Budget 2021: Mobile phone makers slam higher duty on China imports

However, auto parts makers welcome it as a step that will help localisation

The Union Budget proposal to raise Customs duties to reduce India’s dependence on Chin­ese imports has elicited very different reactions from two key areas of industry: mobile dev­ice manufacturers and auto components manufacturers. 

Standing against the proposal are global and Indian mobile device manufacturers who are preparing to petition the government against it.  They believe the increase in customs duties on the components used in making phones is against Atmanirbhar Bharat. 

They also say it will merely increase the price of phones and jeopardise the governm­ent’s ambition to turn the cou­ntry into a major global manufacturing hub for the industry.

Ranged on the other side are auto component makers who applaud the custom duty increase on a range of components as they believe it will give a fillip to increased localization and domestic production and reduce the import bill from China. The Budget on Monday imposed a customs duty of 2.5 per cent on components which are used for manufacturing the printed circuit board assembly and connectors, among other things, of a mobile device. The reason given was to achieve greater domestic value add­ition. Earlier there was no duty on these components.  

Pankaj Mohindroo, chairman of the Indian Cellular & Electronics Association, which represents Indian and global mobile phone manufacturers, said the increase will not lead to domestic value.

“The 2.5 per cent duty does not do anything except garner marginal revenue. The products are not even manufactured in the country so the duty will only increase the costs of mobile phones, impacting both Atmanirbhar Bharat and India as a domestic mobile device export hub,” he said.

   

Mohindroo said India risk­ed missing out on the bigger opportunity of becoming a global player if the government took a short-term view of going in for limited domestic import substitution.

A senior executive of a global mobile device firm whi­ch exports from the country said he did not understand the logic of the decision. “Most of these products are manufactured by the Chinese so a duty is understandable if you want to impel them to set up plants in India. But the country’s FDI policy is discouraging the Chin­ese from doing so. And nowsuch semi-conductor it­ems whi­ch go into a PCBA are not made by domestic players at all. That will be five years down the line.  Under the pha­sed ma­n­u­facturing progra­m­me, we do PCBA in India but the components come from abroad. So, it is of no use,” he said.

Global players also say that the measure will irk countries like Japan, South Korea, and the US which have been concerned with the Indian government increasing duties quietly.      

Mobile device makers said that, on the one hand, the government has put in place an ambitious production linked incentive scheme for encouraging exports (which provides 4-6 per cent incentive on value) to bridge their costs of production with Vietnam and China. 

On the other, it seems to be financing the scheme from rev­enues taken from them, na­m­ely by hiking GST on mobile de­vices from 12 to 18 per cent and now by imposing the customs duty.  Car parts manufacturers, however, are satisfied wi­th the Budget’s proposed hike in customs duties from 10 to 15 per cent on items such as toughened glass, electrical and electronic parts, brakes, pe­dals, crank gears, and frames.

 “The whole aim of the duties is to reduce our dependence on Chinese imports of these products. The move will help in encouraging more loca­l­i­sation and encourage domestic manufacturing of these products for which we have alre­ady built capability,” said Vinnie Mehta, director general, Automotive Comp­onents Man­facturers Association.

India’s auto component import bill in 2019-20 stood at $15.4 billion while it exports stood at $14.5 billion. China accounted for 27 per cent of the imports. The key product categories for imports include drive transmission and steering (30 per cent) followed by engine components (17 per cent) and electrical and electronics (15 per cent).