Dialing a wrong number

Cellphones that cost less than Rs. 2,000, which account for a substantial portion of mobile phones sold in India, are set to cost more after Finance Minister P Chidambaram’s decision to levy a uniform excise duty on phones across price bands.

According to industry players and analysts, a rough four-to-five per cent hike will be in order.

In his Interim Budget announcement, Mr. Chidambaram announced a restructuring of excise duty for all categories of mobile handsets. “The rates will be 6 per cent with CENVAT (central value added taxes) credit or 1 per cent without CENVAT credit,” he said.

Mobile phones that cost less than Rs. 2,000 were earlier levied an excise duty of 1 per cent. Since most phones are imported, they will now be levied a 6 per cent duty.

“This will add to the costs of entry-level phones less than Rs. 2,000, and is likely to add to the burden of the consumers of low-end phones,” said P Balaji, Managing Director of Nokia India.

Sanjay Kumar Kalirona, Business Head- Mobile, Intex, too, believes that rise in excise duty could lead to increase in overall cost of mobile phones. “The revision of excise duties on mobile handsets is a visionary step towards ramping up domestic manufacturing. But this could lead to an increase in phones priced below Rs. 2,000 as mobile handsets are largely imported,” he said, in a statement.

However, other players viewed this step as a move in the right direction.

Amar Babu, President of the Manufacturers’ Association for Information Technology, told The Hindu that though domestically manufactured feature phones formed a “limited set”, the move, coupled with the recent approval given to semiconductor fabs, ``is a big step in the right direction.”

In response to The Hindu’s queries, Micromax welcomed the restructuring as a move that would encourage manufacturing companies to look at India as a practical manufacturing destination. “However, we expect a lot more such measures in future,” the Micromax spokesperson added, in the statement.

On the other hand, the beneficial rate of one per cent as proposed in the Interim Budget will not help multi-national companies, such as Nokia, that manufacture locally. “The beneficial CVD rate of 1 per cent does not extend to mobile phone manufacturing operations set-up within SEZs and EOUs, as the clearances by these units to the domestic tariff area are treated at par with physical imports into India,” Mr. Balaji said.

“This will, therefore, exclude larger manufacturers like us from availing the benefit,” he added.