GST could lead to 25% price hike for smartphones

Consumers may have to spend more for smartphones from the next financial year as the additional duty proposed in the Budget will lead to price hikes. A two per cent special additional duty, which will be imposed on printed circuit boards (PCBs) from April 1, is expected to increase the prices of handsets by up to two per cent.

PCBs are imported from China and Taiwan because no manufacturing plant has been set up locally. According to Tarun Pathak, analyst, Counterpoint Research, in 2016, PCBs worth nearly Rs 40,000 crore ($6 billion) had been imported. On average, they account for nearly 54 per cent of the cost of making a handset. 

Thus, any rise on that account will impact the price of a mobile phone in the country.

According to Manish Sharma, president, Consumer Electronics and Appliances Manufacturers Association (CEAMA), the step is intended to encourage local manufacturing of PCBs. “Customers may have to bear that extra pinch of additional cost for handsets as the government is gearing up for local manufacturing,” he said.

Vivek Zhang, chief marketing officer, Vivo India, said: “In the long run, it will give a boost to the government’s efforts in pushing the Make in India campaign. Over time, we can expect smartphone manufacturing in the country by major players in India.”  

According to Vikash Jain, co-founder, Micromax, the additional duty will lead to a nominal cost increase in the short term, but it will go when manufacturing starts in India.

While firms such as Intex and Lenovo have welcomed the move, experts say, mass production of PCBs may take time. Issues such as local designing and research and development should be promoted to create a manufacturing ecosystem in the country.

The demand for mobile handsets in the country has remained flat over the past four years. The shipment of handsets is expected to reach 270 million units in 2017, up from 262 million last year, according to a recent report from CyberMedia Research. 

Last year while the shipment of smartphones was expected to touch 140 million, it remained at 113 million due to lack of affordability. Demonetisation, too, impacted sales to some extent. According to industry experts, bringing down the cost of manufacturing smartphones will be tough because most of the important complements like the camera, PCB and display panel are imported.

The imposition of the goods and services tax too may play spoilsport this year as it could increase the prices of handsets by up to 25 per cent, CyberMedia estimates. However, the cost revision in China, which is on the cards, may give some relief to vendors which are under margin pressure.

Heating Up

Two per cent additional duty on printed circuit boards (PCBs) may lead to 1-2 per cent price hike

While, some brands may try to absorb additional cost due to higher duty, most will have to pass it on

The govt is trying to push for local manufacturing of PCBs which continues to be imported from China and Taiwan

Last year, Rs 40,000 crore of PCB assembly, which constitutes half the cost of a mobile, had been imported

Mobile handsets market is expected to remain flat; GST may hit companies as taxation may increase