Will GST Rate Have a Serious Effect on Indian Smartphone Market?

The smartphone market in India has seemed to be very healthy recently, with more than 300 million of around 650 million mobile users owning a smartphone. The market has been helped by the younger demographic in the country, which makes up the largest portion of the population.

They are more likely to use a smartphone to access social media. The average social media user spends 17 hours doing this each week. Gaming is also a major factor in the recent growth of the smartphone market in India, with gamers live streaming their play on platforms such as Twitch and players using smartphones to access casino type of games wherever and whenever they choose to. Given this ongoing popularity of social media and gaming, it’s difficult to imagine any problems for the smartphone market in India. However, there is currently a joint threat, from the economic crisis due to the worldwide lockdowns and the increase in the GST rate on smartphones. So, which is the biggest threat?

Potential threat from the economic lockdown

The entire world is currently suffering the effects of the economic lockdown. There is no doubt that there has been some disruption to one of the major suppliers of smartphones in India, Xiaomi. The Chinese based company did have some supply chain issues as factories manufacturing components closed down.

However, the situation has been managed in India thanks to the work of supply chain partners. 

Ongoing issue of GST rate

The situation does not seem quite so positive when it comes to the recent hike in the GST rate that has been imposed by the GST Council. It’s likely that this could have a major effect on smartphone companies like Xiaomi, in India, in the long term.

The rise means that smartphones will be taxed at 18 percent instead of 12 percent. The managing director of Xiaomi in India, Manu Kumar Jain, has already made an appeal to Prime Minister Narendra Modi and Finance Minister Nirmala Sitharaman, to ask for the decision to be reversed. He is extremely concerned that the combination of the rise in the GST rate, and the strain created by the economic lockdown, could be catastrophic for India’s smartphone market. This is because, while there is no doubt that there is still a significant appetite for smartphones in India, the taxation hike could be seriously off-putting for some.

If there is no reversal of the decision to hike the GST rate, this is likely to continue having a major effect, long after the economic crisis is over. It remains to be seen whether pressure from companies like Xiaomi will bring about any change of decision.


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