Duty on mobiles after GST: iPhones to get costlier; local brands won't gain

Smaller players could be routed; major Indian brands may not get any significant advantage

The Union government is mulling a 15 per cent basic Customs duty (BCD) on import of finished mobile phone handsets, once the goods and services tax (GST) takes effect.
 
This is intended to protect entities which have established manufacturing units in India and curb outflow of foreign exchange. Boosting local manufacturing or assembly of mobile phones is part of the government’s Make In India project. Local value addition in handsets is only two per cent.
 
The import duty has been proposed by the commerce and industry ministry. Under the phased manufacturing programme (PMP) developed by the ministry of electronics and information technology, the government aims to enable large-scale manufacturing of mobile phones. Mechanics, die-cut parts, microphones and receivers, keypads and USB cables have been targeted in the current financial year (FY18).

 

Promoting of indigenous manufacturing of printed circuit boards, camera modules and connectors is targeted for 2018-19. And, of display assembly, touch panels, vibrator motors and ringers in 2019-20.
 
The government is in the process of formulating the second phase of PMP. It says it expects this to enhance value addition to 58.3 per cent in feature phones and 39.6 per cent in smartphones.
 
The 113-million Indian smartphones market has Chinese vendors holding over half the share. Local brands such as Micromax, Intex, Lava, Karbonn and Reliance Lyf are among the top 20 but their shares have come down significantly in recent quarters. Micromax, for instance, was second in the market, with 18 per cent market share two years earlier; in the March 2017 quarter, it had no more than 3.3 per cent. Lyf had 2.7 per cent and Lava 2.1 per cent.

 
Chinese advantage still
 
And, a BCD on import of handsets is unlikely to help them gain an edge here, as most of the prominent Chinese brands have set up their own assembly units or found sourcing partners in this country over the past two years. Vivo, Oppo, Xiaomi, OnePlus, Lenovo and Moto, among others, are already sourcing a majority of their smartphones locally.
 
With none of the Indian brands featuring among the top five by market share and the increasing focus from Chinese firms on local sourcing, Tarun Pathak at Counterpoint Research says it is unlikely that major Indian brands would gain from an import duty at this point.

 
Costlier premium models
 
While GST is expected to bring price inflation into the handset market, with mobile phones initially getting costlier by five per cent as the effective tax rate goes up to 12 per cent, from eight-nine per cent at present, an import duty might lead to certain flagship models getting costlier.
 
For instance, Apple’s iPhones are imported from China at present. While the company has tied up with Wistron for local sourcing of the iPhone SE, the majority of its top-selling models in the country — iPhone 5, 5S, 6, 6S, 6S Plus and iPhone 7 series of handsets — continue to be imported. Flagship models from others, like the Mi5 from Xiaomi, G6 from LG and the soon to be launched OnePlus 5 from One Plus, are not made locally either. Consumers can expect price increases for these models under the GST regime as well.