India needs lower taxes to compete in the global electronics market!

India has aspirations to become a major player in the computer and electronics manufacturing industry. However, their current approach, focused heavily on the domestic market through high import taxes, is hindering their progress.

This article argues that India needs to shift its focus to become regionally competitive and export-driven, with Vietnam, not China, being their biggest rival in this pursuit.

The Need for Openness

The United States, Japan, and other members of the Quad security group are actively encouraging India to open its markets and create a more transparent business environment. This push is motivated by the desire to build a viable alternative to China in the global electronics supply chain.

India’s High Import Taxes Are a Disadvantage

While India is receiving foreign investment, companies like Foxconn choosing to expand in Vietnam for $100 million highlights the competition India faces. Other countries like Mexico, Thailand, and Indonesia are also vying for investment by offering various incentives such as tax breaks, free-trade zones, and discounted utilities.

However, India stands out for its high import taxes. While this policy initially led companies like Foxconn and Pegatron to set up shop in India to avoid duties and cater to the domestic market, it ultimately hindered their ability to compete in exports.

The “Make in India” Policy

The Indian government’s “Make in India” policy, launched a decade ago, aimed to boost domestic manufacturing by raising tariffs on imported goods. While this strategy initially attracted some companies, relying solely on the domestic market is not sustainable for a large and complex industry like electronics. Unlike China, with its massive domestic consumer base, India needs to focus on exports to succeed.

Vietnam: A Closer Competitor than China

Research shows that for over 85% of electronics categories, India’s import duties are higher than China, Mexico, Thailand, and Vietnam. While Vietnam also has its challenges, including work permit complexities and weak intellectual property enforcement, its lower tariffs position it as a more attractive option for manufacturers compared to India.

Conclusion

For India to achieve its ambitions in the electronics sector, it needs to acknowledge that Vietnam, not China, is its main competitor. The government must prioritise creating a business environment that is competitive regionally by significantly reducing import tariffs. Eliminating these barriers would send a clear message to foreign investors that India is serious about becoming a player in the global electronics market.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.