Mumbai: The hike in basic customs duty on imported finished goods proposed in the Union Budget for 2020-21 could make mobile handsets costlier by 2-7%, according to industry experts.

While fully imported mobile phones account for a very small portion in the Indian market, the increased duty on components and other ancillaries announced in the budget may have a cascading effect on the selling prices of the handsets, experts believe.

As per budget proposals, duty on chargers will increase to 20% from 15%, while that on motherboards or printed circuit board assembly (PCBA) to 20% from 10%. Duty on other components used in making mobile handsets will also increase in a similar range.

Faisal Kawoosa, founder and chief analyst of research firm techARC, said the duties will have a 4-7% impact on the final selling price of imported phones. “If we are pushing for a deeper level of smartphone manufacturing to happen from India then the impact (of duties) has to be higher. Otherwise it isn’t enough incentive for manufacturers to source locally."

Pankaj Mohindroo, chairman of India Cellular and Electronics Association (ICEA), the apex industry body of mobile and electronics industry, said the market for imported mobile phones is hardly 3-3.5%, where because of existing duties, there is already a thriving grey market. However, the increase in PCBA duty to 20% will impact the dynamics of the feature phone industry. Currently, around 6% of the PCBA consumption is imported, so over the next few months this market will also shift to India, he added.

As of now, around 97% phones in the domestic market are manufactured in India, which may neutralize the impact of the duty hike.

In terms of value, only a few very high-end phones costing 40,000 and above are imported. Although Apple been manufacturing some of its models in India, a major chunk of their popular models are still imported, according to various estimates. Google Pixel and few other specific high-end phones are also imported.

For low-end phones, especially feature phones, brands will have to be careful about costs but the industry needs to be mindful about competition from other manufacturing markets (China and Vietnam) because at the current level of customs duties, it may not be competitive enough.

Pareekh Jain of Pareekh Jain Consultancy sees this as a positive step for the industry because it clearly gives out the message that duties can further increase and that should motivate manufacturers to shift base if they haven’t done so yet. “The feature phone market and mid-priced device market clearly has more incentive to shift base now and they will need to figure out where they achieve economies of scale better," said Jain.

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