The government’s decision to reduce basic customs duty (BCD) from 2.5 percent to zero on mobile components such as PCBAs, camera modules, and fingerprint readers will remove ambiguity and increase manufacturing competitiveness, encouraging companies to manufacture components locally, and driving up value addition.
However, the move will not lead to a reduction in retail smartphone prices despite brands benefiting from a 3-4 percent cost reduction, as analysts said they are expected to use the savings to offset rupee-dollar fluctuations.
"The BCD reduction from 2.5% to nil will encourage module and parts assembly in India. Over time, mobile manufacturers will gain significant cost benefits as components and sub-parts get assembled locally," said Sunil Vachani, chairman of Dixon Technologies, in an interview with Moneycontrol.
Pankaj Mohindroo, Chairman, ICEA, said the 2.5 percent duty did not promote manufacture but, in fact, simply resulted in increasing costs. "The removal of 2.5% BCD will enable manufacturing, remove ambiguity and increase manufacturing competitiveness. Tariff protection was required in the infancy of manufacturing, but now, the tariffs are no longer valid in mobile phone cases. The industry has reached a gigantic annual production scale of $60 Billion."
Tarun Pathak, research director at Counterpoint, told Moneycontrol that the net impact per device, as a percentage of the Bill of Materials (BoM), will translate to a 3-4% effect. However, not all handset OEMs or brands are likely to pass this benefit on to consumers, as the actual reduction for end users would be around 1-2%.
"At least this move will streamline the duty structure on sub-components, which will take some time to localize and currently make their imports more attractive," Pathak added.
According to the Union Budget document released on February 1, the government is reducing BCD from 2.5% to nil on sub-parts used in the manufacturing of PCBAs, camera modules, connectors, wired headsets, microphones and receivers, USB cables, and fingerprint readers/scanners for mobile phones.
Faisal Kawoosa, an TechArc analyst, noted that these components' overall contribution is not significant enough for OEMs to consider passing the benefits directly to consumers. "We have seen a weakening rupee for some weeks, increasing import costs. At best, this reduction will help OEMs absorb some of the rupee-dollar fluctuations," he said.
Vachani, however, added that the combined effect of the income tax reduction will spur growth across all product categories.
“Duty exemptions on critical minerals and capital goods reinforce supply chain resilience and help India compete effectively in international markets, attracting higher foreign investment. Additionally, measures like the enhanced income tax rebate under the new tax regime, will effectively ensure no tax liability for resident individuals with income up to Rs 12 lakh. This will boost disposable incomes, stimulating domestic consumption—a key driver for electronics demand,” Mohindroo said.
These initiatives reflect a strategic push towards achieving the vision for $500 billion of electronics manufacturing by 2030. "They provide an impetus for domestic value addition, export growth, and job creation, reinforcing India’s trajectory as an emerging leader in the global electronics landscape," Mohindroo said.
Arijeet Talapatra, CEO of itel and TECNO, said the budget announcements signal a strategic move to position India as a global hub for mobile manufacturing. The proposed tariff reductions on essential assembly components are a welcome measure that will improve cost efficiencies, accelerate localization, and strengthen the Make in India initiative. "This move strengthens India’s position in the global supply chain, especially amidst shifting trade dynamics amongst major economies."
The decision to raise the income tax exemption limit to Rs 12 lakh will substantially increase disposable income, providing a significant financial boost to taxpayers and increasing consumer spending on electronics. "As the purchasing power of consumers rises, the demand for smartphones and other digital devices is expected to rise, further fueling the growth of India’s electronics industry," Talapatra added.
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