Union Budget 2018: iPhones and other imported phones could get more expensive

The hike in customs duty to 20% may hurt companies such as Apple which heavily depend on imports.

Apple’s iPhones could get more expensive in India. (AFP)

Finance Miniser Arun Jaitely hiked customs duty on imported handsets to 20% from 15% in the Union Budget 2018. The minister also announced raising duty on imported components to 15%.

The decision is aimed at pushing the Make in India initiative and is likely to benefit the smartphone companies that manufacture devices locally. However, companies such as Apple will hurt from the move as it mostly imports iPhones to India.

Apple is currently only assembling one model, iPhone SE, in Bangalore. Though a recent report hinted that the company may start locally assembling iPhone 6S as well. The hike in custom duty, however, will translate in rise of smartphone prices by 3-4%.

Union Minister Ravi Shankar Prasad recently revealed that more than 100 mobile phone manufacturing units were set up in last three years.

"Increase in custom duty on import of mobile phones will give rise to #MakeInIndia products in the electronic manufacturing sector, which will lead to creation of more jobs in the country," he said in a tweet on Thursday..

Increase in custom duty on import of mobile phones will give rise to #MakeInIndia products in the electronic manufacturing sector, which will lead to creation of more jobs in the country. #DigitalIndia #Budget2018 #NewIndiaBudget pic.twitter.com/0GYhy3ZihE

— Ravi Shankar Prasad (@rsprasad) February 1, 2018

Local players welcome the decision

Domestic smartphone players have welcomed the decision to raise the customs duty.

"The government's move to walk the talk on Make in India by increasing customs duty to 20% on the imported mobile phones and in PCBAs of accessories like batteries & chargers (15%), which will prove to be the big boost for localisation and setting up of a domestic component ecosystem," said Rajeev Jain, Chief Financial Officer, Intex Technologies.

"This will provide a big boost to the Make-in-India campaign by the government, and will be instrumental in achieving our country's vision of making India a global hub for mobile phone manufacturing. Local manufacturing will create more job opportunities, benefitting the youth and contributing towards the overall growth of the economy," said Sanjeev Agarwal, Chief Manufacturing Officer, Lava International Limited.

Tarun Pathak, a senior analyst at Counterpoint Research, said that the move will hurt a few players like Apple who heavily depend on imports but at the same it is great news for local players.

"This is an expected move but Industry will look forward to more such announcements from components manufacturing perspective. Almost 3/5th of total handsets out of 300 million last year were assembled in India. The increase in duty will further increase the local assembling share as brands will ramp up their current output from local EMS facilities since capacity is already there," he said.

"The government's measures towards the import duty on printed circuit boards (PCBs), camera modules, connectors and other components that go into making smartphones, will boost the Make in India initiative and will relentlessly pursue in curbing imports and building value addition in the country. Micromax is deeply connected on the Make in India initiative with 3 running factories and we support this," Rajesh Aggarwal, Co-Founder Micromax said.

Counterproductive move?

Coolpad CEO Syed Tajuddin believes the customs hike will hurt the consumer durable and mobile handset sector.

"The increase in custom duty from 15% to 20% will definitely hamper the cost to customer, especially when it comes to getting repairs for the high-end devices. While increase in custom duty on handsets will compel brands to manufacture or assemble more in India, still there is not great support for local ecosystem for manufacturing spare parts. And this lack of local spare part manufacturers will mean a tough situation for mobile handset brands. Hence a brand is compelled to import most of the spare parts and customers have to bear some burden of it," he pointed out.

"More than 80% of mobile phone demand is met locally but premium, high end smartphone still depends on import which will get hit by proposed increase in duty. Increase in duty will further strengthen proposals under consideration for local mobile phone production," said Anshul Gupta, Research Director at Gartner.