India’s Sky High Taxes

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Good morning. In today’s edition: Why iPhones are being smuggled into India, Kashmir’s bumpy growth of e-commerce logistics and Bhavish Aggarwal’s Twitter meltdown. 

THE TAKE

India Needs To Shed Its Protectionist Duty Structure

For decades, it was a standing joke that the made-in-India watches by HMT, formerly known as Hindustan Machine Tools, were cheaper in Dubai.  What’s sadder is that the watches were made by a company fully owned by the Indian government. This was made possible by India’s taxation structure. 

Since time immemorial local taxes have been so high that once exported to low-tax countries like Dubai, goods become cheaper. HMT watches are still very much around in case you want to buy them and so is India’s inverse duty structure that makes buying ‘made in India’ goods cheaper overseas. 

The latest example is the iPhone 16. The Indian government and Apple have announced with much pride that the iPhone 16 and iPhone 16 Pro are being made in India for export. What they haven’t mentioned is that the duty structure makes it cheaper to import these phones or better still to smuggle them. The newest iPhones, possibly made in India, are going around the world and coming back to India to be sold in the grey markets for a cheaper price.  

Last week, Indian customs said they seized 12 iPhone 16 Pro Max devices from four passengers allegedly attempting to smuggle them into India. The passengers travelled on an IndiGo flight from Dubai. Another 26 iPhone 16 Pro Max phones were seized from a woman travelling into India from Hong Kong. This was shortly followed by Apple’s announcement that it will launch the made-in-India iPhone 16 Pro and Pro Max series of devices this month. Perhaps the enterprising smugglers could have waited for a few more weeks. But then, time and tide wait for no Apple fans. 

Of course, these devices would cost more in India. The price difference between an iPhone bought in Dubai or Hong Kong versus one bought officially in India is around Rs 30,000. So a smuggler could make around Rs 10,000 per phone and still offer a Rs 20,000 discount on the price in an Apple store. Many would jump for a value proposition like that.

The larger question is why is this happening even today? India’s duty structure is still high and protectionist, no different from the pre-liberalisation glory days. Our tariffs and duties have been going up too. Ten years ago average tariffs were at 13%, today they are at 18%, among the highest in the world and double that of countries like China and Vietnam.

Protests by companies like Foxconn, who make Apple products in India, have brought down duties on components from 20% to 15%. Our tariff setting seems to be governed by the moral of taxing gold imports versus the practicality of understanding how flows work in a high tariff environment and what we can and cannot do. We hiked customs duties on gold in the last decade only to see smuggling rise and then finally reduced them in June in an apparent realisation that high duties don’t help.  

If we truly want to become a globally competitive manufacturer and thus create more jobs, we have to reduce tariffs on final products and components. Otherwise, people will continue to buy made-in-India products in Dubai and Hong Kong, or after they have been smuggled back from these countries.

DECODE THE NEWS

Kashmir’s Villages Now Have Access To E-Commerce But Not Without A Cost

For the residents of Halkah, a village in southern Kashmir, receiving e-commerce parcels is still a new experience. A year ago, online orders weren’t an option, as deliveries weren’t available in their area. Though they could place orders, they had to travel to Achabal, 31 km away, to pick them up.

High logistics costs—10-15% above the national average—and a lack of infrastructure, had kept rural areas like Halkah out of the delivery network. But in June 2023, everything changed. Logistics startup Fast Beetle began offering last-mile delivery, partnering with major e-commerce platforms like Myntra and Flipkart. Soon after, larger players like Delhivery and Ecom Express expanded their reach beyond urban centres.  

"When the service first started in the Chittergul-Halkah area, I would only deliver 10-15 parcels a day across the entire region, which includes more than 30 villages. But now, I deliver over 50 parcels daily, and at least three of them are mobile phones," said Zakir Ahmed Dar, 23, a delivery agent with Fast Beetle.

While the new service is a game-changer for locals, it didn’t come without challenges.

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CORE NUMBER

Rs 27,142

This is the total worth of shares offloaded by FPIs in India in the first three days of October amid rising geopolitical tensions. This comes as Israel launched an attack on Lebanon and as tensions rise with Iran too. Investments by FPIs had reached a nine-month high of Rs 57,724 crore in September.

FROM THE PERIPHERY

—🥤 The soft drinks market isn’t an easy one to crack and high taxes aren’t making things easier. A report by the Indian Council for Research on International Economic Relations found that despite initiatives like 'Make in India' and 'Aatmanirbhar Bharat', the growth of carbonated beverages was being curbed by taxes like the GST. 

—🥛 Indian dairy cooperative Amul has major plans to expand its business. Managing director Jayen Mehta said that they plan to enter the European market after finding success in the United States. Amul has been trying to tap into different customer segments in India too. It now has a range of high-protein products that it sells on its website. 

—🧹 The festive season sees a rise in demand in all sectors and at-home cleaning and beauty services seem to be no different. The Economic Times reported experts as saying these services have reached peak demand as we’re in the thick of the festive season. Bengaluru, Delhi-NCR and Hyderabad are leading this surge in demand, the report said. 

—🪧 The strike at the Samsung factory continues. A Business Standard report said it's the Centre of Indian Trade Unions (CITU), the union leading the protests, that is creating the roadblock. The report quoted sources as saying that while Samsung is ready to give in to the demands of the workers, CITU doesn’t want to budge unless their union is recognised.

😒UGHH

That Ola Electric has an after sales service problem is well known and has been reported widely. When comedian Kunal Kamra pointed to this problem on Twitter with a photo of hundreds of Ola scooters waiting for repair outside a service centre, the founder of the company didn’t take it well. Bhavish Aggarwal responded to Kamra’s tweets personally attacking the comedian calling him a failed comedian. Aggarwal’s meltdown comes at a time when reports suggest that Ola Electrics faces around 80,000 service complaints a month. 

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