The government has raised import duty on a slew of electronic products, including mobile phones, television sets, digital cameras and microwave ovens, to curb overseas supplies and encourage local manufacturing. The increase is in the range of five to 10 percentage points. The move is expected to boost local manufacturing in the long run. It might lead to price hikes across categories in the next few months. The duty increase could, however, help the exchequer, which is under pressure due to lower tax collections from the goods and services tax (GST). “This seems to be with the twin objectives of garnering more revenue as well as incentivising domestic manufacturing and more value addition in India,” said Pratik Jain of PwC India. “These measures have been taken under emergency powers under Customs laws and we can expect further announcements in the Budget.” Revenue from GST fell to the lowest in four months in October at Rs 83,000 crore. Customs duty on mobile phones and other wireless telecommunication devices has been raised to 15 per cent from 10 per cent as part of the government’s phased manufacturing programme (PMP), which envisages to increase local manufacturing to 500 million units a year by 2019. Since the thrust on local production has been increased, handset imports have come down significantly. According to Counterpoint Research estimates, while in 2014 over 60 per cent of the handsets were imported, the share has come down to 20 per cent now. In 2017, India’s handsets market is set to touch 280 million units. The Indian Cellular Association (ICA) estimates that some Rs 30,000 crore worth of handsets are being imported this year, compared to Rs 1.25 lakh crore worth of phones produced locally.
The number of local manufacturing units have gone up to over 120 in 2017 from three in 2014. “There is sufficient capacity available with local equipment manufacturers. So, smaller firms that currently do not have economies of scale to set up own plants and thus are importing handsets can start sourcing locally,” said Pankaj Mahindroo, president, ICA. Currently, major players in the sector such as Apple, Xiaomi and Lenovo continue to import handsets as their local sourcing capacity fails to meet demand. Customs duty for TV sets has been raised by five percentage points to 15 per cent. While the country’s largest consumer electronics firm, Samsung, procures all its TV sets locally, smaller firms may face trouble. Sony began contract manufacturing of its top-selling Bravia series in 2015. “We are evaluating the notification at the moment and are yet to determine its impact,” said an executive from Sony. Abhijit Kotnis, chief manufacturing officer, Videocon, said: “The additional duty on assembled LED panels (modules) has also been increased from zero to 7.5 per cent. This is a significant step as it will boost domestic manufacturing and will also encourage foreign consumer durables companies to manufacture here. However, it is too early to assess the impact of the Customs duty hike on product pricing.” Kamal Nandi, business head and EVP, Godrej Appliances, welcomed the doubling of Customs duty on microwaves to 20 per cent.