The significant drop in Indian rupee’s exchange value against the US dollar is putting new pressure on manufacturing of smartphones in India.
The Indian rupee has dropped 10.2 percent in exchange value as against the USD since the implementation of 10 percent imports duty on populated PCB in April 2018 to boost CKD level manufacturing of mobile handsets in India.
The domestic value addition is in the range of 15-20 percent depending on the mobile handset category and the manufacturing capabilities of the handset OEM even after the CKD level manufacturing.
“This means Indian handset industry is dependent on imports of components amounting to 80-85 percent of the BOM of a handset,” Faisal Kawoosa, founder and principal analyst at techARC, said.
The India phone industry saves 5-8 percent by local procurement of handsets, compared to procuring the complete built units from other countries, a techARC survey said. This was primarily facilitated after government imposed 12 percent duty on import of finished mobile handsets.
Since the increase of US$ against INR, the net monetary advantage that an OEM was earning by manufacturing in India has offset against the declining rupee value.
“There is a negative equation by 2-5 percent, where OEMs are procuring components at average 10.2 percent increased price and only getting 5-8 percent monetary advantage of manufacturing in India even at the CKD level,” Faisal Kawoosa said.
Phone makers cannot increase the price due to the market pressure.
The OEMs can decide to go low on the local production and import devices in completely built form to get a price correction window and manage profitability. This would take the prices of the mobile handsets upward, but then brands will be swift to respond to the rising dollar price.
The other alternative with OEMs is to kill models quickly and absorb the price hikes in subsequent launches. This would mean launches being driven by procurement and pricing rather than real value add for a consumer.
