Smaller smartphone brands may resort to importing completely built devices instead of assembling in India, as the aggregate duty on components has become almost equal to that on a complete unit, a development which may hit the government’s plans of expanding local manufacturing.

From October 1, the government levied 10 per cent import, or basic customs, duty on display assembly, touch panel/cover glass assembly, as per the phased manufacturing programme milestones. The levy is also expected to increase prices of devices by upto 5 per cent, which may dampen demand during the crucial festive season, especially in the featurephones and entry-level smartphones (below Rs 5000) segment.

The two components, critical for production of mobile phones, make up up to 25 per cent of a device’s cost. While bigger players may even absorb the cost increase ahead of the festive season, smaller players working with lower scales and thinner margins may be forced to raise prices of entry-level smartphones by Rs 150-175, industry experts say.

“We are estimating a price escalation between 3 per cent-5 per cent across the spectrum of smartphones because no brand is currently sourcing LCDs (display) locally,” said managing director, Jaina Group, which houses Karbonn, Gionee and Sansui brands, Pradeep Jaina.

Head-taxation, legal and secretarial, at Lava International Bibhash Deb said that customers wanting to buy mid-to-high range phones may adjust to higher budget but for those who are looking to migrate to entry level smartphones for kids’ schooling may have to take a tough call.

The industry had pushed for delaying the levy by a year, saying local production of display assembly hasn’t scaled up as needed. But a cash-strapped government has gone ahead with the levy.

Besides the price hike, smaller brands such as LG, ASUS, iTel, Infinix, Tecno etc, who don’t have dedicated surface-mount technology (SMT) lines for mounting printed circuit boards (PCBs) in India, are seeing an increase in the total import duty they need to pay to the levels needed while importing fully built devices. This could prompt them to import completely built units, instead of spending on local production.

“If any manufacturer imports components including PCBA (printed circuit board assembly), then 16 per cent BCD/SWS (social welfare surcharge) needs to be paid against 20 per cent BCD on completely built units (CBUs). Earlier, the said (cumulative) duty was approximately 11.5 per cent,” said Lava’s Deb.

This implies that all manufacturers will have to invest in SMT lines for mounting PCBs to make the business viable, he added. “Both LCD and SMT manufacturing will, though add more jobs in the long run,” he said.