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Budget promotes make-in-India handsets

Increased import duty, meanwhile, pushing up smartphone prices

Local smartphone vendors like Micromax, Lava, Karbonn and Intex are set to raise prices as the Budget has increased the effective duty on imported handsets. There will be a "short-term impact on the cost" due to the steep rise in duties, a spokesperson for Micromax told Economic Times. The good news is that plans for local manufacture of handsets are being pushed forward faster.

Local companies import a majority of the phones they sell in India. 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.

The 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 comes from the duty paid at the time of importing the handsets). What this means, essentially, is that the duty difference between imported and locally made handsets has widened to 11.5 percentage points from five. This is aimed at encouraging local manufacturing.

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.

Local handset vendors are looking at the possibility of shifting manufacturing to India over time, from the current sources located mainly in China and Vietnam.

Micromax, the top local player and No. 2 in the local market, already assembles some of its handsets locally at a plant in Rudrapur, Uttarakhand. In partnership with some original equipment makers, it was reported to be considering purchase of Nokia's now-defunct Chennai plant, but the company hasn't confirmed any interest.

Lava is investing in two plants in Uttar Pradesh, 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 6 billion in the second plant.

Intex's spokesman said the Budget will fast forward the company's plans of expanding manufacturing base in India. The company has plans to invest Rs 2 billion in the 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 5 billion 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.

Based on story in Economic Times

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Indiatel provides detailed, customized reports on India-telecom-related topics, using published, available unpublished or field sources.

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