Finance Minister Nirmala Sitharaman announced a reduction in Basic Customs Duty (BCD) on smartphone components such as printed circuit boards and mobile chargers from 20% to 15% in the Union Budget 2024. While this reduction in BCD may seem like a welcome move that would see smartphone prices in India come down, in reality, the market did not expect much from this change.
With thin margins, rising chipset prices, a volatile rupee and stiff competition in the mid- to high-end smartphone segment, a 5% discount on BCD may not be enough to pass on the benefits to buyers. Things will be business as usual for market leaders like Samsung and buyers should not expect any major price cuts. SAMSUNG smartphones in addition to the regular products as the company manufactures most of its devices in India.
Echoing a similar view, Abhilash Kumar, Industry Analyst at TechInsights said, “I believe that ₹The 10,000 segment will be interesting as Qualcomm, Mediatek and Unisoc is launching affordable products 5G processor. So everyone in ₹Price segment 10000 to 13000 can move to sub ₹10,000 if the 5G device is available. It may have a slight impact in the mid-range segment but I believe it will be a minimal impact if any. Don’t expect much of a price cut in any other segment right now. However, card offers and financial constraints from pure gaming platforms like Flipkart and Amazon along with festive sales may bring the price down in H2 2024.”
5% BCD reduction does not affect smartphone brands much
Since margins are thin and the tax cuts are only symbolic, a lot depends on whether smartphone brands are willing to pass the benefits on to buyers. “The reduction in BCD (Basic Customs Duty) on smartphones, chargers and PCBA will not have a big impact on the prices of smartphone. We can expect an average price reduction of 1-2% from this move, however, it depends on the OEMs if they want to pass this discount on to the end consumers. In the lower price segments, we may not see this as the margins are very low in these price segments. However, in the overall electronics manufacturing, the government has focused on one very important area, which is skilling. The skilling announcements show that the government intends to develop a highly skilled workforce and will help the electronics manufacturing industry secure highly skilled local talent,” said Tarun Pathak, Research Director, Counterpoint Research.
Another aspect to consider is that the market is looking at the launch of affordable 5G phones to help users switch from feature phones to 5G smartphones. “Reducing the basic customs duty on smartphone components to 15% is likely to boost domestic assembly and attract more foreign investment. It could also contribute to lowering smartphone prices, especially in key markets ₹The 7,000-24,000 range for 5G smartphones is known for its value. While premiumization remains a major trend, improving accessibility to affordable and value-oriented smartphones is equally important to expand the market,” said Prabhu Ram, Vice President – Industry Research Group (IRG), CyberMedia Research (CMR).
Similarly, Navkendar Singh, Associate Vice President, IDC India said, “I would love to see prices fall below this level. ₹25k, details below ₹12-13k to promote more 5G device usage and can see a 5G device below ₹8k, can definitely help put the market on the right growth track by bringing feature phones to smartphones in the low-end segment.”
Will promote healthy competition in the smartphone market
Transsion India, the company that owns smartphone brands like itel, Infinix and Tecno, a dominant player in the budget segment, feel the government’s move will boost competition.
“Transsion India welcomes the decision of the Ministry of Finance to reduce the basic customs duty on mobile phones, mobile PCBAs and chargers from 20% to 15%. This policy change will significantly benefit both manufacturers and consumers, promote a more competitive smartphone market and strengthen our position in the global market,” said Arijeet Talapatra, Managing Director, Transsion India.
The 5% reduction in BCD tax could help new players in the market price their phones more competitively. “We believe the government is rationalizing the tax structure of around 15% or lower for mobile phones, which has developed a robust manufacturing ecosystem with increasing value addition. This 5% deferral will be great for some of the new entrants in the smartphone market who do not have a partner yet,” said Neil Shah, Vice President, Counterpoint Research.
