India’s biggest bet on electronics: Why the customs duty cut matters

India has spent the better part of a decade trying to convince the world that it wants to become more than just a large consumer market. It wants to become a factory floor. The latest customs duty changes announced by the government may not have grabbed as many headlines as a blockbuster tax cut or a record-breaking IPO, but they could prove to be one of the most consequential policy moves for India’s manufacturing ambitions.

By reducing customs duties on a range of components used in electronics and electric vehicle (EV) batteries, New Delhi is sending a clear message: the next phase of India’s economic growth will be built around manufacturing, not merely consumption.

The move comes at a time when global supply chains are undergoing a historic reshuffle. Rising geopolitical tensions, the US-China technology rivalry and multinational companies’ desire to diversify production away from China have opened a rare window of opportunity. India has spent years preparing for this moment through production-linked incentive (PLI) schemes, infrastructure investments and semiconductor policies. Lower import duties on critical components represent another important piece of that puzzle.

At first glance, cutting import duties may appear counterintuitive for a country trying to promote domestic manufacturing. Critics often argue that cheaper imports hurt local producers. But manufacturing is rarely that straightforward.

Modern electronics are assembled through highly complex global supply chains. A smartphone assembled in India may contain hundreds of imported components sourced from multiple countries. Batteries powering electric vehicles rely on raw materials that India barely produces in commercial quantities. Until domestic suppliers develop the necessary scale and technological capability, manufacturers have little choice but to import many of these inputs.

High duties on such components simply increase production costs, making Indian-made products less competitive both at home and abroad.

That is the bottleneck the government is trying to remove.

By lowering input costs, manufacturers gain room to expand production, improve margins and invest in larger facilities. More importantly, India’s exports become more competitive in global markets where every dollar of production cost matters.

The timing is equally significant.

India has already emerged as one of the world’s fastest-growing smartphone manufacturing hubs. Companies ranging from Apple and Samsung to Dixon Technologies and Tata Electronics have significantly expanded their production footprint in the country. Apple now assembles a growing share of its iPhones in India, something that would have seemed improbable just a few years ago.

The government’s latest customs duty changes reinforce that momentum.

Lower costs could encourage manufacturers to move beyond final assembly and bring increasingly sophisticated production processes into India. That transition—from assembling imported kits to manufacturing high-value components—is where the real economic gains lie.

The implications extend well beyond smartphones.

Electric vehicles represent another sector where the duty cuts could have far-reaching consequences.

Battery packs account for nearly one-third of an electric vehicle’s total cost. India remains heavily dependent on imported battery materials, including lithium, cobalt and nickel. Reducing duties on these inputs could help lower manufacturing costs, making electric vehicles more affordable over time.

While consumers should not expect immediate price cuts, manufacturers could gradually pass on part of the savings through competitive pricing as production scales up.

The broader economic impact may be even more important.

Manufacturing has long been India’s missing growth engine. Services have powered the country’s economy for decades, but they cannot absorb the millions entering the workforce every year. Electronics manufacturing offers exactly the kind of large-scale employment opportunities policymakers have been seeking.

Every large electronics factory creates thousands of direct jobs and many more indirect opportunities in logistics, packaging, warehousing, maintenance and component manufacturing.

If India’s manufacturing ecosystem deepens, the country could gradually replicate some of the industrial growth that transformed East Asian economies over the past four decades.

There is also an important geopolitical dimension.

Companies are increasingly reluctant to concentrate production in a single country after experiencing repeated disruptions—from the pandemic to trade wars and geopolitical conflicts. Global firms now actively pursue a “China Plus One” strategy, spreading manufacturing across multiple destinations.

India has emerged as one of the leading beneficiaries of this shift, but competition is fierce.

Vietnam continues to attract major investments in electronics. Thailand and Indonesia are strengthening their EV supply chains. Mexico has become an important manufacturing hub for North America.

Policy stability matters as much as incentives.

Frequent changes in tariff structures create uncertainty for multinational companies making multi-billion-dollar investment decisions. By rationalising duties rather than raising them, India appears to be signalling a more predictable and globally integrated manufacturing strategy.

However, lower duties alone will not guarantee success.

Manufacturers continue to face challenges ranging from logistics costs and power reliability to regulatory complexity and land acquisition. Component manufacturing remains relatively underdeveloped compared to assembly operations. Many small suppliers still struggle to compete with established Asian manufacturers on cost and quality.

The next stage of India’s industrial strategy must therefore focus on building deeper domestic supply chains rather than relying indefinitely on imported inputs.

That requires sustained investment in research, skill development, industrial clusters and technology partnerships.

There is another risk policymakers must avoid.

Import duty reductions should not become a substitute for improving the broader ease of doing business. Lower tariffs can attract investment initially, but long-term competitiveness ultimately depends on productivity rather than tax incentives.

Countries that became manufacturing powerhouses did so by creating ecosystems where companies could innovate, scale efficiently and integrate into global supply chains.

India’s challenge is no different.

Yet the latest customs duty changes should be viewed in that larger context.

This is not simply a revenue decision. It is an industrial policy decision.

It reflects an acknowledgement that India’s manufacturing ambitions cannot succeed if factories are burdened by unnecessarily expensive inputs. In today’s interconnected economy, competitiveness often begins with making it cheaper to produce rather than more expensive to import.

For investors, the policy could strengthen the long-term outlook for electronics manufacturers, contract manufacturers, EMS companies, battery producers and logistics firms that stand to benefit from expanding industrial activity.

For consumers, the immediate impact may be limited. Electronics and electric vehicles are unlikely to become dramatically cheaper overnight. But over time, greater production scale and stronger competition could translate into better prices, more product choices and faster technological adoption.

Most importantly, the customs duty changes reveal where the government believes India’s economic future lies.

Not in protecting inefficient industries behind high tariff walls.

But in making India an indispensable part of the world’s manufacturing supply chain.

If that vision succeeds, these duty cuts may eventually be remembered not as a minor tweak in customs policy, but as another decisive step in India’s long journey from being one of the world’s largest markets to becoming one of its most important manufacturing economies.