Vietnam likely to benefit more from India’s restrictive trade policy

India’s restricitve trade policieswith custom duties as high as 22 per cent may havegiven Vietnam the upper hand for manufacturing smart phones, and other electronics, reports suggest.

The glass cover, the touch-screen display, the camera module, and the printed circuit board assembly, when combined, makes about 75 per cent of a smart phone’s bill-of-materials price. Vietnam, the world’s second-largest handset exporter after China, is able to source components with zero-tariff from trade partners.

In contrast, despite its eagerness to promote local smart phone manufacture, India has a four per cent cost disadvantage, according to the 2023 edition of a price comparison research published by the industry association India Cellular & Electronics Association (ICEA).

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India has intentionally increased the burden on assemblers even as it started compensating them for the various cost disadvantages that already exist, namely inadequate infrastructure and excessive regulations.

The existence of production-linked incentives, or PLIs, guarantees to pay businesses up to 4 per cent to 6 per cent of their additional sales for a period of five years. But the report suggests that India is hampering its ability to compete, while it pays companies to locate its plants there.

Another opinion holds that the assistance is “supported through indirect revenue from increased indirect taxes from the same sector,” as the ICEA study states.

Competition elsewhere in Asia and is focused on semiconductors. Several nations, ranging from Thailand to Singapore and Malaysia, are currently looking to move the manufacturing of front-end chips from East to Southeast and South Asia. India is attempting to climb that ladder through testing and packaging. While those intentions have yet to materialise, the nation is now Vietnam’s next competitor in a low-value-added activity like assembly electronics parts because to its affordable labour.

Multinational companies have altered their manufacturing plans after the pandemic and President Xi Jinping’s deteriorating relations with the West. Only a few weeks after they begin shipping from Chinese manufacturing, the Foxconn Technology Group plant in the southern Indian state of Tamil Nadu is getting ready to export iPhone 15s, according to a report by Bloomberg News.

Apple Inc. and other companies are wary of placing an undue reliance on China to meet global demand. India now has an opportunity to take over the supply chain as a result of their pursuit of a China+1 strategy. However, due to Samsung Electronics Co., Vietnam’s phone exports increased by six times last year compared to other South Asian countries. This is the difference that New Delhi seeks to bridge.

However, data from the ICEA revealed that India’s total cost disadvantage due to tariffs on smart phone components came to around 3.6 per cent in comparison to the cost gap with Vietnam. This competitive disadvantage may increase to a near 4 per cent. This could possibly prompt multinational companies to look for alternative manufacturing locations in countries like Vietnam, potentially making it a huge competitor to India.

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