Budget 2013: Mobile industry unhappy as phones set to grow costlier

The Union Budget has received a mixed response from industry leaders and consumers. But one group of consumers who will most likely be upset with the Budget are smartphone lovers. Smartphones in India are set to grow costlier as Finance Minister P. Chidambaram has increased the excise duty on mobiles costing more than Rs 2,000 from one percent to six percent.

During his speech at the Parliament, Chidambaram said, “About 70 per cent of imported mobile phones and about 60 percent of domestically manufactured mobile phones are priced at Rs 2,000 or below. I do not propose to change that (excise duty) in the case of low priced mobile phones. However, on mobile phones priced at more than Rs 2,000, I propose to raise the duty to six percent.”

Mobile phones priced Rs 2,000 and above will become costlier

Obviously, the hike will have greater impact when you go hunting for high-end smartphones. However, in the case of low-end or mid-tier devices, the hike will be relatively easier to deal with. For example, a phone which was available for Rs 10,000 will now cost around Rs 10,495, while devices that cost Rs 20,000 will now be sold for approximately Rs 20,990. In the high-end category, phone prices will increase by around Rs 1,485 for a phone that currently costs Rs 30,000.

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The hike drew a sharp reaction from the leading smartphone makers in the country, who are naturally not happy with the decision. Asim Warsi, Vice President of Samsung Mobile, said, “The increase in the excise duty on mobile phones will not have a positive impact on the mobile industry and should lead to an increase in prices for end consumers.”

Reacting to the hike, one of India’s leading handset makers Lava said that prices of all phones will increase in the short term. “The mobile phone segment is very competitive. But we have no option but to increase prices. It is a hard Budget for the mobile phone segment,” Lava founder and director S N Rai said. He added: “The excise duty proposed in the Union Budget on mobile phones priced Rs 2000 and above (sic) would have a very high impact on the industry. The industry is already suffering from non-uniform VAT issue and the increase in the duty further escalate the prices. Also, this step is a discouraging move to the domestic industry which is looking at making India a manufacturing base for mobile phones.”

Nokia, which is a major player in the ultra-low-end segment, praised the decision to not hike the excise duty on sub-Rs 2,000 mobiles, but at the same time requested a roll-back on the tax hike for phones over Rs 2,000. Commenting on the issue, P. Balaji, VP and Managing Director, Nokia, said. “The government’s decision to keep concessional excise duty of one percent intact on mobile phones in the sub-Rs 2,000 category is welcome. However, we would request the Finance Minister to roll back excise duty increase on mobile phones beyond Rs 2,000, as mobile phones are the primary mode of access to information and services; a tool for learning, development and income generation for the youth and non-urban consumers.”

Balaji also added that the hike will most likely increase sales figures of grey market goods and unbranded clone handsets, which will only end up affecting the industry, the tax exchequer and the end consumers.