India’s electronics manufacturing ecosystem is seeking a course correction in the upcoming Union Budget 2026–27, arguing that legacy customs duty structures and regulatory rigidities are now working against the country’s ambitions of becoming a global electronics production hub.

In a detailed submission to the government, the Indian Cellular and Electronics Associations (ICEA) has called for rationalisation of Basic Customs Duty (BCD) across a wide range of components, sub-assemblies and capital goods, while also urging reforms to operational frameworks such as the Manufacturing and Other Operations in Warehouse Regulations (MOOWR). According to the industry body, existing tariff anomalies are inflating input costs, discouraging local value addition and weakening India’s export competitiveness at a time when global supply chains are actively diversifying.

India’s electronics manufacturing push has delivered visible gains over the past five years, particularly in mobile phone assembly, where exports have scaled sharply. However, as production volumes rise and localisation deepens, cost structures have become more sensitive to customs duties on components and sub-assemblies. ICEA argues that the current duty regime, designed in phases to encourage assembly-first manufacturing, now needs recalibration to support deeper integration into global value chains.

This issue takes on added significance as India positions itself as a reliable alternative manufacturing base amid geopolitical tensions, supply-chain reconfiguration and rising trade barriers elsewhere. Cost competitiveness, ICEA notes, is no longer just a margin issue but a strategic one.

At the core of ICEA’s recommendations is a push to fix inverted duty structures where inputs attract the same or higher duties than finished or semi-finished products. For mobile phone manufacturing, the association has proposed cutting duties on certain sub-assemblies such as microphones, receivers and speakers from 15% to 10%. While these components form a small share of a handset’s bill of materials, ICEA argues that higher duties cascade through the supply chain, inflating final product costs and undermining price competitiveness.

A similar case has been made for Printed Circuit Board Assemblies (PCBAs) and Flexible Printed Circuit Assemblies (FPCAs), where ICEA has sought a reduction in duties from 15% to 10%. Importantly, PCBA manufacturing is already largely localised, and a substantial portion of FPCA imports are used in export-oriented production. As a result, the industry body contends that revenue impact for the exchequer would be limited, while export competitiveness would improve.

In wearables and hearables, a segment witnessing rapid domestic demand growth, ICEA has proposed lowering duties on finished products from 20% to 15% and aligning mechanical parts duties with those applicable to mobile phones. The argument here is consistency fragmented duty structures across closely related product categories increase compliance complexity and raise costs.

Display assemblies have emerged as another pressure point. ICEA has highlighted an inverted structure where finished displays and their key inputs both attract 15% duty, providing little incentive for domestic assembly in sectors such as automobiles, medical devices and industrial electronics. The association has proposed a zero-duty regime for inputs while retaining duties on finished assemblies, mirroring structures already adopted in mobile phones and televisions.

ICEA’s proposals reflect a broader shift in the industry’s priorities from assembly-led growth to sustainable, export-oriented manufacturing. As global electronics majors look to diversify sourcing, even small duty distortions can influence production decisions across geographies.

Inverted tariffs on advanced components such as inductor coil modules used for wireless charging further illustrate the challenge. When inputs face higher duties than finished modules, domestic manufacturing becomes economically unviable. ICEA’s recommendation to eliminate duties on inputs while retaining duties on finished modules is aimed squarely at correcting this distortion.

Capital goods present a similar problem. While finished manufacturing equipment can often be imported at zero duty, components needed to make such machinery locally attract duties of up to 20%. This structure, the industry warns, discourages domestic capital equipment manufacturing and locks India into long-term import dependence.

Beyond tariffs, ICEA has flagged operational frictions under the MOOWR scheme. Key demands include allowing depreciation on capital goods cleared into the domestic market, extending RoDTEP benefits to MOOWR units, simplifying ex-bond clearance procedures and granting deemed Authorised Economic Operator (AEO) Tier-1 status to such units. Together, these measures are aimed at improving cash flows, reducing compliance delays and enhancing ease of doing business.

The association has also sought a standard wastage norm of up to 2% for mobile phone manufacturing, citing the realities of high-volume, precision-driven production where some material loss is unavoidable.

If accepted, these proposals could lower production costs, improve export margins and strengthen India’s attractiveness as a manufacturing destination for global electronics firms. Conversely, inaction risks gradually eroding India’s cost advantage, particularly as competing markets fine-tune their own incentive and tariff regimes.