Can slashed import duties on mobile phone components translate to cheaper smartphones?

A day before the Interim Budget, the central government announced a reduction in import duties on mobile phone spare parts from 15% to 10%. As detailed in the Gazette released by the government on Tuesday, this lowered import duty applies to specific components such as battery covers, main lenses, back covers, and other mechanical items crafted from plastic and metal.

Currently, only 15%-18% of the components are sourced locally, says Tarun Pathak, Research Director at Counterpoint Research. As the majority of components are imported for assembly in India, by lowering import duty, mobile phone manufacturers can now obtain components at reduced cost. This could bring down the prices of smartphones in the country, but manufacturers may not cut prices by a significant amount.

“Ideally, this should bring down the prices. On a quick look, components comprising 20-25% of BOM (bill of materials) now have 10% duty instead of the existing 15%. So, this should result in bringing down the costs,” says Faisal Kawoosa, founder and Chief Analyst at Techarc.

Since 2021, the average selling price in the Indian smartphone market has experienced a year-on-year increase of 15-20%, per IDC, significantly affecting customer demand. As a result, even the overall demand for smartphones has declined.

Pathak adds, “This is a welcome move by the Government of India. With this, the government’s intent is to help the smartphone industry generate demand, which has witnessed low demand for the past two years, especially in the entry and budget segments. This will benefit the OEMs in reducing the cost, which will, in turn, be passed on to the end customer in the near term,” adds Pathak.

“Reducing the import duties, especially on major components, is expected to reduce the cost pressure that is currently faced by the ecosystem vendors. However, if some of the key high-value components are not covered under the order, BOM will not be impacted much, resulting in similar average selling price as prevailing,” says Navkendra Singh, Associate Vice President with IDC India. Singh says, looking at the current list, a few very basic components seem to be covered. Hence, the final pricing can dip anywhere in the 1-2% range, and more realistically, this would not impact consumer pricing at all.

Also, it will be up to the smartphone original equipment manufacturers (OEMs) whether they will be willing to pass on this benefit to the consumers or not. Kawoosa states that OEMs may rather use this either to increase channel margins or use it somewhere else. “Since all brands are riding on ‘premiumisation’, bringing down the costs isn’t the focus. So, these savings give them a cushion to spend more. For instance, increasing the channel commissions at a time when all brands are expanding offline,” he adds.

The industry has long been urging the government to reduce import duties on components. While the government has responded to these requests, it remains to be seen whether smartphone manufacturers will choose to pass on the resulting benefits to consumers.

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