Union Budget 2018: Smartphones to get costlier following custom duty hike, tech companies react

By Digit NewsDesk | Published on 01 Feb 2018
Union Budget 2018: Smartphones to get costlier following custom duty hike, tech companies react
HIGHLIGHTS

Customs duty on imported handsets like iPhones has been raised from 15% to 20% in the Union Budget 2018

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Get ready to pay more for imported smartphones. The custom duty on imported handsets has been raised once again from 15% to 20% to boost the government's Make In India drive. The announcement was made during the presentation of the Union Budget 2018 by Finance Miniter Arun Jaitley. The move is an attempt by the Indian governement to increase local manufacturing of devices and components. 

So who will it hit the hardest? Analysts predict that companies like Apple, which imports most of its iPhone inventory from China, will be among the most affected by the hike in custom duty on smartphones. Apple is already planning to start the production of the iPhone 6s in India, given that smartphone import duty was raised to 15% just last month. Owing to the hike, Apple increased iPhones prices just last month and the latest rise in import duties could further shoot up prices of the premium smartphones. Custom duty on smartphones has been upped for the third time in tha past year. 

"Increase in customs duty on mobile phones from 15% to 20% will delay the adoption of affordable smartphones in India until the manufacturing of these handsets starts in India," commented Hemant Joshi, Partner, Deloitte India. "Overall the Union Budget 2018 is good for the telecom Industry. The setting up of 5G center in collaboration with IIT Chennai would help India being early adopter of the next generation technology rather than being a laggard. This could be a boon for the telecom industry and guide the telecom operators to move to next-gen networks efficiently and effectively. This center could also work on development of Internet of Things and Machine to Machine applications which are relevant and best suited for India. India could take lead in setting up standards for next generation technologies, and in turn help in boosting Make in India initiative," he added.

The government has also increased the import duty on printed circuit boards (PCBs), camera modules, connectors and other components that go into making smartphones. This will also force players like Xiaomi, Motorola, OnePlus and others who are just assembling devices in India to manufacture smartphones end-to-end in the country.

"The Indian government is relentlessly pursuing curbing imports and building value addition in country. At these levels of import duty, import is no longer a viable option," Pankaj Mohindroo, President of the Indian Cellular Association told ET. 

Coolpad India CEO, Syed Tajuddin also reacted to the rise of import duties in the Union Budget 2018 and said, "the increase in custom duty from 15% to 20% will definitely hamper the cost to customer, especially when it comes to getting repairs for the high-end devices. While increase in custom 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. And this lack of local spare part manufacturers will mean a tough situation for mobile handset brands. Hence a brand is compelled to import most of the spare parts and customers have to bear some burden of it.”

While companies that rely largely on import of handsets are frowning upon the duty hike, local manufacturers welcomed the decision. "I welcome government’s move to walk the talk on “Make in India” by increasing customs duty (to 20%) on the imported mobile phones and in PCBAs of accessories like batteries & chargers (15%), which will prove to be the big boost for localisation and setting up of a domestic component ecosystem. This is a big thumbs up to domestic players like Intex, which have been developing domestic capacities since long in electronics manufacturing," said  Rajeev Jain, Chief Financial Officer, Intex Technologies.

Lava International is also expected to start assembling PCBs in India to avoid paying the hiked duty. “We welcome the announcement on custom duty increase in mobile phones from 15pc to 20 pc in the Union Budget 2018-19. This will provide a big boost to the Make-in-India campaign by the government, and will be instrumental in achieving our country’s vision of making 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. I congratulate the government on this landmark decision,” said Sanjeev Agarwal, Chief Manufacturing Officer, Lava International.

Chinese manufacturer iVooMi also plans to produce 100% of its inventory in India by 2020. "We at iVooMi will be changing over to 100% (currently is above 95%) make in India with this initiative and start the development of localisation for PCBA SMT, Battery complete unit, Transducers making in India to drive the growth to next level," said Ashwin Bhandari, CEO iVOOMi India.

Another Chinese smartphone player, OnePlus, commended the government's decision saying, “Since the announcement of Make in India program 3 years back, over 85% of smartphones sold in country are now produced locally. So, this is opportune time to introduce next set of regulations to attract investment in the manufacturing sector and establish India as a global hub for electronics. At OnePlus, we are fully committed to the Indian market and welcome the proposed regulations. Currently, all OnePlus smartphones are produced locally and we are already exploring ways to further increase the share of local manufacturing to ensure there is minimal cost impact of any new regulations to the end customer.” 

Homegrown smartphone maker Micromax is also happy with the government's decision to hike custom duty. In a statement to the press, Rajesh Aggarwal, Co-Founder, Micromax said, "The increase in customs duty on Mobiles will encourage local manufacturing. As India is becoming the global hub for manufacturing, the measures taken by the government will surely grow confidence amongst the manufacturers and I strongly believe that this will further create business and human resource opportunities as well." 

HMD Global, the Nokia brand licensee, seems unphased by the import duty hike on smartphones and components as the company already assembles and manufactures in India. "While the import duties for mobile phones increased to 20%, along with a 15% duty on key components, this will have a minimum impact on our business, as all of our current portfolio of Nokia phones are manufactured in India.,” said Ajey Mehta, Vice President India, HMD Global.

Given its recent move to manufacture the Honor 7x in India, Huawei said, "Huawei Honor is with the law of the land and in line with the government's vision of furthering local manufacturing. With our India first strategy, our aim is to build local capacity for indeginious production in India to meet the growing demand for the our smartphones in the market in the long run. Earlier this week, we have begun production of our latest bestseller the Honor 7x and will continue to add to our production portfolio."

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