Indian Handset makers to increase prices by upto 5% after Budget raises Excise duty
NEW DELHI: Local smartphone vendors such as Micromax, Lava, Karbonn and Intex are set to increase prices as the Budget has increased the effective duty on imported handsets. Top executives of these companies, however, expect the measures announced by the finance minister on Saturday to spur domestic manufacturing.
These companies import a majority of the phones they sell in India. Arun Jaitley’s budget proposes to increase the excise duty on mobile handsets to 12.5% from 6% in case a vendor takes credit for central value added tax. If there is no Cenvat credit, the duty remains unchanged at 1%.
The Cenvat credit here comes from the duty paid at the time of importing the handsets. In effect, the duty difference between imported and locally made handsets has widened to 11.5 percentage points from five. The change in tax structure is aimed at encouraging local manufacturing.
There will be a “short-term impact on the cost” due to the steep rise in duties, said a spokesperson for Micromax. The company, top India-based handset vendor and No. 2 player in the local market, has already commenced manufacturing of some handsets in India, while a few other homebred vendors are in the process of doing so.
Intex and Lava said they will increase prices by up to 5%, while Karbonn said its prices will go up by 6-7%. Brokerage firm Credit Suisse said the price increase may slow the rate at which people upgrade from low-cost feature phones to higher-priced smart phones. Korean major Samsung, the market leader, is unlikely to raise prices as it makes as much as 90% of its phones, including smartphones, in India.
“It (new tax structure) further motivates us to take our ‘Make in India’ story to the next level,” said Hyun Chil Hong, president and chief executive of Samsung India Electronics. Xiaomi, China’s top vendor and a popular brand in India, and Japan’s Sony didn’t comment.
Analysts said the tax change entailed a 4-5% increase in the cost for handsets imported into India. This in all likelihood will be passed on to consumers. Handset makers including Lava, Micromax, Intex and Karbonn accounted for a large chunk of the 64.3 million devices that IDC says were imported in India.
Local handset vendors are already making noises towards shifting manufacturing to India over time, from the current sources located mainly in China and Vietnam. And the Budget proposals would give those plans a further impetus. “We look forward to working with the government to help build a robust manufacturing eco-system in India,” the Micromax spokesperson said.
Micromax, in partnership with some original equipment makers, has been touted to be exploring buying Nokia’s now-defunct Chennai plant, but the company hasn’t confirmed any interest. Intex’s Kalirona said the budget will fast forward the company’s plans of expanding manufacturing base in India. The company has plans to invest Rs 200 crore in the next fiscal year starting April to increase its manufacturing capacity at its two facilities — in Jammu and Baddi, Himachal Pradesh — which are being used to produce mobile batteries, chargers, multimedia speakers and feature phones. Intex plans to invest Rs 500 crore in the next three to four years to make smartphones locally, which will be separate from next year’s investment.
It is in discussions with governments in Rajasthan, Uttar Pradesh and Uttarakhand to finalise a location and is simultaneously talking to its Chinese partners and chipset vendors for the upcoming smartphone facility. Lava is investing in two plants in UttarPradesh, one in Noida’s Sector 58 where it will assemble phones, and the other near the Yamuna Expressway. Lava said it has proposed to invest Rs 600 crore in the second plant.
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Source:Economictimes
