Duty abolition on mobile components to impact local manufacturing

Reduction of import duty on various mobile handset components may hurt local manufacturing. While lower import duties may reduce handset prices by up to ten per cent, it may discourage manufacturers to procure such components locally.

Budget 2016-17 had increased import duties on various components like printed circuit board (PCB), battery, charger and earphones. The move was aimed at discouraging imports. On May 5, department of revenue under Ministry of Finance withdrew some part of the import duty. Currently, import duty on speakers, chargers/adaptors, battery and earphones stands at 12.5 per cent, compared with 29.44 per cent announced in the Budget.

Sources say manufacturers have been lobbying for abolition of the duty since March. Since most companies are not prepared to set up component manufacturing facilities in India, they had asked the government to reduce import duties.

However, industry sources say, abolition of the two per cent import duty that was imposed during the Budget, will hurt 'Make in India'. "Components such as PCB are core of a device. Thus, local manufacturing of such products increases the level of value addition, which can't be matched by importing such parts and assembling them here," an industry executive said.

According to industry estimates, local assembly of smartphones costs four to five per cent less than the imports. "Apart from reduction in foreign exchange outflow, a manufacturing ecosystem will help in creating more jobs", he said.

India is the second largest smartphones market with 104 million handsets sold annually. It is estimated to become a 140-million units market. Total mobile phone sales could touch 250 million by 2016-end, according to analyst firm CyberMedia Research.

According to Syed Tajuddin, chief executive, Coolpad India, manufacturing of basic components in India is still two years away. "Industry had requested the government after the Budget, seeking relief from higher duties. They took about three months to decide. For companies which are now assembling handsets in India, higher import duties on components was putting pressure on the profit margins," he said.

However, duty cut may not last long. "The government may increase import duties next year. This was to give companies some time to prepare for local production (of components)," Sudhin Mathur, director, smartphones, Lenovo India said.