Is The Indian Mobile Industry Heading For Collapse?

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On Saturday, the Goods and Services Tax Council meeting which was chaired by our Finance Minister Nirmala Sitharaman came to a decision to hike the GST rate on mobile phones by 6%, therefore, pushing it to 18% from the previous rate of 12%.

This move by the GST Council is now being heavily opposed as “counter-intuitive and insensitive” by handset makers and mobile retailers who predict that this will most definitely lead to the downward spiralling of the whole mobile industry. They also believe that this move will be burdening the consumers with an additional ₹15,000 crores, immediate job cuts as well as hamper potential future investments in the manufacturing sector, amid the tough business conditions due to Coronavirus outbreak worldwide.

The India Cellular and Electronics Association (ICEA) in a statement on Sunday remarked that the GST Council levying a higher percentage on the industry is not in any way a savvy move and happens to be equivalent to ‘killing the goose that lays the golden egg’.

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On the Indian Government’s part, this move comes as a fix for the correction of the inverted duty structure. However, right now most of the mobile industry holds the opinion that the government’s rationale is absolutely misplaced for doing so by increasing the GST rate.

The Collapse Of The Mobile Industry: Fear or Reality?

At the time when the world is staring at a possible global recession, all thanks to the Coronavirus Epidemic, increasing taxes on any product will only make the situation bad to worse for consumers. Amid coronavirus fear, which has almost brought the business world in India to a complete halt, and many countries are offerings its citizens no mortgage or utility payments, Indian government ha decided to burden Indian consumers with additional taxes, which will result in the increased price of smartphones.

The Global Vice President and Managing Director of Xiaomi India Manu Kumar Jain was one of the first industry leaders to have expressed his concerns and fears about the increased GST rate that the mobile industry has been slapped with.

In a statement to a news outlet, he mentioned how the ripple effects of this move by the government will likely do serious damage to the entire industry. He believes that the increased GST rate will most certainly lead to the increased prices of smartphones which will then further lower and demotivate consumer demand. He also pointed out the other major problems which have been hurting the industry long before the newly proposed GST hike such as the weakened value of the rupee and the obvious supply chain disruption due to the current coronavirus outbreak.

It is being believed that the Indian retailer community which is already very fragile as most of the small and mid-sized retailers keep their head above the water only by selling mobile phones will be affected the worst according to the ICEA, which represents the likes of Xiaomi, Oppo, Vivo, Apple, Lava and Foxconn.

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It has also been reported that all the major associations such as ICEA, Confederation of All India Traders (CAIT) and All India Mobile Retailers Association (AIMRA) along with the mobile phone companies will be joining forces to raise their concerns with the finance minister and demand an immediate rollback on the grounds on the grounds of the claims that it was only Uttar Pradesh, a singular state which was in favour of the GST rate hike.

In 2019, smartphones shipment in India reached 153 million units were shipped in India. This year, however, the conditions are not that favourable for manufacturers as well as retailers. The manufacturing of smartphones has come to a complete halt due to totally shut down in many states. On the other hand, consumers in India are also findings themselves in a tough spot after Yes Bank fiasco and Corononavirus outbreak, the sales of smartphones in India is expected to remain below than expectations in 2020.

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