging local demand has helped keep the local manufacturing industry profitable, this “domestic market of smartphones will shortly near saturation” and as users don’t change phones that often.
India’s goal to take mobile phone production to over $100 billion a year – with 50% of that exported – needs a new strategy, the minister reportedly said. “Tariffs are becoming a hurdle,” the minister said in his presentation. “We need to shift tariff policy to suit our new ambitions. Exports, not domestic.”