INTERVIEW — Pankaj Mohindroo, President, ICA

‘Rationalising taxes will help legalise handset market’

Pankaj Mohindroo

Conventional wisdom says that cheaper cellular handsets should boost mobile tele-density as this is one of the major barriers to entry for the margin consumer. The correlation is however not so simple, argues the recently floated Indian Cellular Association (ICA). Handsets should not only be cheaper but legally procured, backed by service and other guarantees to provide a fillip to tele-density. In an interview with Vandana Gombar of The Financial Express, ICA President Pankaj Mohindroo, shares the strategy for legitimising the cellular handset market. Excerpts:

Controlling the grey or smuggled market would push up handset prices. How will that help increase cell usage?
The size of the grey market in India is a whopping 80 per cent. Many consumers are unwilling to make the upfront investment of a few thousand rupees since there is no guarantee or service backing.
In smaller towns in fact, there is no legal purchase option available. Once the market is legalised, I feel more users would feel confident about investing in a handset.

But there is a huge price gap between the legal and the grey market?
We have put across a set of demands to the government to rationalise the tax structure. Once these are accepted, the legally purchased handset will be available at a premium of 10 per cent to the grey market price. Our research shows that consumers are willing to pay this premium to secure their investment in the handset.

What change in levies are proposed by the association?
Mobile handsets, which are all imported into the country since there is no domestic manufacturing, attract a 5 per cent basic import duty, 4 per cent special additional duty (SAD) and 16 per cent countervailing duty (CVD). In addition, there is a sales tax which varies from 4-17 per cent taking the total incidence to 29-46 per cent.

We have sought abolition of the 16 per cent CVD. There is no rationale for it in the absence of a domestic manufacturing industry and no evidence of subsidy granted by exporting nations. We have also sought the abolition of 4 per cent SAD and application of uniform 4 per cent sales tax.

What is in it for the government?
Simply, additional revenues. The revenue loss due to smuggling is estimated at Rs 230 crore for 2001 and this loss is projected to go up to Rs 1,840 crore in 2005. Incidentally, we have received a very positive response from the government on our proposals.

What are the other measures planned to curb the grey market?
We are exploring various means to partner with the government to ensure strict enforcement of the Sales Tax Act and the Customs Tariff Act. We would also favour a law requiring subscribers to furnish evidence of payment of custom duty on their handset to the service provider who activates the mobile connection.