A parliamentary panel has warned that India’s decision to accept sweeping zero-tariff commitments under the WTO’s Information Technology Agreement (ITA) “effectively froze the country out of building a competitive electronics manufacturing base,” leaving domestic firms exposed to cheaper imports for nearly three decades and widening the nation’s technology trade deficit.

The Standing Committee on Communications and Information Technology, in a 200-page report tabled in Parliament, argues that the 1997 pact — signed when India’s hardware sector was still “nascent and fragile” — accelerated the collapse of local manufacturers, stalled component production, and locked the country into a long-term dependence on China, South Korea and Taiwan.

The Committee’s assessment is blunt: ITA-1 allowed India’s software and IT services industry to flourish, but it hollowed out domestic hardware capabilities in the process.

Zero-duty imports wiped out local makers, officials admit

Senior officials from the Ministry of Electronics and IT (MeitY) told MPs that duty-free access to more than 200 ITA-listed products made imports significantly cheaper than local manufacture, pushing Indian firms out of the market.

“We became import-dependent because tariff elimination arrived far earlier than our capacity to compete,” one official testified. Value addition in Indian electronics remains stuck at 18–20%, compared to 40–70% in East Asian supply chains.

Cheap imports from China surged after 2005, with India’s ITA goods imports reaching USD 83.6 billion in 2024, led overwhelmingly by Chinese brands and component suppliers. Domestic manufacturers were reduced largely to low-value assembly or distribution, while component ecosystems — the backbone of any electronics industry — never took root.

A missed decade: mobile phones highlight the cost of early liberalization

The report flags mobile phones as India’s clearest missed opportunity. Despite not being covered under ITA-1, phones were allowed into India at zero duty for years, effectively ceding the market to foreign brands. Only after India raised tariffs to 20% in 2018 and pushed local value-add programs did domestic production cross ₹3 lakh crore — a turnaround that the Committee says shows the “critical role” of tariff flexibility.

The contrast is stark: India lost a decade of potential manufacturing gains while China used the same period to become the world’s electronics factory.

China’s gain mirrors India’s loss

The report cites WTO data showing that China’s share in global ITA exports rose from 2% in 1996 to 33% in 2015, powered by strong state support, deep component ecosystems and the advantage of joining the ITA after building manufacturing scale.

India, by comparison, joined early, without infrastructure, R&D depth, skilled labor pools or supply-chain linkages.

A senior Commerce Ministry official told MPs: “India joined from a position of weakness. China joined from a position of strength.”

Domestic ecosystem never matured

The panel lists structural consequences of joining the ITA too early:

• Component manufacturing stagnated — India still imports the bulk of semiconductors, PCBs, displays, sensors and batteries.
• No protection for emerging industries — MFN-bound zero tariffs prevented India from nurturing sunrise sectors, even when domestic firms were entering the market.
• Low investment in R&D — hardware companies lacked incentives or margins to invest in design, tooling or innovation.
• Trade deficit ballooned — despite rising exports, imports outpaced them dramatically, leaving India with a widening electronics deficit.

Even today, India’s integration into global value chains remains shallow. Countries like China, Taiwan and Korea capture high-value activities — chips, displays, materials — while India captures downstream tasks like assembly and testing.

Conflict over HS codes deepened India’s exposure

Frequent changes in global HS classifications, the report notes, automatically sucked more products into India’s zero-duty list — sometimes without the country’s explicit consent. Several of these ambiguities form the basis of the three WTO disputes India is currently fighting.

MeitY officials described the absence of an exit clause and inability to renegotiate commitments as “key constraints” that have left India bound to obligations drafted almost 30 years ago, when the digital economy looked entirely different.

Government scrambles to rebuild what the ITA eroded

In response, the government has launched an aggressive slate of corrective programs — Production-Linked Incentives, the component ecosystem scheme, domestic testing norms, and big-ticket semiconductor initiatives.

MeitY told MPs the goal is to double domestic value addition to 35–40% within five years, rebuild components capability, and plug India into global semiconductor and electronics supply chains.

The report acknowledges progress — especially in mobile phones — but warns that India is still decades behind major production centers in East Asia.

A call for strategic recalibration

While India cannot legally exit the ITA, the Committee calls for a “recalibration” of its commitments and a stronger defensive posture at the WTO. It urges the government to aggressively protect domestic industry from predatory pricing, negotiate HS code clarifications, and reserve policy space for emerging technologies such as AI chips, quantum hardware and advanced sensors.

The ITA may have democratized access to digital goods, the panel says, but for India, the economic cost has been steep.

“The agreement delivered affordability,” the report concludes, “but at the price of undermining India’s long-term capability to produce what it consumes.”

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