Prices of mobile phones are set to go up: Union Budget 2017
Prices of mobile handsets could go up marginally - by at least 1% - as the government proposed to levy customs duty on a component that makes up more than a fourth of the cost of making a phone. Some handset makers though said they could absorb the additional cost in a bid to be competitive in the crowded market.
The government has proposed to impose a 2% special additional duty (SAD) on imports of populated printed circuit boards (PCB) used for mobile phones, as part of its announcements for Make in India in the Union Budget of 2017-18.
The move has been undertaken in order to 'provide adequate protection to domestic industry', the government said, which will benefit local manufacturers of PCBs.
"This is aimed at incentivizing manufacturing of PCB locally, which is major step towards bringing value addition to India," said Bipin Sapra, an indirect tax expert at EY.
Industry experts said that PCB is one of the most critical elements in mobile phone manufacturing. At present, only Samsung populates PCB?s? in India, which is why it is likely to benefit the most from the duty change.
Meanwhile, other mobile phone brands and contract manufacturers import this component, primarily from China.
Brands largely feel that the duty change is directed at bringing design level investments into India, and added that a marginal cost increase on the final product can ?also be absorbed.
"Globally?, phone prices are going down across the board, therefore an increase should not be passed on to consumers," said Narendra Bansal, chairman of Intex Technologies.
But contract manufacturers are not pleased with raise in special additional duties.
"This can lead to a cost increase of about 1.2%, because PCB is roughly about 50% to 60% of the cost of the phone," said Sunil Vachani, vice president of Consumer Electronics and Appliances Manufacturers Association and head of electronics manufacturer Dixon Technologies.
"We had asked that such a move should not be considered till 2018 because the ecosystem is not ready, but our requests have not been heard," he added.
Vachani further cautioned that despite the government providing incentives in the value chain, future investments into SMT (surface mount technology) lines required for populating PCBs will not come because the differential duty on finished mobile phone remained unclear.
Some were disappointed that the government didn't do more to boost local manufacturing.
"While no big bang announcements have come, what is heartening is that the government has announced multiple measures which can improve local manufacturing and create a better component ecosystem for mobile handset makers. The allocation of Rs 745 crore is a welcome move which will provide impetus to local component manufacturing in the electronics sector," said Rajesh Agarwal, co-founder at Micromax.