For Same Duty on Phone and Its Parts

The Economic Times - - The Edit Page -

Lo­cal smart­phone mak­ers are up­set that this year’s Bud­get has raised im­port du­ties on bat­ter­ies and ac­ces­sories to 29%, which puts them at a dis­ad­van­tage vis-à-vis hand­set im­porters who pay a duty of 12.5%. True, an in­verted duty struc­ture, with a lower rate on prod­ucts and higher rate on com­po­nents, re­ally makes no sense. Nor does its in­verse, which en­cour­ages spu­ri­ous value-ad­di­tion be­hind high tar­iff walls. But the fact of the mat­ter is that 29% duty hike is only an in­stru­ment to dis­in­cen­tivise and de­ter trad­ing oper­a­tions that pass them­selves off as lo­cal man­u­fac­tures.

Note that bat­ter­ies and ac­ces­sories ac­count for up to 40% of the cost of man­u­fac­tur­ing mo­bile hand­sets, and if the pu­ta­tive lo­cal man­u­fac­tur­ers have cred­i­ble game plans to grow and ma­ture or­gan­i­cally rather than sim­ply lever­age Chi­nese man­u­fac­tur­ing strength to stay in busi­ness, they surely need to think big and firm-up plans to make com­po­nents lo­cally. The ex­cise duty on mo­bile hand­sets is12.5% in case a ven­dor takes credit for cen­tral value-added tax and 1% if no Cenvat credit is claimed. This means that im­ported phones at­tract a coun­ter­vail­ing duty of 12.5%, of­fer­ing a lo­cal en­tre­pre­neur who im­ports the same phone in a knocked-down form pro­tec­tion of 11.5%. This is no real make in In­dia. In or­der to dis­cour­age such make-be­lievein-In­dia, at least in the case of parts such as the charger, the gov­ern­ment has im­posed a steep duty on their im­ports. This is not the way to go about it and will ham­per gen­uine In­dian man­u­fac­ture of high-value elec­tron­ics. The gov­ern­ment is right to dis­in­cen­tivise trad­ing mas­querad­ing as lo­cal man­u­fac­ture. The right way to do this, while also in­cen­tivis­ing gen­uine value ad­di­tion, is to of­fer the same ex­act level of pro­tec­tion to com­po­nents and fin­ished goods.

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