With the Union Budget 2017-18, Finance Minister Arun Jaitley levied a 2 percent Special Additional Duty (SAD) on imported populated PCBs for use in the manufacturing of mobile phones. The new customs duty is likely to affect the pricing of the 'Make in India' mobile phones considering price of the PCBs make up a significant part of a phone's cost. Now, market research company Counterpoint Research has estimated 1-2 percent rise in mobile phone prices.
"The PCBA is the heart of the smartphone and corresponds to more than half of the total component value going into the phones. So upon levying a special additional duty (SAD) of 2 percent, we estimate 1-2 percent rise in in mobile phone prices," said Counterpoint in an emailed response to Gadgets 360.
In recent times, the government of India decision on the Special Additional Duty applicable on the populated printed circuit boards has seen some back and forth. For those unaware, the Union Budget 2016-17 had introduced the same 2 percent SAD, raising it from 0 percent, though it was rolled back last year.
"Almost all PCBs [are] imported in India. However, only Samsung has been doing SMT-level (Surface Mount Technology) PCBA assembly in India (mounting components on top of bare PCB). With duty on populated PCB increasing, one can expect other vendors to follow suit," said the market research firm on the question of what percentage of smartphones 'Made in India' use imported PCBs.
Counterpoint also commented whether the latest government move will force manufacturers to make PCBs in India, saying, "OEMs manufacturing PCBs in India still seems a little far-fetched, but the mounting of components on the PCB could start locally in the second half of 2017. The 2 percent additional duty will surely help to speed up the process a bit."
We speculated that mobile manufacturers may absorb the increased costs without transferring the burden to consumers in the form of a price hike, however Counterpoint has a different view. "Since many of the OEMs are already operating on low profit margin in a high competitive environment, incurring additional costs would be challenging. OEMs might cut down on other components bills of material to nullify the increasing cost as most of the mounted components for PCB is still imported."
Counterpoint Research also estimated the size of the PCBA market in India that could be tapped by local manufacturers, and the extent of local value addition expected this year, saying, "In 2016 alone, almost $6 billion worth PCBAs were used in the mobile phones in India and is estimated to increase by 33 percent in CY 2017. However the local value addition from PCBA perspective was mere 1 percent in 2016. Now with duty increase we estimate the local value addition for PCBA increasing upto 3 percent."