GST hike on mobile phones will harm the industry: Experts speak out

The Goods and Services Tax (GST) council has decided to increase GST on mobile phones by 6%. This brings up the previous 12% GST to an 18% now.

Manu Kumar Jain, Managing Director of Xiaomi India, gestures as he speaks during an interview with Reuters inside his office in Bengaluru, India, January 18, 2018. Picture taken January 18, 2018. REUTERS/Abhishek N. Chinnappa - RC1532824B60 (REUTERS)

The Goods and Services Tax (GST) council has decided to increase GST on mobile phones by 6%. This brings up the previous 12% GST to an 18% now. Industry experts and smartphone companies have spoken up about this hike asking the government to roll it back since it is going to be detrimental to the market.

Reacting to this, Xiaomi India MD Manu Jain tweeted:  

#GST increase for phones from 12% to 18% will crumble the industry.

Smartphone industry is already struggling with profitability due to depreciating INR vs US$.

Everyone will be forced to increase prices. This will further weaken mobile industry's #MakeInIndia program.

— Manu Kumar Jain (@manukumarjain) March 14, 2020

Watch | GST on mobile phones hiked to 18% from 12%: Nirmala Sitharaman

 

Jain followed this up with a request to the prime minister and the finance minister asking them to reconsider this GST hike.  

My humble request to Hon. PM @NarendraModi ji and FM @nsitharaman ji - please reconsider this #GST hike.🙏

The industry is already struggling with depreciating INR & supply chain disruption due to Covid-19.

At least all devices under $200 (= ₹15,000) must be exempted from this. https://t.co/hOMpSpTyKk

— Manu Kumar Jain (@manukumarjain) March 14, 2020

Thanks to this GST hike, mobile phones are going to become more expensive unless smartphone makers can figure out a way to cap prices which is going to be difficult.

According to an IDC (International Data Corporation) report, the Indian smartphone market grew only by an mere 8% YoY in 2019, however, in the bigger scheme of things, India was still amongst a handful of the top markets last year. This hike in GST is going to act as a deterrent to the growth India witnessed on the global smartphone market list.

"This doesn't bode well for the growth intended by the government for digital services. It has to start with more people coming in the smartphone fold. With these decisions that won't happen," said Navkendar Singh, Research Director, Client Devices & IPDS, at IDC India.

"Considering the current supply and projected demand scenario in the next couple of quarters, brands are not in any position to absorb this hike. They will be forced to pass it onto the consumer, which will further increase the replacement cycle (which has been a major engine of growth in the market for the past couple of years)," Singh added.

"At a time when there is a bit of weakening demand as well as shaky supply chain due to the coronavirus outbreak, increasing price pressure on the industry is damaging," said techARC founder and chief analyst Faisal Kawoosa.

"We were all looking at the ₹36,000-crore package for local manufacturing impetus, and here we get a surprise from the government wanting an additional ₹12,000 crore in a year from selling 160 million smartphones," Kawoosa added.

AIMRA (All India Mobile Retailers Association) also requested the Finance Minister not to hike the GST on mobile phones.

"An increase of 6% GST will break the crippling mobile retail industry, already burdened with low margin business in today's scenario and fighting for rightful existence. The increase of 6% would directly lead to the hike in prices of product, impacting the consumer behavior leading to a slowdown in the demand affecting the business adversely," said AIMRA National President Arvinder Khurana.

India Cellular and Electronics Association (ICEA) chairman Pankaj Mohindroo called this decision detrimental to the vision of Digital India and said -

"The increase of GST by 6% will be extremely detrimental to the vision of Digital India. Consumption will be stymied and our domestic consumption target of USD 80 billion (6 lakh crores) by 2025 will not be achieved. We will fall short by atleast 2 lakh crores. This was time for statesmanship especially when the country is going through a crisis and as a nation, we have fallen short".