Indian Finance Minister, Arun Jaitley, tabled the 2018 Union Budget before the Parliament on Thursday. While the budget had its own merits, it did leave many disappointed with respect to prices of imported goods such as mobile phones.
The Minister announced import duties will jump to 20%, up from 15% previously. This will impact all imported smartphones and other electronics including wearables and televisions. The latest hike follows in the footsteps of a recent import duty revision from 10% to 15%. Import duties have also been hiked for components such as printed circuit boards (PCBs), connectors, and camera modules.
The five percentage points hike is expected to translate to a 3-4% increase in the final price of imported smartphones, though it’s possible that manufacturers will absorb some of the increase in order to keep their prices competitive.
Expect a 3-4% increase in the final price of imported smartphones
Against the backdrop of a seemingly populist budget, the move by the Finance Ministry to further increase import duties is viewed as the Government’s way of pushing local end-to-end manufacturing and reduce reliance on imported goods. Many Android OEMs, including Gionee, Xiaomi, Samsung, LG, Micromax, and LAVA International, have already established bases in different parts of the country and more OEMs are expected to shift or start new manufacturing bases here. India’s large customer base and availability of cost-effective and skilled manpower are seen as advantages over competing China.
While the move to push local manufacturing has been largely welcomed, the other side of the story does not paint a very rosy picture. Apple already makes its iPhone SE in India and has recently asked the Indian Government for more sops with respect to waiving of import and export duties. The Government is understood to have not yet bowed down to Apple’s demands due to the extensive policy changes required. Thus, while locally made iPhone SE’s have been immune to changes in import duties, imported, flagship iPhones are being sold at higher prices than their US counterparts. For example, the iPhone X 256 GB retails for $1,149 in the US but costs $1,646 in India after taxes.
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India has also come under the World Trade Organization’s (WTO) scanner due to the duties being levied on mobile phone imports, despite the country being a signatory to the Information Technology Agreement (ITA). India is contesting WTO’s allegations and is open for technical discussions on the matter. The Finance Ministry’s move to further increase customs duties could further damage India’s prospects at the WTO.
From a consumer standpoint, the duties hikes are coming at a time when mobile usage is on the rise and data service penetration is increasing exponentially. The majority of the population could be using locally manufactured phones, but the new rules do dampen the spirit for those willing to purchase imported flagship devices. Ultimately, if the Government’s intentions bear fruit, more OEMs can be expected to start end-to-end operations in India benefiting both themselves and consumers.