Budget 2018: Customs duty hike of 5% on mobile phones to force major brands to pass on burden to consumers

According to industry experts, the customs duty hike will push foreign players towards manufacturing and sourcing components more within the country.

In a bid to further help domestic smartphone manufacturers, Finance Minister Arun Jaitley on Thursday announced a hike in customs duty on mobile phones to 20 percent from 15 percent — a move that will force foreign players to pass on the burden to consumers.

A customer tests the features of the Apple iPhone X. Image: Reuters

A customer tests the features of the Apple iPhone X. Image: Reuters

"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.

"While the intention behind increasing the customs duties on some products such as mobile phones is to incentivise domestic manufacturing, this will lead to an increase in the prices for these products denting the middle-class consumer's wallets," MS Mani, Partner, Deloitte India, said in a statement.

Domestic smartphones welcomed the government's move.

"We welcome the announcement on customs duty increase in mobile phones. This will help make India a global hub for mobile phone manufacturing. Local manufacturing will create more job opportunities, benefitting the youth and contributing towards the overall growth of the economy," said Sanjeev Agarwal, Chief Manufacturing Officer, LAVA International.

Rajeev Jain, Director and CFO, Intex Technologies, said the move will prove to be the big boost for localisation and setting up of a domestic component ecosystem.

"This is a big thumb up to domestic players like Intex, which have been developing domestic capacities since long in electronics manufacturing," he said.

Chinese smartphone vendors, however, were critical of the government's move.

"The increase in customs duty will definitely hamper the cost to the customer, especially when it comes to getting repairs for the high-end devices," said Syed Tajuddin, CEO, Coolpad India.

"While the increase in customs duty on handsets will compel brands to manufacture or assemble more in India, still there is not great support for local ecosystem for manufacturing spare parts," he added.

According to industry experts, the customs duty hike will push foreign players towards manufacturing and sourcing components more within the country.

"This move will push almost all players to increase the assembling of mobile phones in India. From Apple's point of view, it will certainly impact in the near term, possibly increase the prices of its flagships since most of them are being imported to India," Navkendar Singh, Senior Research Manager, IDC India, told IANS.

"In the long term, this will push Apple to start manufacturing of the entire range of devices in India to enjoy these incentives and remain competitive in a market like India, which it cannot afford to ignore," Singh added.

"Almost 3/5th of total handsets out of 300 million last year were assembled in India. The increase in duty will further increase the local assembling share as brands will ramp up their current output from local Maintenance and Engineering Services (EMS) facilities since capacity is already there," Tarun Pathak, Associate Director at Counterpoint, told IANS.

According to Faisal Kawoosa, Principal Analyst, Telecoms, CyberMedia Research (CMR), the move is in line with expectations to further give impetus to manufacture the handsets domestically.

"This will also push new entrants, which typically make a beeline every year to India for local manufacturing who otherwise first procure CBUs from their parent companies and then gradually start manufacturing in India," Kawoosa said.

"Now, to be competitive, such new entrants shall also have to look for a domestic manufacturer from the beginning," he added.

In December, the government had increased customs duty on various items, including mobile phones, to 15 percent from 10 percent.

After the government hike, Apple became the first manufacturer to raise prices (on MRP) across iPhone models, except iPhone SE that the company assembles in the country.

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