Local smartphone makers to be most impacted by basic customs duty hike on components

Despite the government’s assurances, Indian smartphone makers are very much likely to be hit by the hike in basic customs duty (BCD) on import of mobile phone sub-parts.

The Finance Minister Nirmala Sitharaman, in the National Budget 2021-22, announced increase in duty on chargers from 15 per cent to 20 per cent, motherboard from 10 per cent to 20 per cent and in similar range for other components used in manufacturing of mobile phones.

Industry experts said the levy of duty will add cost pressure on brands competing in the sub-Rs10,000 category, but market leaders such as Xiaomi will be able to absorb the cost, which can be offset with the kind of volumes they sell. The government has proposed that with effect from April 1, BCD on import of printed circuit board assembly (PCBA), camera modules and connectors should be raised to 2.5 per cent. For PCBA, and moulded plastic for manufacture of charger or adapter, duty should go up from the existing 10 per cent to 15 per cent. Whereas, other inputs and parts of chargers will attract 10 per cent duty, from nil earlier.

Bibhash Deb, head taxation, legal & secretarial at Lava International, told ET that featurephones and entry-level smartphones will be worst impacted where it is difficult to manage the bill of materials. “This will adversely affect a brand like Lava. We are already battling the blow of 10 per cent hike in duty on display assembly, which came in October 2020 amid severe global component shortage,” Deb said. But he also pointed out that the budgetary allocation of Rs 50,000 crore in strengthening local R&D on priority sectors will aid Indian makers like Lava to take on global competition.

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Industry experts said the hike in import duty will not affect consumers in India much because 97 per cent of mobile market requirements is being met through domestic production.

The Finance Minister had said that under Make in India initiative, well laid out customs duty rates were pre-announced for items like mobile phones, electric vehicles and their components.