Hike in customs duty may impact festive sales, consumer durable industry; prices of large appliances to go up 3-5%

The government’s latest hike in customs duty to 10 percent on compressors used for air conditioners and refrigerators, can be a “set back” and may have an impact on the coming festive season sales, according to the consumer durable industry. The duty hikes on large appliances comes at a time when the industry is reeling under margin pressure, according to Business Standard. Prices of air-conditioners, premium refrigerators, washing machines will go up 3-5 percent with the Centre’s decision, The Economic Times said. The government’s decision marks a further tilt toward protectionism as it tries to reduce its widening current account deficit and tackle a sharp slide in the rupee. The move could hit imports from countries like China and South Korea, which manufacture some of the high-end washing machines, refrigerators and air conditioners sold in India. [caption id=“attachment_2972512” align=“alignleft” width=“380”]  Representational image of a shopping mall. Reuters[/caption] The government’s decision to double the basic customs duty on ACs, refrigerators and washing machines to 20 percent from the existing 10 percent would encourage domestic manufacturing, said the Consumer Electronics and Appliances Manufacturers Association (CEAMA). “Increase in the basic customs duty on ACs, refrigerators and washing machines will bring back the emphasis on Centre’s ‘Make in India’ vision at the same time drive momentum for local manufactured goods and develop new capacities in India,” CEAMA President Manish Sharma said. However, he also added: “Price rise for compressors can be a set back for the industry but, we are keeping a close track of the price impact as the festive season is around the corner.” South Korean manufacturer LG said that it would have to immediately hike the price of its ACs and high-end refrigerators. “We would have to immediately hike our price. We are importing the compressors for our air conditioners, which are fully based on invertor technology. Besides, we are also importing high-end big door refrigerator (500 ltrs),” said LG Business Head Vijay Babu. While, Haier India president Eric Braganza said that this would lead to an increase of prices and may have an impact on the coming festive season sales, which constitutes around 30 percent sales of the industry. “Prices would go up. … as it is the dollar has gone up… might affect demand during the festival season,” said Braganza. However, Godrej Appliances Business Head and EVP Kamal Nandi said that there would be little impact on the industry as it would only impact large size imported products which constitutes very less in numbers. “As far as our industry is concerned, large size televisions, large size refrigerators – side by side and large size front load washing machines are the ones getting imported, which are very few in numbers as compared to the overall size of the market,” said Nandi. Large size refrigerators with 500 litres and above capacity, sells only one lakh units which constitute roughly one percent of the industry volume. “Moreover, as the consumers of this segment are value driven and not price sensitive, the increase in customs duties should not impact the sale for this segment,” he added. While, homegrown Mirc Electronics, which manufactures product under brand name Onida, has termed it as “good move”.

“Overall, duty increase is going to help in fiscal prudence and will strengthen the rupee, which will even benefit the industry at large,” said Mirc Electronics MD Vijay Mansukhani.

He also said that an increase in customs duty on AC would not have much impact as this is not the season for AC sales. With inputs from agencies