Mobile prices may not dip despite some customs concessions say analysts

Handset prices are unlikely to fall despite the government announcing concessions in customs duty on specific mobile phone components. Industry experts say the original equipment manufacturers (OEMs) will instead get a cushion to absorb the other high costs arising out of component shortages and supply chain issues.

“The reduction in BCD (basic customs duty) on some components will give OEMs some cushion to offset increasing price of some key components like chipsets, display, etc. The net impact could be no impact in handset prices,” said Techarc founder Faisal Kawoosa.

Basic customs duty (BCD) “rate on camera lens for use in manufacture of camera module of cellular mobile phone is being decreased from 15%/ 10% to 2.5% effective from 2nd February, 2022,” said a government notification. ” BCD rate on specified parts of transformers for use in manufacture of chargers/ adapters is being decreased from 10%/ 15% to 5%…This change is being made effective from 2nd February, 2022 and the concessional rate will be valid till 31st March, 2024,” it added.

The reduction in some of the component duties come at a time when the telecom sector has been facing a supply chain and component shortage and a drop in customs duty will give a boost to manufacturing.

“To facilitate domestic manufacturing of wearable devices, hearable devices and electronic smart meters, duty concessions are being given to parts of transformer of mobile phone chargers and camera lens of mobile camera modules and certain other such items. This will enable domestic manufacturing of high growth electronic items ,”said finance minister Nirmala Sitharaman on Tuesday.

Industry body Cellular Operators Association of India (COAI) had estimated that the high customs duty was disrupting the cost effectiveness of the telecom companies. About 85% of telecom equipment in the country is imported and basic customs duty (BCD) of 20% is levied on them.

“The announcements should help in local scaling up of parts/components with increased investment in particular camera lens (used in the module) and transformers in chargers/adaptors since these are not getting locally manufactured. While there may not be any immediate impact of this on end consumer price,” said Navkendar Singh, research director at IDC.

“Customs is being issued to prescribe a Phased Manufacturing Program (PMP) for wrist wearable devices (commonly known as smart watches)… and its inputs/ parts / sub-parts…,” the notification added.

Industry analysts have said that recalibration of duties will improve supply chain and give much needed boost to localisation.

“The pandemic has given a significant boost to hearables and wearables. Increased localization will enable these brands to build greater supply chain efficiencies and shorter time to market,” said Prabu Ram, Head – Industry Intelligence Group at CMR.