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Smartphone manufacturers to import devices from China to cater to the India market

India levies over 20% import duty on smartphones to encourage local manufacturing.

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Chinese smartphone companies, which spent last few years ramping up their local production capabilities to put their weight behind the ‘Make in India’ program, are left with no choice but to import handsets from their home market.

Local media Economic Times (ET), citing sources, said Xiaomi and Oppo, among others, have decided to import handsets from China, as they are unable to scale up local production even after India eased the lockdown in May, before lifting it up completely earlier this month.

Xiaomi is said to be producing less than half the number of handsets it was manufacturing before the healthcare crisis descended. The other smartphone manufacturers are reportedly dealing with a similar situation. Thus, they seem to have no other option but to import handsets, even if it means paying a 22% import duty which India levies to discourage the practice. Several consumer electronic companies including Acer and LG have also joined the smartphone manufacturers to import laptops, a category which is seeing a surge in sales due to the increase in work from home trend.

Over the last three months, as migrant workers headed back to their villages to escape the coronavirus crisis, it left factories with a reduced workforce once they opened last month. The social distancing norms did not help companies either, and they have been struggling to expand their operations.

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Some of the manufacturing plants were also shut down, after being given a green light to operate by the government. For instance, the Oppo plant in Greater Noida was shuttered last month after some workers tested positive for COVID-19. Although the ET report said,  it has resumed operations, production is at around 30% capacity. The plant also manufactures Realme and OnePlus phones, owned by Guangzhou-headquartered BBK Electronics. Both these brands are also exploring import options but no decision has been taken yet.

According to Pankaj Mohindroo, president of the India Cellular and Electronics Association (ICEA) lobby group, restoring local manufacturing of mobile phones to pre-COVID-19 levels would be difficult. He told ET that the industry is aiming to “reach about 50% of normal production by the end of June.”

“For OEMs, a lot of work will be needed to restart operations once the lockdown is lifted. This will range from managing existing inventory across all distributor and retail touch points and supporting retailers sell-through older inventory,” Shilpi Jain, research analyst at Counterpoint, a Hong Kong-based research firm, said in a recent report.

Industry executives believe smartphone companies that are importing devices, are unlikely to pass on the import duty to buyers. Most of the handset manufacturers in India are hoping to tap the pent up demand for smartphone devices in the next few months. The consumers’ discretionary spending is also expected to be back over the next six to nine months.

“Consumer demand will have a larger impact on smartphone sales, as people will focus on saving and therefore limit discretionary purchases,” Prachir Singh, senior research analyst, at Counterpoint stated in the report. “We believe demand will shift to the second part of the year. Even if the situation stabilizes by mid-year, people may hold-off purchasing until the festive season.”

It is to be noted that India’s smartphone shipments grew by a modest 4% in the first quarter of the year, as compared to the same period a year-ago, to reach a little over 31 million units, according to Counterpoint.