Union Budget 2020 India: Imported mobile phones and chargers may cost 1-2 percent more as the government on Saturday announced increasing customs duty by 5-10 percent. But industry observers say the hike in import duty will not affect consumers at large, as nearly 97 per cent of mobile market requirements are being met through domestic production.
The government has also announced that it will come up with a new scheme to encourage domestic manufacturing of mobile phones, electronic equipment, and semiconductor packaging in order to make India a part of the global manufacturing chain and boost employment opportunities.
As per budget proposals, duty on chargers will increase to 20% from 15%, while that on motherboards or printed circuit board assembly (PCBA) to 20% from 10%. Duty on other components used in making mobile handsets will also increase in a similar range.
Faisal Kawoosa, founder and chief analyst of research firm techARC, said the duties will have a 4-7% impact on the final selling price of imported phones. “If we are pushing for a deeper level of smartphone manufacturing to happen from India then the impact (of duties) has to be higher. Otherwise, it isn’t enough incentive for manufacturers to source locally.”
Mobile phones were earlier exempted from 10 per cent service welfare cess but it will now be re-imposed on imported handsets over and above existing 20 per cent basic customs duty.
The hike in import duty will not affect consumers in India much because 97 per cent of mobile market requirements is being met through domestic production, according to industry experts.
Vivo India Director for Brand Strategy Nipun Marya said: “We established our manufacturing facility in the first year of our operations in India. In 2019, we had successfully integrated SMT lines (assembly lines) in our facility in Greater Noida, and ever since have been manufacturing PCBs (motherboard) there”.
According to Counterpoint Research, Vivo was the second largest smartpone player in the last quarter of 2019 in terms of sales with 21 per cent market share.
India has also started exporting chargers for both mobile phones and laptops. It is estimated that domestic charger production in India is to the tune of Rs 1 lakh crore. The fresh import duty may encourage production of another Rs 5,000 crore worth of chargers.
“Increase in import duty of mobile phone components such as display panel, touch panel, microphone, receiver, and printed-circuit- board to 10 per cent from nil, will ensure further Indianisation of products and increase the intensity of production in India,” EY emerging markets TMT leader Prashant Singhal said.
The government’s decision to crack down on non-genuine imports under a free trade agreement is expected to give a further boost to manufacturing of mobile and electronic products.
For low-end phones, especially feature phones, brands will have to be careful about costs but the industry needs to be mindful about competition from other manufacturing markets (China and Vietnam) because at the current level of customs duties, it may not be competitive enough.
Pareekh Jain of Pareekh Jain Consultancy sees this as a positive step for the industry because it clearly gives out the message that duties can further increase and that should motivate manufacturers to shift base if they haven’t done so yet. “The feature phone market and mid-priced device market clearly has more incentive to shift base now and they will need to figure out where they achieve economies of scale better,” said Jain.
