All those who had been planning to upgrade from a cheap mobile handset to a sleek smartphone may do a re-think: the finance minister has hiked the excise duty hike for handsets priced above Rs. 2,000.
"Mobile phones enjoy a concessional excise duty of 1% and I do not propose to change that in the case of low-priced mobile phones," P Chidambaram said in his budget speech.
"However, on mobile phones priced at more than Rs. 2,000 I propose to raise the duty to 6%."
According to the minister, 70% of imported mobile phones and about 60% of domestically manufactured mobile phones are priced at Rs. 2,000 or below.
The finance minister also increased the customs duty on imported set-top-boxes from 5% to 10%.
The duty hike on mobile handsets has not gone down well with handset manufacturers, who were counting on the trend of aspirational young Indians going in for smartphones, to boost their earnings.
Katyayan Gupta, mobility analyst at global consultancy Forrester Research, said handset manufacturers do not have capability to absorb the price hike, which would in all likelihood get passed on to consumers.
"The margins of a handset manufacturer are not very high at this point and I feel that they will pass on the hikes to consumers."
Handset manufactures on their part said it was too early to comment on changing retail prices. P Balaji, managing director of Nokia India, urged the finance minister to roll back the excise duty hike.
"It is likely to increase the sale of grey, unbranded sub-standard handsets which is not good for the consumer, the industry or the exchequer."
Other manufacturers were equally vehement in their opposition to the move.
"The increase in excise duty on mobile phones will not have a positive impact on the mobile industry and would lead to an increase in prices for end consumers," said Asim Warsi, vice-president of Samsung Mobile.
"The mid- and high-end mobile phones will get costlier," said Anirudh Dhoot, president of Consumer Electronics and Appliances Manufacturers Association (CEAMA).
Around 178 million mobile handsets were sold during the calendar year 2012, an 8% rise from a year ago, while smartphone sales were up by 98% in 2012. Close to 15.4 million smartphones were sold during the calendar year.
Of late, the trend has been of a shift from cheap basic handsets to smartphones that enable functions such as internet browsing and video downloads apart from ordinary voice calls.