For Same Duty on Phone and Its Parts
Local smartphone makers are upset that this year’s Budget has raised import duties on batteries and accessories to 29%, which puts them at a disadvantage vis-à-vis handset importers who pay a duty of 12.5%. True, an inverted duty structure, with a lower rate on products and higher rate on components, really makes no sense. Nor does its inverse, which encourages spurious value-addition behind high tariff walls. But the fact of the matter is that 29% duty hike is only an instrument to disincentivise and deter trading operations that pass themselves off as local manufactures.
Note that batteries and accessories account for up to 40% of the cost of manufacturing mobile handsets, and if the putative local manufacturers have credible game plans to grow and mature organically rather than simply leverage Chinese manufacturing strength to stay in business, they surely need to think big and firm-up plans to make components locally. The excise duty on mobile handsets is12.5% in case a vendor takes credit for central value-added tax and 1% if no Cenvat credit is claimed. This means that imported phones attract a countervailing duty of 12.5%, offering a local entrepreneur who imports the same phone in a knocked-down form protection of 11.5%. This is no real make in India. In order to discourage such make-believein-India, at least in the case of parts such as the charger, the government has imposed a steep duty on their imports. This is not the way to go about it and will hamper genuine Indian manufacture of high-value electronics. The government is right to disincentivise trading masquerading as local manufacture. The right way to do this, while also incentivising genuine value addition, is to offer the same exact level of protection to components and finished goods.