A boost for mobile manufacturing in India?

Interim Budget 2014, presented by the Congress-led UPA government brought some cheer to the telecom industry. In its last budget, the ruling government in India braved criticism on policy paralysis and consequent slowdown of manufacturing. Finance Minister P Chidambaram, shared his concern on the manufacturing slowdown while presenting the budget. He announced a 4-percentage point cut for telecom handsets, along with cars and other white goods, making most cars and mobiles handhelds cheaper. His objective clearly is to spur demand and boost investment so that companies add manufacturing capacity and consequently create jobs.

“To encourage domestic production of mobile handsets and reduce the dependence on imports, I propose to restructure the excise duties for all categories of mobile handsets. The rates will be 6 percent with Cenvat credit or one percent without Cenvat credit,” said Chidambaram while presenting the Interim Budget 2014-15.

Multinational companies, Nokia and Samsung, that manufacture handsets in India will certainly benefit from this move. However, all major national handset manufacturers in India are sourcing the components from China or Taiwan. Whether higher duty on foreign made mobile handsets is applicable on CKDs (Complete Knock downs) will decide how good is the move for manufacturers in India. Will companies like Micromax, Lava, Karbonn benefit? The fine print on that is yet to be seen.

Currently, India domestic market consumes over 200 million mobile handsets every year. Telecom as a sector has emerged as the Indian government’s cash cow. After a $10 billion airwave auction earlier this month in the fiscal ending March 31, 2014, India has set a revenue target of about $6.5 billion from the telecom industry for the next fiscal. This will be raised from recurring annual fees levied on telecommunication carriers and the controversial one-time fee levied on airwaves for spectrum licenses. Another set of three bands of airwaves will come up for auction in the next fiscal beginning April 1.

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