How basic customs duty cut on mobile phones will affect cost benefits

Basic Customs Duty (BCD) cuts on mobile phones, printed circuit board assembly (PCBA) and chargers, announced in the Union Budget 2024-25, will not move the needle much in terms of cost benefits to the end users, analysts said on Wednesday.

Experts argued that since more than 95 per cent of smartphones, and a large chunk of chargers are already being assembled or manufactured locally, the BCD cut might not make any significant change in terms of price benefits, barring some brands that import phones as completely built-up units (CBUs) in India.

Smartphones like Google Pixel and some iPhone Pro models are likely to get some benefit out of the rationalisation.

Experts, however, argued that though Apple looks like a major beneficiary out of the duty cut, the impact on the technology giant in reality might not be much, that it could cut prices.

“I think Apple is a major beneficiary there, but it's not so huge that you would expect Apple to cut prices. There might be some impact in a sense that the price arbitrage happening from Thailand and Dubai, and other places, might stop,” said Navkender Singh, associate vice-president, International Data Corporation.

Union Finance Minister Nirmala Sitharaman on Tuesday announced a reduction in BCD on mobile phones, their PCBA, and chargers to 15 per cent from the previous 20 per cent.

Analysts see a limited impact of the cut, and ask for a further rationalisation in duties on components, where India is still dependent on imports, including battery cells and display module panels.

“Already 99 per cent of smartphones were being assembled in India. Just some like Google Pixel, Honor and iPhone Pro models were still coming as CBUs, and, therefore, they will have some impact. But largely, if you look at PCBA, we already have the semi-knocked down (SKD) manufacturing happening in India, and chargers are completely localised in the country,” said Tarun Pathak, analyst, Counterpoint.

Pathak further said that from the duty perspective, there could be just 1-2 per cent impact on the end consumer.

Reducing BCD on mobile phones, PCBA and chargers was one of the major demands of electronics manufacturing bodies, including India Cellular and Electronics Association (ICEA).

Pankaj Mohindroo, chairman, ICEA, shared his views on the BCD cut, saying it was designed to enhance the competitiveness of the Indian electronics manufacturing sector and that it will ultimately benefit consumers.

“In reality, duties are paid by customers as a pass-through cost, so reductions are always passed on directly to them, making mobile phones and accessories more affordable and accessible. Additionally, lower production costs can increase India’s competitiveness vis-a-vis destinations such as Vietnam and China, where effective tariffs are near zero, compared to 6-8 per cent in India,” he added.

On mobile PCBA, the reduction could provide a short-term relief for manufacturers to get supplies from other regions, till the time domestic supplies are able to meet the demand, Singh said.

“The industry kept saying that they didn't have enough capacity to expand. They questioned how they could manufacture for the country and export from here without sufficient capacity. In response, the government decided to reduce the pricing of imports from China and other places until the industry's capacity could increase. This should be understood as a move to ensure that the momentum towards making India a manufacturing hub does not stop,” Singh added.