Budget 2018: Indian mobile manufacturers welcome customs duty hike; here’s why Chinese companies are unhappy

Feb 6, 2018

Budget 2018: Finance Minister Arun Jaitley, while presenting the Union Budget 2018 on Thursday, hiked the customs duty on mobile phones to 20 percent from 15 percent – a move that will force foreign mobile phone companies to pass on the burden to the customers. “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 in his Union Budget 2018 speech. The customs duty on mobile phones was last increased to 15 percent in December, up from 12 percent that was levied in July last year.

The Indian mobile phone industry has welcomed the move as it will help boost local manufacturing of mobile phones and the related components. So far, the mobile phones that are sold in India are either assembled in the country or imported from other countries. Electronic components such as printed circuit boards (PCBs), camera modules, sensors, and mobile displays are imported from countries like China, and then assembled locally to manufacture mobile phones. The increase in customs duty was on top of the list of demands by local mobile phone makers as they see this as adversely impacting the import volumes of SDKs from China and a boost to their own business.

“We welcome the announcement on customs duty increase in mobile phones from 15 percent to 20 percent 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, be benefiting 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.

Other domestic mobile manufacturers have praised the government’s move to boost digital technologies in rural areas. Riding on the wave of digitisation, the government’s ambitious ‘Make in India’ initiative will see a sharp boost as local manufacturing gains momentum in the next financial year. Rajeev Jain, Director and CFO, Intex Technologies, said the move will give a big impetus for localisation and setting up of a domestic component ecosystem. “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,” he said.

Apart from the mobile phone makers, chipset-making companies have also given a thumbs up to what FM Jaitley tabled for mobile phone manufacturing in India under the Budget 2018. “The increase in the customs duty on imported mobile phones is a great move which will boost the ‘Make in India’ campaign by promoting local manufacturing. The government’s focus on the new digital technologies will help lead to an empowered digital society and a knowledge economy,” said Neeraj Sharma, Country Head, Spreadtrum India.

The Chinese smartphone manufacturers, however, seem unimpressed with the announcements made by the government during the Budget 2018. “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 further.

Vikas Agarwal, General Manager at OnePlus India: “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.”

“The current move will further enhance the manufacturing sector leading to job creation. We have doubled up our production capacity this financial year and will continue to scale up our manufacturing capacities to meet the growing customer demand,” added Sudhin Mathur, Managing Director, Motorola Mobility India.

Xiaomi, which recently passed Samsung to become the most-selling mobile company in India and has claimed many milestones over the sales of some of its most popular smartphones such as Redmi Note 4, Redmi 4A, and Redmi 5A, has declined to comment on the newly-rejigged customs duty on the imported electronic components in India.

While the mobile phone makers have given mixed reactions to the new customs duty rejig, industry experts believe that this move is a part of government’s strategy to make as many manufacturers invest in manufacturing in India, so that India emerges as a global manufacturing hub. 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. “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 which it cannot afford to ignore,” he 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 the beeline every year to India for local manufacturing who otherwise first procure completely built units (CBUs) from their parent companies and then gradually start manufacturing in India,” Kawoosa said.

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Media Source: CNBCNEWS