From October 1, the government levied 10% import, or basic customs, duty on display assembly, touch panel/cover glass assembly, as per the phased manufacturing programme milestones.
The levy is also expected to increase prices of devices by upto 5%, which may dampen demand during the crucial festive season, especially in the featurephones and entry-level smartphones (below Rs 5000) segment.
The two components, critical for production of mobile phones, make up up to 25% of a device’s cost. While bigger players may even absorb the cost increase ahead of the festive season, smaller players working with lower scales and thinner margins may be forced to raise prices of entry-level smartphones by Rs 150-175, industry experts say.
“We are estimating a price escalation between 3%-5% across the spectrum of smartphones because no brand is currently sourcing LCDs (display) locally,” said Pradeep Jaina, managing director, Jaina Group, which houses Karbonn, Gionee and Sansui brands.
Bibhash Deb, head-taxation, legal and secretarial, at Lava International said that customers wanting to buy mid-to-high range phones may adjust to higher budget but for those who are looking to migrate to entry level smartphones for kids’ schooling may have to take a tough call.
The industry had pushed for delaying the levy by a year, saying local production of display assembly hasn’t scaled up as needed. But a cash-strapped government has gone ahead with the levy.
Besides the price hike, smaller brands such as LG, ASUS, iTel, Infinix, Tecno etc, who don’t have dedicated surface-mount technology (SMT) lines for mounting printed circuit boards (PCBs) in India, are seeing an increase in the total import duty they need to pay to the levels needed while importing fully built devices. This could prompt them to import completely built units, instead of spending on local production.
“If any manufacturer imports components including PCBA (printed circuit board assembly), then 16% BCD/SWS (social welfare surcharge) needs to be paid against 20% BCD on completely built units (CBUs). Earlier, the said (cumulative) duty was approximately 11.5%,” said Lava’s Deb.
This implies that all manufacturers will have to invest in SMT lines for mounting PCBs to make the business viable, he added. “Both LCD and SMT manufacturing will, though add more jobs in the long run,” he said.
As per industry estimates, one SMT line requires an investment of Rs 12 crores and only the bigger contract manufacturers like Foxconn, which makes Apple, Xiaomi and Nokia branded devices, Wistron, which makes iPhones, Samsung feature phone maker Dixon, Samsung, BBK group, Lava and Gionee/Karbonn have dedicated SMT lines for mounting printed circuit boards (PCBs) in India.
Emails to LG, ASUS, iTel, Infinix and Tecno, which have re-entered the market with budget segment launches this year, did not respond to ET’s emailed queries.
“In a rare miss, the industry could not ramp up display assembly production adequately because of Covid and NGT embargo,” said Pankaj Mohindroo, chairman of India Cellular and Electronic Association (ICEA). “We continue to be fully committed to domestic mfg of sub assemblies and components.”
According to the fourth phase of manufacturing plan 2017, 10% basic customs duty on display assembly, touch panel, cover glass assembly and vibrator motor/ringer was scheduled to be imposed from April 1, 2020. Except for vibrator motor/ringer, the other three schedules were postponed for October 2020.
As per ICEA, display assembly vendors including Holitech, TXD, LCE and CSOT, who have started operations in India, claim that they will be able to produce 13.90 million display units per month for smartphones and 11.4 million units for featurephones by this October.
“Claimed capacity is inadequate and will only be able to cater to marginal demand of the market as the discussion between vendors and OEMs/brands have not even started,” ICEA had said in the letter to the government, ET had reported.
The body represents major global handset brands including Xiaomi, Apple, Motorola, Nokia, Oppo, Vivo, Realme, besides contract manufacturers Foxconn, Wistron, Dixon and Indian brands Lava, Micromax, Karbonn.