Duty cuts to make electronic goods cheaper

Prices of personal computers, mobile handsets and telecom tariffs are set to fall , thanks to the various customs duty and excise duty sops announced by the government today.

This is expected to further boost the growth of sectors like telecom, IT and electronics which has already been witnessing phenomenal demand.

While MAIT has predicted a 14 per cent decline in fully imported computers, telecom manufacturers said that handset prices would fall by 5 per cent.

This follows the government bringing down the peak rate of customs duty from 25 per cent to 20 per cent and the removing the 4 per cent special additional duty on computers.

Customs duty on mobile handsets has also been reduced from 10 per cent to 5 per cent and basic duty on infrastructure equipment for all telecom services.

Prices of VCDs and DVDs are also set to come down with the abolition of excise duty currently at 16 per cent. The move would benefit Indian companies like Salora, Videocon, T-Series and Oscar.

Basic duty on specified capital goods used for manufacture of electronic goods is also being reduced from 10 per cent to nil.

Telecom operators would also benefit from the move to reduce customs duty on raw materials used for manufacturing optical fibres and cables from 15 per cent to 5 per cent and from 5 per cent to 0 per cent respectively. For consumers this would mean lower tariffs as operators pass on the benefits of reduced infrastructure costs.

In the case of Indian-made computers, the fall in prices could be lesser.

According to MAIT executive director Vinnie Mehta, the reduction in the peak customs duty, the reduction in excise duty from 16 per cent to eight per cent and the cut in import duty on motherboard from 10 per cent to 5 per cent would together reduce prices by 8-10 per cent.

HCL Infosystems chairman & CEO Ajai Chowdhry said: "It is great news for the PC manufacturing industry. This will drive away the grey maket and kickstart PC manufacturing in India."

According to Chowdhry, PC prices would soon come down by 5-7 per cent. MAIT has started revisiting its projected numbers for the current financial year.

"Initially, we were hoping to close the year with 30 per cent growth in numbers. Now, it could be 35-40 per cent," Mehta added.

Shiv Kumar, vice president, Philips Consumer Durables said, "We would reduce our handset price by 5 per cent. The duty rationalisation would reduce the gap with the grey market pushing up the growth numbers. This would also push local manufacturers to be cost competitive."

Sanjay Bhasin, head of Nokia's infrastructure business in the country said, "The exemption in basic duty on infrastructure equipment would certainly bring down the costs of network for operators. This would enable them to offer competitive tariffs to consumers in a market with so many players."

However the local telecom manufacturers felt that duty reductions would discourage companies to set up manufacturing base in India.

N K Goyal, president, Telecom Equipment Manufacturers Association said, "Injustice has been done to local manufacturers. Government should have also brought down the excise duty from 16 per cent to 8 per cent. Reduction of basic duty on infrastructure means that the government has advanced the date for implementing WTO norms from 2005.

Sounding a note of caution, IDC country manager Kapil Dev said that the duty cuts weren't large enough to make a huge impact.

"Had the peak rate of customs duty been brought own to zero, then it would have been a different story. Prices were anyway coming down because of increased competition," he said.