Apple products such as iPhones will become m ore expensive, widening the gap with devices from the likes of Samsung that manufacture in India.
According to analysts, prices of iPhones can go up by Rs 2,000 to Rs 3,000. For example, the iPhone X’s starting model, priced now at Rs 89,000, can go up to Rs 92,000 if the company decides to pass on the cost to consumers. Apple has not officially commented on the impact of the duty change on prices.
A 42-inch 4K TV sold by online exclusive brands now for about Rs 30,000 will see a price hike of around Rs 1,200 to Rs 1,400. A 65-inch 4K TV sold now for around Rs 2.15 lakh may cost Rs 2.25-2.28 lakh, industry executives said. The extent of hike will be more for the bigger screens. Similarly, a 20-litre convection microwave costing around Rs 10,000 will become dearer by Rs 500.
The companies said these are estimates, since they are yet to work out the exact price hike. To be sure, some companies may choose to absorb the duty increase, executives said.
The import duty increase is expected to prompt companies such as Apple to speed up local manufacturing programmes, giving a boost to the government’s Make in India programme.
“This is to encourage industry to make in India,” a government official told ET. “Those already manufacturing should also remain competitive.” India imported nearly $42 billion worth of telecom instruments, computer hardware and peripherals, electronic components and instruments and consumer electronics goods in FY17.
The duty on push-button phones and mobile handsets has been raised to 15 per cent from 10 per cent and that on TV sets to 20 per cent from 15 per cent .
“This is a major policy shift from the government, as the peak customs duty rate for many electronic products has effectively been increased from 10 per cent to 15 per cent or 20 per cent . This seems to be with the twin objective of increasing revenues as well as to encourage more manufacturing and value addition in India. It is important to note that these measures have been taken under emergency powers under the customs laws. Some announcements can be expected in the upcoming budget about these changes and policy direction in this regard. Manufacturers under other industry segments may also push for similar protection from imports,” said Pratik Jain, indirect tax leader, PwC.
The government had imposed customs duty on mobile phones for the first time on July 1, coinciding with the rollout of the goods and services tax (GST) to boost manufacturing in the country. The government withdrew the basic customs duty exemption on LCD, LED and OLED panels for the manufacture of TVs and imposed a customs duty at the rate of 7.5 per cent .
Panasonic India CEO Manish Sharma said more than 90 per cent of TVs sold in the country are locally manufactured and hence will escape the hike in duty. “This will deter unnecessary cheap imports which some brands are doing and increase prices of 65-inch plus screen size TVs, which is a very small market,” he said.
“Some large brands will also try to manage this hike by adjusting in their portfolio.” The hike in duty will increase prices of online exclusive TV brands that are imported as well as premium largescreen curved and ultra HD television sets that cost over Rs 1lakh by 4-5 per cent .
Prices of microwave ovens could rise 5-7 per cent , since almost all brands currently import the units. Godrej Appliances business head Kamal Nandi said the market for microwaves is small at around 500,00 units a year and hence it doesn’t make sense to produce them locally. “However, with this duty hike, companies may be encouraged to consider local assembling,” he said.
The customs duty on water heaters and hair dressing instruments has been doubled to 20 per cent , while that on TV cameras, digital cameras and video camcorders raised to 15 per cent from 10 per cent . Basic customs duty on imported lamps and light fittings has been raised to 20 per cent from 10 per cent . Imported LED lamps will now face 20 per cent duty from 10 per cent before.
IMPACT ON APPLE
“One thing is clear—it is becoming more and more difficult for Apple,” said Tarun Pathak, associate director at Counterpoint Research. “They import 88 per cent of their phones, so the prices will rise. Players have reached a point where they will have to increase assembly or take a call on whether to increase prices or take a hit internally amid competition.” Apple makes the cheaper iPhone SE at a plant in India but imports its other devices.
The research firm said that 2017 will see 280 million phones being sold, 80 per cent of them locally assembled. “With this duty increase, the percentage share of local production will increase to over 90 per cent , by our estimates,” Pathak said.
Local industry welcomed the move as it will push companies to manufacture more mobile phones and other electronic items in the country, aligning with the government’s plan to accelerate Make in India.
“This will be very encouraging for ecosystem development in India, as everyone will be motivated to produce in India,” said Sanjeev Agarwal, manufacturing head of Lava International. “After GST, the benefit of manufacturing in India has got reduced, which will be reinstated now.”
Indian Cellular Association president Pankaj Mohindroo said the reason for the increase was the heavy import of featurephones by Reliance Jio, Itel and other local players. They took advantage of the cost arbitrage that a lower basic customs duty had created earlier in the year between locally assembled phones and imported ones, he said.
“The Indian mobile phone Industry is marching towards global competitiveness,” Mohindroo said. “It does not seek long-term protection. Shortterm disability mitigation is however necessary. The recent spurt in imports, especially featurephones, is responsible for this duty increase, after the phased manufacturing program (PMP) was started from July 2017.” The ICA represents most phone makers including Apple, Samsung and others like Micromax.
“We will see a revival in feature phone manufacturing to earlier levels soon, the pricing will be determined by competition,” Mohindroo said.
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