Proposed duty cuts: Prices of fully assembled imported smartphones may fall in India

Mobile manufacturing in India

The government's plan to cut basic customs duty to 15 percent on mobile phones, PCBs, and chargers will boost the country's manufacturing, exports, and competitiveness. Consequently, experts say the prices of fully assembled imported smartphones, such as iPhone Pro models and high-end foldable phones, may decrease slightly.

"The reduction of BCD (Basic customs duties) on smartphones, chargers, and PCBA will not have any major impact on smartphone prices. We may expect an average price cut of 1-2% from this move. However, it depends on OEMs to pass this on to end consumers. We may not see this in the lower price segments, as the margins are very low," Tarun Pathak, research director at Counterpoint, told Moneycontrol.

Pankaj Mohindroo, chairman of the India Cellular and Electronics Association (ICEA), told Moneycontrol that the move would lower the prices of imported smartphones by 5-6 percent.

"We had recommended reducing BCD on mobile phones, its PCBA and Charger/Adapter by 15 percent, which has been accepted. The mobile and electronics industry is elated with the announcements and will go a long way to enhance manufacturing, exports and competitiveness," Mohindroo said.

Navkender Singh, associate vice president at market tracker IDC, said the move could possibly rationalise prices, especially in mass segments like below Rs 25,000, and increase domestic phone consumption. Moreover, this is a welcome step to boost the expansion of device manufacturing capacity in India.

Faisal Kawoosa, an analyst at TechArc, said this would further allow the smartphone value chain to work collaboratively towards making affordable 5G smartphones. Since the launch of 5G smartphones, growth has favoured premium segments. This opportunity is almost exhausted by now. We need to look at interventions that could help make 5G smartphones affordable."

Experts said the duty reduction was initially required as an arbitrage to support the industry in its infancy. The latest move, however, will not significantly impact Indian manufacturing but will simplify the tariff structure. Additionally, the duty exemption on critical minerals will make domestic smartphone manufacturing more competitive.

India Cellular and Electronics Association (ICEA), which represents Apple, Foxconn, Dixon, Xiaomi, Oppo and Vivo, among others, said that the industry's proposal for tariff slab rationalisation has also been acknowledged and has announced that it will be taken up in the next six month would further embolden the industry and its competitiveness.

Muralikrishnan B, President at Xiaomi India, said the proposal for a comprehensive review of the tariff rate structure is another positive step to strengthen the industry further.

"At Xiaomi India, we have been manufacturing nearly 100% of our smartphones locally with a strong emphasis on sourcing components like PCBA, charging cables, camera modules, and mechanics, among others. Today's announcement will help further strengthen the domestic electronics manufacturing ecosystem," Muralikrishnan said.

With these progressive steps, Muralikrishnan anticipates a surge in consumer spending, including increased smartphone demand.

Finance Minister Nirmala Sitharman proposed reducing the basic customs duty on mobile phones, mobile PCBAs, and mobile chargers to 15 percent from 20 percent in her Budget speech 2024 on July 23. Simultaneously, she also proposed to extend exemptions on inputs/raw materials for smartphone manufacturing, capital goods, and inputs for capital goods in the electronics industry.

"The reduction of BCD for mobile phones, PCBAs, and chargers will increase India’s competitiveness on a global scale. In India, the share of manufacturing towards GDP is very low. It needs to go up, which will also help with job creation," Sunil Vachani, Executive Chairman of Dixon Technologies, told Moneycontrol.

The handset and electronics makers sought to rationalise the import duty structure and reduce the duties on components of mobile phone parts or sub-assemblies over time to attract global value chains to India and enable them to create manufacturing at scale.

They said the move would help the company compete with China and Vietnam, which currently have much lower and simplified input duty structures.

Mayank Arora, Director at Nangia & Co., said that the reduction in BCD exudes confidence in the domestic manufacturing capability of the Indian mobile phone manufacturing ecosystem, which has benefited through multiple fiscal interventions such as M-SIPS, SPECS and PLI Schemes. "BCD on key parts of resistors and capacitors is a positive step, and the Industry has been seeking it since the introduction of SPECS," he added.

The Production-Linked Incentive (PLI) scheme for large-scale electronic manufacturing has significantly boosted the production and export of mobile phones from India.

In 2014-15, India was a major importer of mobile phones, with only 5.8 crore units produced locally and 21 crore units imported. By 2023-24, India produced 33 crore units, imported only 0.3 crore units, and exported nearly five crore units.

According to an official statement released earlier this month, mobile phone exports rose from Rs 1,556 crore in 2014-15 and Rs 1,367 crore in 2017-18 to Rs 1,28,982 crore in 2023-24. Mobile phone imports decreased from Rs 48,609 crore in 2014-15 to just Rs 7,665 crore in 2023-24.

The gap between telecom imports and exports has narrowed significantly thanks to the PLI schemes for telecom and networking products and related initiatives. The total value of exported telecom equipment and mobiles exceeded Rs 1.49 lakh crore, compared to imports of over Rs 1.53 lakh crore in FY 2023-24.