Budget 2021: Phones Can Get Costlier As Exemptions Revoked

FM Nirmala Sitharaman in her Union Budget 2021-22 speech in the parliament announced some changes in terms of smartphones. It announces the removal of a few custom duty exemptions. Moreover, it is on importing parts of mobile chargers and sub-parts of mobile phones. This budget proposes to impose import duty on components of mobile phones and chargers, to enhance local value addition. However, it is a move that may marginally impact handset prices.

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In addition, to the Budget 2021, she also announced a review of 400 exemptions in customs duty including those applicable on the mobile devices segment. “For greater domestic value addition, we are withdrawing a few exemptions on part of chargers and sub-parts of mobiles. Further, some parts of the mobile rate will move from nil rate to moderate 2.5 percent,” Sitharaman said. After extensive consultations, a revised customs duty structure will go into effect from October 1. We can expect more changes at that time.

In addition, custom duty on some parts of the handsets is to move from nil rate to a “moderate 2.5 percent”. Moreover, in the Budget 2021 proposals, some of these changes are coming into effect from February 2, and the rest from April 1. Analysts feel that the increase will be a modest one. However, it will be short term as the “bulk of these sub-components already has local suppliers.”

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According to Budget 2021, these are some points that can make smartphones costlier:

• Mobile phone parts like the Printed Circuit Board Assembly (PCBA), Camera Module, and Connectors will see a withdrawal of exemption from customs duty. In addition, a moderate 2.5 percent tax will be levied, instead of the ‘nil’ rate offered earlier.
• Similarly, parts and sub-parts for manufacturing the battery and the battery pack will see a similar tax rate levied.

This new rate is to be levied from April 1 onwards.

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• Additionally, rates on import of PCBA and molded plastic for the manufacture of charger or adapter will see an increase from 10 percent to 15 percent.
• All the other parts required for assembling a mobile charger will see a custom duty levied of about 10 percent.

However, these rates will be applied from February 2.

So, the Budget 2021 proposal can mean that smartphones and mobile chargers can get more expensive in India in the coming months. In case, the manufacturers choose to pass the burden onto customers. However, switching over to locally manufactured components can help companies mitigate the increased duties.

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How will this work out?

“There is a focus on electronics manufacturing and an increase in duty for certain sub-components is a push to localize some of these components. This might increase prices for term short term. Or see a very modest increase as the bulk of these sub-components already have local suppliers like for Camera modules, PCBAs, chargers, connectors, etc.”

Senior Research Analyst at Counterpoint Research, Prachir Singh on Budget 2021

However, the shortcomings are less. As there are many local suppliers who can help with camera modules, PCBAs, and other parts. Founder and Chief Analyst at TechARC Faisal Kawoosa also think this is a great move for local suppliers in India.

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“Like recent PLI scheme for telecom equipment manufacturing, Consumer IoT, routers and switches, customer premise equipment, next-generation radio access networks and all. There is a big scope to localize value addition in these areas as well.”

Senior Research Analyst at Counterpoint Research, Prachir Singh on Budget 2021