Import duty structure in India might favour companies to go local

Rise in cost of production in China coupled with a hike in import duty has made Indian handset vendors explore the possibility of local manufacturing. All Indian mobile handset companies, currently, import their offerings from China.

Following the rupee depreciation to the dollar, vendors that include the likes of Lava, Karbonn, Intex and Maxx have already hiked product prices between Rs 100 and Rs 2,500 a handset (between 6 and12 per cent). Price hikes came into effect from July.

Some of these Indian companies maintain that local manufacturing will, to a certain extent, safeguard them against currency fluctuations.

Price hikes are unwelcome to Indian vendors who operate on volume sales. Hikes might see dip in sales volumes, market sources maintain.

Local Manufacturing

Maxx Mobile will start production at its Haridwar (Uttaranchal) unit in July this year. Intex too is firming up local manufacturing plans in Baddi (Himachal Pradesh) at an estimated cost of Rs 50-100 crore.

“We are eyeing two (assembling) units in another three to four months time,” Sanjay Kumar, GM (Mobile), Intex Technologies, told Business Line.

Lava’s Co-Founder and Director, S.N. Rai, too confirmed that the company was in discussion to explore possibilities of part manufacturing its handsets in India.

“We might leverage the local availability of some products or assembling units. Discussions are on,” he added.

Cost Benefit

According to Indian vendors, there has been a near 20 per cent increase in cost of production in China. This apart, the import duty structure in India might favour local manufacturing.

Currently, an import duty of seven per cent is levied on handsets priced above Rs 2,000.

Local manufacturing attracts just one per cent tax. This difference, according to Ajjay Agarwal, Chairman and Managing Director, Maxx Mobile, has been the prime reasons for the company to opt for local manufacturing.

While Intex’s Sanjay Kumar adds that benefits of local manufacturing are set to creep in on a long-run; not all handset vendors are convinced.

Absence of an ecosystem and non-availability of parts make local manufacturing an unviable alternative, Sashin Devsare, Executive Director, Karbonn Mobile, adds. Karbonn is one of the largest Indian brands after Mircromax.

Ecosystem

“There has to be an ecosystem first for local manufacturing to be feasible,” he said.

Zync Global, that is primarily into phablets (smartphones with larger screens), points out that mere assembling of handsets in the name of local manufacturing would hardly add value.

Even analysts seem unconvinced at the moment. According to Sandip Biswas, Director at Deloitte Touche Tohmatsu, major phone components continue to be imported by all vendors from either China or Taiwan.

“Absence of an ecosystem might lead to a situation where despite local manufacturing, the price of the final product will still be higher than an imported offering,” he said.

Katyayan Gupta, Analyst at Forrester Research, points out that the lack of available skills in telecom manufacturing will be a major issue.

“Specific skill sets are required for mobile manufacturing. We do not have them still. Plus dependence on imports of major components remain,” he added.

abhishek.l@thehindu.co.in

(This article was published on July 14, 2013)
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