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Photo: Mint
Photo: Mint

Touch screen duty may increase phone prices but not during festival sales

  • For a 10% extra duty on touch screens, a phone maker may raise prices by up to 500

Phone makers are expected to raise prices from the year-end as the impact of a 10% additional import duty on touch screens inflates production costs of handsets.

Although the new duty takes effect from 1 October, prices will not rise immediately for three reasons: one, companies are likely to absorb costs to avoid upending an incipient demand recovery during the festive season; two, phones for festive season sales are already built; and, three, companies still have some stocks of imported parts.

“Considering that we are entering the high stakes festival season, brands may not be in a position to pass on the cost to the consumer and, instead, are more likely to absorb it to avoid a demand impact," said Navkendar Singh, research director, client devices and imaging, printing and document solutions, International Data Corp. (IDC) India.

The new duty, proposed in 2015-16 under the phased manufacturing programme to encourage local production, comes as an additional pain point for phone makers facing component shortages due to supply chain disruptions and a GST hike on smartphones in April. The duty was deferred until September to give companies time to start display manufacturing in India.

So far, no handset maker has raised prices. However, touch screens are the second-costliest component in smartphones after the motherboard; so, manufacturers cannot absorb these costs for long.

“Essentially, whatever is sold in the festive season, that shipment is substantially procured in August-September, as it takes some time to manufacture and distribute them," said Faisal Kawoosa, chief analyst and co-founder, techARC. Kawoosa said prices will rise only after the festive season, when new phones using screens imported after 1 October hit the market.

“Devices that will be available in the festive season are already ready. The price impact could be seen on upcoming models, which are going to be introduced in Q1 next year or late December," said Anshul Gupta, senior director analyst, Gartner.

Gupta said the final price of phones will vary. “Vendors are more likely to absorb the hike in mid- and entry segments as it is more price-sensitive. In the high-end segment, they are more likely to pass it on to the customer."

For a 10% extra duty on touch screens, a phone maker may have to raise prices by 300-500, which is significant for someone buying a model worth 10,000. However, a 2-3% increase may not deter someone spending 30,000-40,000.

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