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Duty changes in telecom to push Make in India for the world
- BCD on fully made phones, PCBA and mobile chargers reduced to 15% from 20%; specific telecom equipment imports to be charged higher duty of 15% versus 10% earlier; Govt to rationalise and simplify custom duty rate structures through a comprehensive review, which will benefit industry
Reduction of basic customs duty (BCD) on mobile phones, parts and chargers to 15% from 20% in the Union Budget is in line with industry’s demand to incentivise local production for exports, experts said.
“Reduction of BCD on mobile phone, PCBA (printed circuit board assembly) and charger to 15% exudes confidence in domestic manufacturing capability of the Indian mobile phone manufacturing ecosystem, which has benefited through multiple fiscal intervention schemes,” said Mayank Arora, director at tax advisory firm Nangia & Co.
Arora referred to modified special incentive package scheme (M-SIPS), scheme for promotion of manufacturing of electronic components and semiconductors (SPECS), and production-linked incentive (PLI) schemes as fiscal interventions.
Read more: Making technology the electricity to power India’s economy
About 96% of all phones sold in India are made locally, with imports shrinking dramatically over the past decade owing to policies of the government to increase duties on fully made mobile phones and exempting duties on components needed for local production. These initiatives have also led to Apple scaling up production of iPhones in India through its contract manufacturers like Foxconn.
With India importing only 5% of smartphones sold in the country, the reduction in BCD will not put local companies or manufacturers at a disadvantage to global players or those importing some devices into India.
The change in duty will reduce the cost of high-end phones that continue to be imported—for instance, some iPhone models, and foldable models from Samsung, Oppo, Vivo and others—by about 5%, experts said.
At the same time, S.P. Kochhar, Director General of Cellular Operators Association of India, which represents telcos Airtel, Jio and Vodafone Idea, said the increase in BCD from 10% to 15% on PCBA of certain specified telecom equipment will increase cost of providing services as the telcos are continuously upgrading their networks with the advent of the new technology.
He added that until high-quality equipment is available domestically at competitive prices, the government should abolish customs duties for 4G and 5G network products, as well as other related items. COAI has previously requested exemptions on customs duties for certain telecom equipment to alleviate the cost challenges associated with deploying this critical infrastructure.
“Over the past five to six years, the government of India has gradually increased the customs duty on telecom equipment to 20%, posing a substantial financial burden and significantly impacting the rollout of 5G services in India," Kochhar said. "It is recommended that the customs duty be reduced to zero and then gradually increased depending on the creation of an ecosystem for manufacturing of telecom gear in India.”
While pointing out that the increase in BCD of PCBAs used in various telecom equipment has incentivised the domestic manufacturing ecosystem, Vinish Bawa, Partner and Leader Telecom , PwC India, said that this could also lead to a slowdown in the expansion of 5G services in the country since they are dependent on imports of specific equipment. “Operators will be more cautious in their spends due to the extra duty which is levied and can increase their financial burden,” Bawa said.
Nangia & Co.'s Arora said that BCD on key parts of resistors and capacitors is a positive step and something the industry has been seeking since introduction of SPECS.
Industry also welcomed the intent and direction of the budget, which was focusing on enhancing manufacturing and export competitiveness.
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“We had recommended to reduce BCD on mobile phones, its PCBA and charger/adapter to 15%, which has been accepted," said Pankaj Mohindroo, chairman of the Indian Cellular and Electronics Association, representing mobile phone makers in India, adding that the mobile and electronics industry are happy with the announcements, which will go a long way to enhance manufacturing, exports and the country's competitiveness.
India has positioned itself as a major exporter of mobile phones. The Economic Survey noted that India's exports of mobile phones to the US rose from $2.2 billion in FY23 to $5.7 billion in FY24. “Various infrastructure investments proposed in the budget clearly showed a focus for enhancing exports and increasing manufacturing in India for domestic and international markets,” said Shashi Mathews, partner at law firm IndusLaw.
The Union budget has proposed to rationalise and simplify custom duty rate structures over the next six months for ease of trade, removal of duty inversion and reduction of disputes. Mohindroo said these steps will “further embolden the industry and its competitiveness”.
Increase in duty of printed circuit boards of specific telecom equipment from 10% to 15% will further push local manufacturing of telecom equipment and increase competitiveness. The equipment includes 4G/5G next-generation radio access network and wireless equipment, customer premises equipment, IoT (internet of things) access devices, switches, routers and core transmission equipment.
“This would provide a boost to domestic manufacturing, increase competitiveness, create jobs, and make mobile phones more affordable, resulting in increased digital penetration," said Nittin Arora, partner at Grant Thornton Bharat, adding that the increased BCD on PCBA will create a level playing field and attract foreign investment.
Read more: Indians aren’t paying more just for AI in phones, but laptops may hold key
"This demonstrates the government's commitment to promoting domestic manufacturing, self-reliance, and economic growth in the telecom sector,” he said.
Experts also lauded the government's approach towards employment generation in manufacturing through three schemes for employment-linked incentives. Direct benefit transfer of one month's salary to first-time employees and the support extended to employers is a major step towards fostering a more vibrant job market, said Shishir Gupta, founder and CEO at contract manufacturer Riot Labz, which is expanding its workforce.
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Business NewsBudgetDuty changes in telecom to push Make in India for the world
First Published:23 Jul 2024, 04:33 PM IST
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