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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

Arnab Dutta & Subhayan Chakraborty  |  New Delhi 

iPhone

The Union government is mulling imposing a 15 per cent basic customs duty (BCD) on the import of finished mobile handsets once the (GST) comes into effect.

The move is intended to protect manufacturers who have set up units in India and put a curb on the outflow of foreign exchange to countries like China, Taiwan, and Vietnam.

Boosting local manufacturing or assembly of mobile phones is a key part of Prime Minister Narendra Modi’s pet project —

What the government intends to do?

The Commerce and Industry Ministry had proposed a customs duty of 15 per cent on smartphone imports. Under the Phased Manufacturing Program (PMP) developed by the ministry of electronics and information technology, the government aims to enable large-scale manufacturing of mobile phones. As local value addition in handsets remains as low as two per cent at present, sub-parts such as mechanics, microphones, receivers, keypads, and USB cables, among others, have been targeted in the initial stage.

The PMP covers mechanics, die cut parts, microphone and receiver, keypad and USB cable in the current financial year. It also aims to promote the indigenous manufacturing of populated printed circuit boards, camera modules and connectors in 2018-19, and display assembly, touch panels, vibrator motor and ringer in 2019-20.

The government is also in the process of formulating the second phase of the PMP, which it expects will enhance value addition to 58.3 per cent in feature phones and 39.6 per cent in smartphones.

What will be the consequences?

While the government’s upcoming move could be well intended, a look at the current dynamics of the sector raises some important questions. Will an import duty on finished handsets be able to save Indian brands from being routed by Chinese vendors — a story which is currently unfolding? What happens to smaller local players who are heavily dependent on imports and will Indian consumers benefit from the move?

Sustainability of top Indian brands

The 113 million-odd Indian smartphones market is currently dominated by Chinese vendors, who hold over 50 per cent share of the pie. Local brands such as Micromax, Intex, Lava, Karbonn and Reliance Lyf are among the top 20 brands; however, their shares have come down significantly during the past few quarters. For example, flagship Indian brand Micromax, which used to hold the second spot with 18 per cent market share two years ago, was decimated to 3.3 per cent in the March 2017 quarter. Others hold even less with Lyf at 2.7 per cent and Lava at 2.1 per cent.

However, a BCD on the import of handsets is unlikely to help them gain an edge over their foreign rivals as most of the prominent Chinese brands have set up their own assembly units or have found sourcing partners in the country in the past two years. Vivo, Oppo, Xiaomi, OnePlus, and Moto, among others, are already sourcing a majority of their smartphones locally.

According to Manu Jain, vice-president of and managing director of India, the firm assembles over 90 per cent of its local sales from its partner Foxconn. Also, it is looking to add more assembly lines this year.

Vikas Agarwal, general manager, India, says, "The move would not affect us as we source products locally. Rather, it would give us a level playing field against companies that continue to import high-end phones."

While is undertaking a capacity expansion at its manufacturing unit at Chennai, according to Sudhin Maathur, head of mobility business in India, India said it may have to increase production at its Greater Noida plant this year as demand for its handsets grew significantly. Incidentally, India captured the third spot, behind (28.1 per cent) & (14.2 per cent) in the March quarter, with 10.5 per cent market share.

With none of the Indian brands featuring among the top five names by market share and the increasing focus from Chinese firms on local sourcing, experts say it is unlikely that major Indian brands would gain from an import duty at this point in time.

Smaller brands feeling the heat

Smaller Indian brands are clueless about their future prospects if an import duty is imposed. While larger Indian players have the scale and resources to set up their own assembly units here, smaller players like M-Tech and Adcom, among others, are heavily dependent on imported handsets from China and Taiwan. At 15 per cent, such an import duty will hamper their business.

"While would come with all chances of a rise in mobile phone prices across the board, an import duty on finished handsets would be detrimental for local players like us. This is against the government’s promise of promoting Indian businesses," said the promoter of a local firm.

According to experts, smaller local brands that are mostly selling feature phones would now have to look at options like merging with similar firms and forming a larger entity that could set up a manufacturing facility.

Consumers at the receiving end

While is expected to bring price inflation in the handsets market, with mobile phones initially getting costlier by five per cent as the effective tax rate goes up to 12 per cent from 8-9 per cent at present, an import duty may lead to certain flagship models getting costlier.

The premium and much sought after are imported from China at present. While the firm has tied up with Wistron for sourcing of iPhone SE, the majority of its top-selling models in the country – iPhone 5, 6, 6S and 6S Plus – continue to be imported. Latest models like the iPhone 7 series of handsets too are produced outside India.

Flagship models from other players like Mi5 from Xiaomi, G6 from and the soon to be launched 5 from One Plus are not made locally either. Consumers can expect price hikes for these models under the regime as well.

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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

Smaller players could be routed; major Indian brands may not get any significant advantage
The Union government is mulling imposing a 15 per cent basic customs duty (BCD) on the import of finished mobile handsets once the (GST) comes into effect.

The move is intended to protect manufacturers who have set up units in India and put a curb on the outflow of foreign exchange to countries like China, Taiwan, and Vietnam.

Boosting local manufacturing or assembly of mobile phones is a key part of Prime Minister Narendra Modi’s pet project —

What the government intends to do?

The Commerce and Industry Ministry had proposed a customs duty of 15 per cent on smartphone imports. Under the Phased Manufacturing Program (PMP) developed by the ministry of electronics and information technology, the government aims to enable large-scale manufacturing of mobile phones. As local value addition in handsets remains as low as two per cent at present, sub-parts such as mechanics, microphones, receivers, keypads, and USB cables, among others, have been targeted in the initial stage.

The PMP covers mechanics, die cut parts, microphone and receiver, keypad and USB cable in the current financial year. It also aims to promote the indigenous manufacturing of populated printed circuit boards, camera modules and connectors in 2018-19, and display assembly, touch panels, vibrator motor and ringer in 2019-20.

The government is also in the process of formulating the second phase of the PMP, which it expects will enhance value addition to 58.3 per cent in feature phones and 39.6 per cent in smartphones.

What will be the consequences?

While the government’s upcoming move could be well intended, a look at the current dynamics of the sector raises some important questions. Will an import duty on finished handsets be able to save Indian brands from being routed by Chinese vendors — a story which is currently unfolding? What happens to smaller local players who are heavily dependent on imports and will Indian consumers benefit from the move?

Sustainability of top Indian brands

The 113 million-odd Indian smartphones market is currently dominated by Chinese vendors, who hold over 50 per cent share of the pie. Local brands such as Micromax, Intex, Lava, Karbonn and Reliance Lyf are among the top 20 brands; however, their shares have come down significantly during the past few quarters. For example, flagship Indian brand Micromax, which used to hold the second spot with 18 per cent market share two years ago, was decimated to 3.3 per cent in the March 2017 quarter. Others hold even less with Lyf at 2.7 per cent and Lava at 2.1 per cent.

However, a BCD on the import of handsets is unlikely to help them gain an edge over their foreign rivals as most of the prominent Chinese brands have set up their own assembly units or have found sourcing partners in the country in the past two years. Vivo, Oppo, Xiaomi, OnePlus, and Moto, among others, are already sourcing a majority of their smartphones locally.

According to Manu Jain, vice-president of and managing director of India, the firm assembles over 90 per cent of its local sales from its partner Foxconn. Also, it is looking to add more assembly lines this year.

Vikas Agarwal, general manager, India, says, "The move would not affect us as we source products locally. Rather, it would give us a level playing field against companies that continue to import high-end phones."

While is undertaking a capacity expansion at its manufacturing unit at Chennai, according to Sudhin Maathur, head of mobility business in India, India said it may have to increase production at its Greater Noida plant this year as demand for its handsets grew significantly. Incidentally, India captured the third spot, behind (28.1 per cent) & (14.2 per cent) in the March quarter, with 10.5 per cent market share.

With none of the Indian brands featuring among the top five names by market share and the increasing focus from Chinese firms on local sourcing, experts say it is unlikely that major Indian brands would gain from an import duty at this point in time.

Smaller brands feeling the heat

Smaller Indian brands are clueless about their future prospects if an import duty is imposed. While larger Indian players have the scale and resources to set up their own assembly units here, smaller players like M-Tech and Adcom, among others, are heavily dependent on imported handsets from China and Taiwan. At 15 per cent, such an import duty will hamper their business.

"While would come with all chances of a rise in mobile phone prices across the board, an import duty on finished handsets would be detrimental for local players like us. This is against the government’s promise of promoting Indian businesses," said the promoter of a local firm.

According to experts, smaller local brands that are mostly selling feature phones would now have to look at options like merging with similar firms and forming a larger entity that could set up a manufacturing facility.

Consumers at the receiving end

While is expected to bring price inflation in the handsets market, with mobile phones initially getting costlier by five per cent as the effective tax rate goes up to 12 per cent from 8-9 per cent at present, an import duty may lead to certain flagship models getting costlier.

The premium and much sought after are imported from China at present. While the firm has tied up with Wistron for sourcing of iPhone SE, the majority of its top-selling models in the country – iPhone 5, 6, 6S and 6S Plus – continue to be imported. Latest models like the iPhone 7 series of handsets too are produced outside India.

Flagship models from other players like Mi5 from Xiaomi, G6 from and the soon to be launched 5 from One Plus are not made locally either. Consumers can expect price hikes for these models under the regime as well.
image
Business Standard
177 22

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 imposing a 15 per cent basic customs duty (BCD) on the import of finished mobile handsets once the (GST) comes into effect.

The move is intended to protect manufacturers who have set up units in India and put a curb on the outflow of foreign exchange to countries like China, Taiwan, and Vietnam.

Boosting local manufacturing or assembly of mobile phones is a key part of Prime Minister Narendra Modi’s pet project —

What the government intends to do?

The Commerce and Industry Ministry had proposed a customs duty of 15 per cent on smartphone imports. Under the Phased Manufacturing Program (PMP) developed by the ministry of electronics and information technology, the government aims to enable large-scale manufacturing of mobile phones. As local value addition in handsets remains as low as two per cent at present, sub-parts such as mechanics, microphones, receivers, keypads, and USB cables, among others, have been targeted in the initial stage.

The PMP covers mechanics, die cut parts, microphone and receiver, keypad and USB cable in the current financial year. It also aims to promote the indigenous manufacturing of populated printed circuit boards, camera modules and connectors in 2018-19, and display assembly, touch panels, vibrator motor and ringer in 2019-20.

The government is also in the process of formulating the second phase of the PMP, which it expects will enhance value addition to 58.3 per cent in feature phones and 39.6 per cent in smartphones.

What will be the consequences?

While the government’s upcoming move could be well intended, a look at the current dynamics of the sector raises some important questions. Will an import duty on finished handsets be able to save Indian brands from being routed by Chinese vendors — a story which is currently unfolding? What happens to smaller local players who are heavily dependent on imports and will Indian consumers benefit from the move?

Sustainability of top Indian brands

The 113 million-odd Indian smartphones market is currently dominated by Chinese vendors, who hold over 50 per cent share of the pie. Local brands such as Micromax, Intex, Lava, Karbonn and Reliance Lyf are among the top 20 brands; however, their shares have come down significantly during the past few quarters. For example, flagship Indian brand Micromax, which used to hold the second spot with 18 per cent market share two years ago, was decimated to 3.3 per cent in the March 2017 quarter. Others hold even less with Lyf at 2.7 per cent and Lava at 2.1 per cent.

However, a BCD on the import of handsets is unlikely to help them gain an edge over their foreign rivals as most of the prominent Chinese brands have set up their own assembly units or have found sourcing partners in the country in the past two years. Vivo, Oppo, Xiaomi, OnePlus, and Moto, among others, are already sourcing a majority of their smartphones locally.

According to Manu Jain, vice-president of and managing director of India, the firm assembles over 90 per cent of its local sales from its partner Foxconn. Also, it is looking to add more assembly lines this year.

Vikas Agarwal, general manager, India, says, "The move would not affect us as we source products locally. Rather, it would give us a level playing field against companies that continue to import high-end phones."

While is undertaking a capacity expansion at its manufacturing unit at Chennai, according to Sudhin Maathur, head of mobility business in India, India said it may have to increase production at its Greater Noida plant this year as demand for its handsets grew significantly. Incidentally, India captured the third spot, behind (28.1 per cent) & (14.2 per cent) in the March quarter, with 10.5 per cent market share.

With none of the Indian brands featuring among the top five names by market share and the increasing focus from Chinese firms on local sourcing, experts say it is unlikely that major Indian brands would gain from an import duty at this point in time.

Smaller brands feeling the heat

Smaller Indian brands are clueless about their future prospects if an import duty is imposed. While larger Indian players have the scale and resources to set up their own assembly units here, smaller players like M-Tech and Adcom, among others, are heavily dependent on imported handsets from China and Taiwan. At 15 per cent, such an import duty will hamper their business.

"While would come with all chances of a rise in mobile phone prices across the board, an import duty on finished handsets would be detrimental for local players like us. This is against the government’s promise of promoting Indian businesses," said the promoter of a local firm.

According to experts, smaller local brands that are mostly selling feature phones would now have to look at options like merging with similar firms and forming a larger entity that could set up a manufacturing facility.

Consumers at the receiving end

While is expected to bring price inflation in the handsets market, with mobile phones initially getting costlier by five per cent as the effective tax rate goes up to 12 per cent from 8-9 per cent at present, an import duty may lead to certain flagship models getting costlier.

The premium and much sought after are imported from China at present. While the firm has tied up with Wistron for sourcing of iPhone SE, the majority of its top-selling models in the country – iPhone 5, 6, 6S and 6S Plus – continue to be imported. Latest models like the iPhone 7 series of handsets too are produced outside India.

Flagship models from other players like Mi5 from Xiaomi, G6 from and the soon to be launched 5 from One Plus are not made locally either. Consumers can expect price hikes for these models under the regime as well.

image
Business Standard
177 22