Advantage Apple as SAD to push up costs for local mobile phone companies

A two per cent Special Additional Duty (SAD) on all imported printed circuit boards (PCBs) proposed in the Union Budget 2017-18 is likely to push up the prices of mobile phones next fiscal.

Since PCBs account for nearly 40-50 per cent of the cost of a mobile phone, an increased duty on these components will result in a price rise. While the duty may look nominal the absolute cost for the manufacturer could go up depending on the quantity of imports, which are normally huge.

Analysts expect the duty hike push up mobile phone prices by at least one per cent for the local manufacturer.

However, this may instead support makers of top mobile phones such as Apple provide they locally manufacture PCBs in India – both due to the price advantage of making in Indian and the customs duty advantage that offers.
Alternatively, the duty impost along with other incentives such as the increased allocation for Modified Special Incentive Scheme (M-SIPS) for electronics manufacturing, may act as a boost to local manufacture of mobile phones and its components.

While the SAD impost is expected to raise the cost of manufacturing mobiles for companies in India, it is up to individual companies to decide whether to pass on the impact to the consumer or not.

The government's aim is to boost electronics manufacturing in India, and eventually creating an entire ecosystem of components, including PCBs, display, battery, semi-conductor and other components, so that real manufacturing happens in the country. Currently only assembling of mobile phone kits takes place in the guise of manufacturing.

Experts suggest that while the two per cent SAD may not affect imports from cheap sources and act as an incentive for local manufacturing, providing attractive incentives for localisation of design and boosting R&D capabilities would be a better way of boosting local manufacturing.

According to Narendra Bansal, chairman of Indian smartphone manufacturer Intex', this duty impost will have no impact on the consumer at all, as ''brands will absorb this impact and will not pass it on to the consumer.'' He also pointed to the global and Indian trend of a fall in prices of mobile phones.

''Globally and in India, prices of Mobiles are coming down and every month cheaper handsets are making their debut in the market. In such a scenario, in future too, prices of mobiles will keep falling continuously with the result that this increase in duty will get mitigated by the low cost of the handsets,'' he said.

The problem right now, even with so-called 'Made in India' mobile phones, which includes smartphones, is that almost all of PCBs, and other components are currently being imported into the country. The phones are being mostly assembled, kitted in India, but individual component manufacturing is yet to take off on a big scale.