More companies such as Xiaomi, Haier, Godrej, and Blue Star have joined LG Electronics India in indicating that the recent Customs duty hike in the Budget, the second such in two months, will impact demand.
The government raised basic Customs duty by 5-10 per cent in December and February, respectively, on import of electronic goods and components. An additional surcharge or cess to the extent of 10 per cent was slapped only in the second round, that is, in February, when the general Budget was announced by Finance Minister Arun Jaitley. The idea was to boost the government’s ‘Make in India’ programme.
On Friday, LG India Managing Director (MD) Kim Ki-Wan said the duty hikes were ill-timed and would hit the Rs 700 billion domestic electronics and appliances market. This was because there was no ecosystem in the country for sourcing local components, the backbone of domestic manufacturing. According to Business Standard he said, hiking customs duty on imported components would only make electronic goods costlier, impacting demand. “Without providing a period of transition, these steps will increase the production cost significantly, which will have to be passed on to consumers,” Ki-Wan said.
Xiaomi’s Vice-President and India MD Manu Jain said he was working on a plan to mitigate the additional burden due to the custom and cess hike announcement in the Budget. According to the industry sources,
this is tough since India simply acts as an assembling hub for all domestic mobile phone and electronic goods-makers with key components such as printed circuit boards (for mobile phones), panels (for television sets) and compressors (for air conditioners) are mostly imported into the country.Some firms have said that the price of electronic and appliance products will have to be raised by around 3-5 per cent, coming right after the new energy labeling norms for cooling products that kicked in earlier this year. Some others such as Haier and LG say price hikes will be higher at 5-6 per cent, though categories such as television sets can see a sharp increase at 8 per cent.“I don’t see any major benefits coming out of the duty hikes announced now.
Companies will have to increase prices. Going forward, however, the government hopes local manufacturing will get a boost because of these measures,” Eric Braganza, president, Haier Appliances India, said.“The change in the energy table (for cooling products) has already pushed up prices of air conditioners, for instance, by 5-6 per cent,” said Kamal Nandi, business head and executive vice-president, Godrej Appliances. “A Customs duty hike will only set the industry back,” he said.This point is endorsed by B Thiagarajan, joint managing director, Blue Star, who said that the policy and duty measures should be effected keeping in mind the market condition. “The industry was just beginning to stabilise after introduction of the goods and services tax. Then the new labeling norms came into force and now the duty hike. With every such disruption, there is an impact on the market because the price of products changes. This has a long-term impact as well because companies cannot make adequate investment in the local market owing to subdued demand,” he said.