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Friday, 06 April 2018 04:23
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Sarthak edit

Raising import duties on PCBs will spur indigenization


The government has done well to impose a 10% duty on import of certain mobile phone components, namely, populated printed circuit boards (PCBs), camera modules, and connectors. The move has been criticised by many on grounds it will hurt the margins of those who assemble phones in India, but this is part of the plan to increase indigenisation of phones in the country. Indeed, it corrects the anomaly that crept in with the government imposing a 20% duty on import of fully-built phones; this had given significant protection to those smartphone-makers who imported components.

The electronics market, specifically the phone market, in India has been a fast-growing one in recent years—the number of phones manufactured in India is set to reach 279 million by end of 2018. For perspective, that will mean India-made phones will constitute 90% of the market by the end of this year. However, so far, this growth has benefited firms outside India—many of which could be Chinese-owned—because of the skewed import duties. As per an analysis by Counterpoint Research, imports of mobile phones may have fallen from 205 million in 2014 to 77 million in 2017, but the import bill still went up from $8.8 billion to $12.6 billion in 2017. This was because, sans any discouragement of imports through import duties, imports of components had risen from $1.4 billion in 2014 to $9.2 billion in 2017.

To encourage indigenisation, the government came out with a phased-manufacturing programme where, with higher import duties on various components every year, assemblers of phones would be encouraged to start manufacturing certain components in India. In the initial phase, the plan was to make chargers/batteries in India, then to move on to the keypad, the USB cable, etc. As a result, value addition in India in the mobile phone space has trudged along from 3.6% in 2014 to just around 10% in 2017. Imposing duties on the PCB was a critical component of this plan since this comprises half the value of the phone—while most of the components mounted on the PCB will also be imported in the initial years, it is estimated that 20-25% of the value add can take place locally within a few years. Thus, the introduction of import duties on various phone components, including PCBs, represents an inflection point for domestic manufacturing of phones and, consequently, for Make-in-India. In the case of Maruti Suzuki, India was once dependent on imports; now, however, Maruti Suzuki India Ltd exports cars to both Japan and Europe.


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