New Delhi: With the GST Council, headed by Finance Minister Nirmala Sitharaman, increasing the GST on mobile phones from 12 per cent to 18 per cent on Saturday, industry experts feel it would hit the industry and the consumers hard.
Brands are in no position to absorb this impact. "They will, most certainly, decide to pass it on to the consumer, at least in case of high-selling models," said Navkendar Singh, Research Director, IDC India.
The India Cellular and Electronics Association (ICEA) stressed that the move would stymie consumption.
"The 6 per cent GST increase will be detrimental to the vision of 'digital India'. Consumption will be stymied and our domestic consumption target of $80 billion (Rs 6 lakh crore) by 2025 will not be achieved. We will fall short by at least Rs 2 lakh crore," said Pankaj Mohindroo, ICEA Chairman.
In a letter to the Finance Minister on March 12, the ICEA had said the mobile handsets sector was in deep stress because of the supply chain disruption due to coronavirus outbreak. It was the most inappropriate time to consider GST hike on mobile phones, the industry body said.
It also said the GST hike on mobile phone might adversely affect localisation of manufacturing as well as popularisation of the country's digital payments objectives.
According to ICEA, 31-32 crore Indians who buy phones in the country will be impacted by the move.
Terming the move counter-intuitive and detrimental to the 'digital India' vision, the IDC India Research Director said, "This is a textbook case of missing the wood for the trees. This will stunt any hope of growth in the near-term, which anyway looks challenging now due to coronavirus issue at both supply and demand ends," Singh told IANS.
The coronavirus outbreak, which has hampered global tech giants' 2020 plans leading to cancellation or postponement of global flagship conferences, is set to hit supplies of smartphone components from China to India at least till the second quarter of this year.
According to Tarun Pathak, Associate Director, Counterpoint Research, India smartphone market will see at least 15 per cent shortfall in shipments in the first quarter (January-March period).
It may be noted that the government under National Policy on Electronics 2019 has set target to create a Rs 26 lakh crore domestic electronics manufacturing ecosystem by 2025. This includes production of 1 billion mobile handsets valued at around Rs 13 lakh crore comprising Rs 5 lakh crore domestic sales and exports worth Rs 7 lakh crore.
On the development, Chinese handset maker Xiaomi noted that the entire smartphone industry has been committed to Prime Minister's flagship "Make In India" initiative. "But today's recommendation by the GST Council to raise the GST rate on mobile phones from 12% to 18% will seriously harm the entire industry."
It mentioned that India's smartphone industry is already struggling with profitability due to depreciating rupee against the dollar and is also facing supply chain disruption due to the current COVID-19 situation.
"As a result of this GST increase, all smartphone makers will be forced to increase prices. This can weaken the demand and mobile industry's Make in India program. This could also have long lasting impact on internet penetration and digital India program as majority of Indians access internet on smartphones," Manu Jain, Managing Director, Xiaomi India, said.
(With Agency Inputs)