Smaller players could be routed; major Indian brands may not get any significant advantage
The Union government is mulling imposing a 15 per cent basic customs duty (BCD) on the import of finished mobile handsets once the Goods and Services Tax (GST) comes into effect.
The move is intended to protect manufacturers who have set up units in India and put a curb on the outflow of foreign exchange to countries like China, Taiwan, and Vietnam.
Boosting local manufacturing or assembly of mobile phones is a key part of Prime Minister Narendra Modi’s pet project — Make in India.| Economy news
What the government intends to do?
The Commerce and Industry Ministry had proposed a customs duty of 15 per cent on smartphone imports. Under the Phased Manufacturing Program (PMP) developed by the ministry of electronics and information technology, the government aims to enable large-scale manufacturing of mobile phones. As local value addition in handsets remains as low as two per cent at present, sub-parts such as mechanics, microphones, receivers, keypads, and USB cables, among others, have been targeted in the initial stage.
The PMP covers mechanics, die cut parts, microphone and receiver, keypad and USB cable in the current financial year. It also aims to promote the indigenous manufacturing of populated printed circuit boards, camera modules and connectors in 2018-19, and display assembly, touch panels, vibrator motor and ringer in 2019-20.
The government is also in the process of formulating the second phase of the PMP, which it expects will enhance value addition to 58.3 per cent in feature phones and 39.6 per cent in smartphones.| Latest economy news
What will be the consequences?
While the government’s upcoming move could be well intended, a look at the current dynamics of the sector raises some important questions. Will an import duty on finished handsets be able to save Indian brands from being routed by Chinese vendors — a story which is currently unfolding? What happens to smaller local players who are heavily dependent on imports and will Indian consumers benefit from the move?