Apple iPhones and Google’s Pixel could be costlier by 3-4 per cent with the government hiking customs duty on mobile phones to 20 per cent, say market watchers.
Presenting the Union Budget 2018-19, Finance Minister Arun Jaitley said the customs duty on phones has been raised from 15 per cent to 20 per cent and on some other parts and accessories to 15 per cent, to “intensify” domestic value addition and Make-in-India in the sector.
Customs duty on smart watches and wearables has been doubled to 20 per cent, while that on specified parts and accessories of mobile phones has gone up to 15 per cent from the current range of 7.5-10 per cent.
In December, the government had raised the levy on imported smartphones to 15 per cent (10 per cent earlier), to boost local manufacturing. Following the hike, US-based Apple had raised the average prices of iPhones by 2.5 per cent.
Industry watchers say the impact of the latest increase in customs duty could be of a similar quantum.
Apple and Google however did not immediately respond to queries on the impact of the duty hike.
Most handset makers including Chinese players like Xiaomi, Lenovo, Oppo, Vivo, and OnePlus are already manufacturing a significant chunk of their products in India.
On the other hand, Apple imports all its handsets except iPhone SE, which is being assembled in India by Wistron.
“The Budget proposal will bolster local manufacturing to over 90 per cent from 75 per cent now. The announcement today potentially impacts handset makers like Apple and Google, that largely import devices,” Counterpoint Research Associate Director, Tarun Pathak told PTI.
On wearables, he further noted that the increase in customs duty would prompt companies to make these devices in India and veer away from imports.
Indian Cellular Association (ICA) National President Pankaj Mohindroo said the latest increase in customs duty will be the “last nail in the coffin” for imports.
“We are reaching a situation where imports would be nearly impossible,” Mohindroo added.
India is one of the largest mobile phone markets globally. In the October-December 2017 quarter, overall mobile phone shipments in India grew 37 per cent. Smartphone shipments in the said period increased 12 per cent, while exports of feature phones grew at a blazing 55 per cent.
Commenting on the impact, Mohindroo said a bulk of mobile phones sold in India are manufactured locally and hence, an across-the-board increase in prices is unlikely.
The exception, he said, will be a few brands that are still making phones overseas.
“There will be no increase in mobile phone prices since 81 per cent of the volume is manufactured in India and we will cross 90 per cent in 2018,” he explained noting that the government seems to be determined to increase value addition in domestic manufacturing.
HMD Global, which sells Nokia phones, said the duty hike will have a minimum impact on its business as all of its current portfolio of Nokia phones are manufactured in India.
Motorola Mobility India MD Sudhin Mathur said the move will further enhance the manufacturing sector, leading to job creation.
He added that the company – which assembles its handsets locally through Flextronics in India – has doubled its production capacity this financial year and “will continue to scale up manufacturing capacities to meet the growing customer demand”.
OnePlus India General Manager Vikas Agarwal echoed similar views stating that the company is “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”.
Micromax co-founder Rajesh Aggarwal highlighted that the government is taking steps to encourage local production of printed circuit boards (PCBs), camera modules, connectors and other components that go into making smartphones.
“(It) will boost the Make in India initiative and will relentlessly pursue in curbing imports and building value addition in the country,” he added.
While most players gave a thumbs up to the move, they also pointed out that an increase in customs duty would also impact the cost of getting repairs done for high-end devices.
Coolpad India CEO Syed Tajuddin said while increase in custom duty on handsets will compel brands to make/assemble more in India, the support for manufacturing spare parts needs to be stronger.
“And this lack of local spare part manufacturers will mean a tough situation for mobile handset brands,” he said adding that customers may have to bear some of this burden.