Planning to buy a new cellphone or laptop? You might want to do so before the end of February; these items are likely to become more expensive after the Union Budget, at least for the near future.
At present, import duty on mobile phones across categories (in the form of countervailing duty) stands at six per cent. On laptop and desktop computers, this is much higher, at 12 per cent.
The government imposes countervailing duty on certain products to provide domestic players a level playing field.
An increased rate of import duty on these products, if implemented, is likely to fetch the government an additional revenue of Rs 4,000 crore - a large chunk of that from mobile handsets - during financial year 2015-16.
India imported 225 million mobile phones last year. The industry pegs the country's imports next year to be 15 per cent higher, at 259 million. On average, the number of laptop and desktop computers shipped to India every year stands at around 10 million.
Assuming the average cost of a mobile handset before Customs duty at Rs 4,000, the government could earn an additional Rs 3,120 crore from mobile phones alone. Add to that a potential additional Rs 1,000 crore from computers, and the increase in the government's revenue on account of import duty hikes exceeds Rs 4,000 crore.
Some market players say the government's intent in such a move could be greater than the need to increase its revenue; a raise in duty on finished imported goods will promote domestic manufacturing.
However, some other experts believe this might not have much of an impact, at least in the short term. "The cost for domestic manufacturing in India, with excise duty and value-added tax (VAT), is one of the highest in any tax jurisdiction," says Saloni Roy, senior director, Deloitte Haskin & Sells.
A marginal increase in duties might give only a limited push to domestic manufacturing of these products, Roy said. "Unless there is a steep increase in import duty, the industry will continue to look at foreign markets for these products."
Earlier, the previous central government had adopted a similar strategy. It had levied tax at six per cent on imported mobile phones costing more than Rs 2,000 apiece. This was later in 2014 revised to cover all categories of phones.
The strategy had little success in promoting domestic manufacturing, as is visible in the sharp drop in India's production of mobile handsets, especially after the closure of Nokia's Chennai factory. Home-grown companies like Lava, Karbon and Micromax import mobile phone parts from China and Taiwan, and reassemble those in India.
"The cost for manufacturing in India (with taxes) takes our liability to close to 25 per cent - much higher than the cost incurred in importing parts," says an information technology executive who does not wish to be named. The government needs to offer additional incentives for promoting domestic manufacturing, he adds.