Government Said to Plan Near $3 Billion Aid, Tariff Cuts for Electronics

India's government is considering fresh subsidies for electronic component-makers and cutting tariffs on imports to help boost local manufacturing, especially of smartphones made by companies like Apple Inc.

The Ministry of Electronics and IT proposed giving manufacturers of components like batteries and camera parts at least 230 billion rupees ($2.7 billion) in support, according to people familiar with the matter, who asked not to be identified as the discussions are private.

The ministry also recommended reducing tariffs on some electronic components, an industry demand that will help bring down production costs, one of the people said. 

A final decision on the proposals will be made by the cabinet, and if approved, details may be announced in the government's upcoming budget in February, the people said. 

India's Ministry of Electronics and IT and Finance Ministry didn't immediately respond to requests for further information. The Economic Times of India earlier reported on the subsidy plan. 

Prime Minister Narendra Modi's government has spent billions of dollars in incentives to lure companies like Apple and Samsung Electronics Co. to set up manufacturing plants in the South Asian country. Apple's iPhone exports from India have grown at a rapid clip as a result. 

Authorities now want to build on that momentum by creating a broader supply chain for smartphone makers, who import the bulk of their electronics parts from countries including China. 

Some of the components being targeted by the proposed subsidy include microprocessors, memory, storage, multi-layered printed circuit boards, camera components such as lens, and lithium-ion cells, one of the people said. The subsidies are likely to differ depending on the component, another person said.

“This is one of the major ways to incentivise companies to get into global value chains, though the benefits would be visible only in the medium to long run,” said Madhavi Arora, lead economist at Emkay Global Financial Services. “The earlier subsidies in the sector have established efficiencies and this is how the government can build on it.”

Government think-tank Niti Aayog said in a report last year that the government should rationalize its tariffs and provide fiscal incentives to bolster electronic components production in India. The South Asian country faces tough competition from rivals like Vietnam in luring foreign businesses looking to diversify their supply chains from China.

India's current tariffs on electronics components — ranging from zero to 20 percent — is about five percent-six percent higher than countries such as China and Malaysia, according to research from Niti Aayog. 

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