Mobile handsets likely to cost 10 percent more post-GST

The government is mulling additional customs duty on imported mobile handsets, which could make smartphones dearer by up to 10 per cent.

The government has set up an inter-ministerial committee to set rates of customs duty on finished mobile handsets once the goods and services tax (GST) becomes effective. “The initiative to impose an additional 5-10 per cent customs duty on imported handsets is a welcome step. It will motivate local manufacturers to align themselves to the government’s ‘Make in India’ vision," said Manish Sharma, president of the Consumer Electronics and Appliances Manufacturers Association.

The move, aimed at protecting local manufacturers, could lead to price hikes because nearly 30 per cent of the 263 million handsets sold in the country last year were imported from China, Taiwan and Vietnam. Local manufacturers have lobbied the government for making imports costlier because the growing influence of Chinese companies is hurting their sales.

The majority of Indian vendors import handsets and are dependent on component manufactures in China, Taiwan and Vietnam. Major Indian players Micromax, Lava and Karbonn do not make it to the top slots of original equipment manufacturers. They are still dependent on third-party manufacturers for finished handsets. Major foreign players Samsung, Xiaomi, Vivo, Oppo and Lenovo, on the other hand, have set up plants in India and source most components locally.

“The customs duty will not affect us. We source all our handsets from local manufacturers. It will provide a level playing field for high-end handset brands like ours. Smaller players may be hit," said Vikas Agarwal, general manager, OnePlus India. “Higher import duties will provide a breather to players which were under pressure from Chinese companies. It will give them space to raise prices, leading to price hikes across the spectrum," an analyst said.

Industry executives said since India was a key market for Chinese handset manufacturers, the authorities there would most likely offer incentives to companies affected by the higher customs duty. The global Information Technology Agreement (ITA) mandates duty-free imports of many electronic items. However, India has refrained from signing ITA-2, which covers newer technology.

“The government is seeking a solution where it does not violate the ITA but still manages to protect local firms," said Suresh Nandlal Rohira, partner, Grant Thornton India.