India versus Vietnam The Battle for Exports Supremacy in Electronics

With the 2024 Lok Sabha elections around the corner, India’s electronics ministry is concerned about falling short of one of its biggest promises in 2019. India had set its sights on becoming the world’s fastest-growing smartphone manufacturer by 2025, with exports of phones (610 million) based on a gross value of $110 billion. 

However, in reality, India has failed to reach even 10% of the target (as of 2024) stated in a correspondence between the electronics and finance ministries. The reduced flow of FDIs into the economy is being cited as the chief reason. Investors have expressed their disinterest in India’s tax policies on electronic components which has made them look for affordable alternative destinations such as Mexico and south-east Asian countries like Thailand and Vietnam.

Why does ‘India’ feel the heat?

Foreign companies prefer investing their money in less taxing destinations as it aids in cutting down their cost of production. The inputs required for the creation of such smart gadgets are very specific, and therefore, companies will prefer nations that charge the least duties on such imports. However, India’s policy structured on differentiated duties and levies over the import of input components acts as an obstacle. It is done because it encourages maximum production of phones and gadgets within the domestic territory while safeguarding domestic business interests. The Ministry of Finance had already slashed the duties on battery covers bringing down the values from 15% to 10%. Nevertheless, it still charges a hefty 20% on printed wiring boards and chargers despite the Ministry of IT and Electronics’ repeated calls for a reduction to 15%. 

While the current government has set an ambitious target of concentrating one-fourth of the world’s electronics production by 2029, as of 2024, it has been unable to break one-twenty-fifth of the target. Meanwhile, on a positive note, the Kanchipuram district in Tamil Nadu meets approximately 40% of indigenous production of smartphones that are exported. 

What makes ‘Vietnam’ a tough contender? 

Vietnam greatly benefitted when American firms started pursuing the China Plus One policy due to the geopolitical tensions that took place when Donald Trump was the U.S. President. Here, they followed the Chinese version, emphasizing charging less than one-tenth of taxes on inputs imported from trading partners that fall under the most-favored-nation status (MFN) or with those they have signed free-trade agreements (FTA). Similarly, their specialization in the export of completely built units (C.B.Us) earned them the title of ‘World’s Newest Assembling Capital’. CBU products are those items in which separate components are assembled to form a functioning product at one specific location. In 2022, smartphone and allied exports generated $60 billion in revenues with the contribution of CBU closing up to $34 billion. In January 2024 alone, the overall exports of smartphones were valued at approximately $6 billion.

The statistics between both countries

Before the 2010s, India and Vietnam recorded lower than 1% in terms of market competitiveness, and by 2023, Vietnam grossed 13% and India managed to settle at 3% on a global level. The Hong Kong, Japanese and U.S. markets highly favor Vietnamese products with market shares reaching up to 2%, 6%, and 18% respectively. On the other hand, Germany and U.A.E are the biggest purchasers of Indian-manufactured phones and components at 5% and 13% in 2023. From 2018-2023, Vietnamese goods faced a declining demand in both these nations, with their values in Germany falling from 21% to 9% and in U.A.E from 32% to 13%. Similarly, during this time, India has only a negligible share in the Japanese markets.

Nonetheless, the political turmoil in Vietnam is obscuring its dreams of conquering the smartphone market. Constant political quarrels amongst the members of the National Assembly of Vietnam led to the resignation of two presidents in a single year. With the next National Congress in Vietnam scheduled in 2026, the U.S.A. is also monitoring the political situation in Vietnam after it had enhanced its bilateral relations with the latter and would not wish to reconsider its current position.