Budget 2026: Phone machines likely to get rid of duty friction

NEW DELHI: The government is actively looking into demands by the electronics industry to correct the inverted duty structure in the upcoming budget on parts and components of capital equipment for mobile phones in a bid to keep the manufacturing momentum going, people aware of the details told ET.

This follows China’s restrictions on exports of highend machinery and rare earth-linked equipment.

Industry has reached out to the government to urgently correct the anomaly, failing which India may remain locked in the assemblyled model and hit manufacturing ambitions to move up the value chain.


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According to industry executives, after China imposed curbs on exports of highprecision machinery, critical sub-systems and rare-earth linked equipment, the supply chains of Indian manufacturers got disrupted, following which Indian firms started to make the equipment locally. But due to import duties in the range of 5-25% on parts of such machinery, the companies face a structural disadvantage.

Cost Disadvantage
Currently, there is no duty on import of finished capital equipment used for mobile phone manufacturing, but due to China’s restrictions, the companies can’t get the machinery, forcing them to make it locally, which is turning out expensive due to import duties on parts.

The industry had written to the finance ministry last month and is in regular discussions with the government in a bid to correct the “unintended inversion,” which not only is a structural cost disadvantage vis-àvis imports, but also discourages value addition, deters investments and limits job creation across the capital equipment value chain.

As per the industry, the anomaly needs to be corrected as it is also deeply linked to achieving the objectives of the electronics components manufacturing scheme (ECMS), under which capital equipment manufacturing is a critical pillar.

ASSEMBLY MODEL
“Without rationalisation of input duties especially by removing any incidence of duty inversion, India risks remaining locked into an assemblyled model, weakening longterm competitiveness and its ability to move up the manufacturing value chain,” the India Cellular and Electronics Association (ICEA) said in a letter to revenue secretary Arvind Shrivastava last month.

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The association counts Apple, Google, Dixon, Tata, Foxconn and many domestic small and medium companies as its members. Along with the letter, the industry has also submitted a detailed report to the finance ministry, highlighting India’s import dependence and reinforced the need to build resilient domestic capital equipment manufacturing capabilities.

TARIFF RATIONALISATION
Finance minister Nirmala Sitharaman had spoken about the government’s commitment to rationalising tariffs and addressing inverted duty structures to support domestic manufacturing and value addition in last year’s budget, giving industry the hope that the anomaly can be corrected in the upcoming budget.

Apart from ICEA, other industry bodies including Ficci, CII and MAIT too have submitted detailed representations highlighting the extent of the duty inversion, covering multiple components across several categories of capital equipment used for mobile phone manufacturing. They have all recommended zero-duty treatment for all inputs, components, parts and sub-assemblies used in the manufacture of electronics capital equipment. The industry is of the view that correcting the inversion would be aligned with schemes such as the ECMS, unlock MSME participation, and encourage technology transfer.