The Union Budget 2018 was just announced today and it looks like mobile handsets will become more expensive. Finance Minister Arun Jaitley has announced a hike in customs duty on mobile phones to 20 percent from 15 percent. "Customs duty on import of mobile phone parts will be increased to 20 percent from the existing 15 percent. This will boost jobs in the smartphone sector in India," Jaitley said during his Union Budget speech. In December, the government had increased customs duty on various items including mobile phones to 15 percent from 10 percent.
In a bid to further help domestic smartphone manufacturers, the government has also proposed to impose a 2 percent special additional duty (SAD) on imports of populated printed circuit boards (PCB) used for mobile phones. Well, with this the price of mobile handsets could go up marginally by at least 1 percent as the government has now proposed to levy higher customs duty on a component that makes up more than a fourth of the cost of making a phone.
However, the government has stated that the move has been put forward in order to 'provide adequate protection to domestic industry' and that it will benefit local manufacturers of PCBs. As such, PCB is one of the most critical elements in mobile phone manufacturing. Reportedly, Samsung is the only manufacturer that populates PCBs in India, and the company could likely benefit the most from the duty change. "This is aimed at incentivizing manufacturing of PCB locally, which is a major step towards bringing value addition to India," Bipin Sapra, an indirect tax expert at EY has said.
Talking about other mobile phone brands and contract manufacturers they basically import this part mostly from China. Meanwhile, handset makers are of the opinion that the duty change is directed at bringing design level investments into India and added that a marginal cost increase on the final product could also be absorbed.
Interestingly, Narendra Bansal, Chairman of Intex Technologies in a statement to Economic Times has said, "Globally phone prices are going down across the board, therefore an increase should not be passed on to consumers."
But some contract manufacturers may not be pleased with raise in special additional duties. "This can lead to a cost increase of about 1.2 percent because PCB is roughly about 50 to 60 percent of the cost of the phone," said Sunil Vachani, Vice President of Consumer Electronics and Appliances Manufacturers Association and Head of electronics manufacturer Dixon Technologies.
"We had asked that such a move should not be considered till 2018 because the ecosystem is not ready, but our requests have not been heard," he added.
Vachani has further expressed that despite the government providing incentives in the value chain, future investments into SMT (surface mount technology) lines required for populating PCBs will not come because the differential duty on finished mobile phone remained unclear. Some were disappointed that the government didn't do more to boost local manufacturing.
Sanjay Kumar Kalirona, CEO, and Director, Comio has said, "The Union Budget-2018 is a positive step towards India's growing smartphone market. The increased customs duty on mobiles will further boost local manufacturing and will be the essential push to create a manufacturing eco-system in India. Smartphones play a crucial role in today's times and this budget is an extension to the 'Digital India' initiative. With a focus on development, it is a progressive budget and is a stepping stone to India's growth story."
Rajesh Agarwal, co-founder at Micromax has said, "While no big bang announcements have come, what is heartening is that the government has announced multiple measures which can improve local manufacturing and create a better component ecosystem for mobile handset makers. The allocation of Rs. 745 crore is a welcome move which will provide impetus to local component manufacturing in the electronics sector."
In any case, the true impact of this hike will be known when smartphone companies send their statements. It will be interesting to see how the companies will now price their devices in the coming days.