Import Duty increase - Godrej Appliances comments
Posted on: 27/Sep/2018 5:12:16 PM
The increase in customs duty from 10% to 20% on home appliances will go on to promote domestic manufacturing and is aligned with the government’s initiative of Make In India. However, for some category segments - particularly Air Conditioners, this will lead to an adverse impact as the capacity built up in the country at present is not adequate to meet the current demand of the market.
Some key components like compressors for ACs are also largely imported. The hike in import duties will lead to a significant rise in the AC prices therefore, more so in the forthcoming summer season of 2019. This will affect demand for ACs. The category is already under pressure as 2018 summers did not see growth. In fact, we have seen a de-growth for the period Jan - June in the AC category. Further, due to the recent depreciation of the rupee, the prices of air- conditioners, refrigerators, washing machine and microwave ovens got dearer by 3.5 – 4 %, depending on the content of imports across categories. Any further devaluation of the rupee coupled with this hike in customs duties, therefore puts immense pressure on the prices of ACs.
It is also unfortunate that air conditioners are amongst the various goods still left in the 28% GST bracket. We expected that at least the energy efficient ACs i.e. ACs with 3 star to 5-star energy rating, would be considered for reduction in GST rate, given that the Government and industry are jointly working towards the reduction in energy consumption under the BEE energy labelling program. Going forward, we are hopeful of revision in the tax for air conditioners. This would help boost its penetration levels in the country. At just 3.6% it continues to be much lower than the penetration rates one sees in more developed nations.
As far as the other categories are concerned, large size televisions, large size refrigerators like the side by side and large size front load washing machines are the key segments getting imported. These form low volumes compared to the overall market size. For example, the large size refrigerators with 500L and above capacity, sell only 1 lakh units which constitutes only 1% of the industry volume. Moreover, as the consumers of this segment are value driven and not price sensitive, the increase in customs duties shouldn’t impact demand as much.”
