The Hindu Business Line : Consumer durables: Less pricey, more competitive

THE incidence of Customs levies on the import of consumer durables is set to fall by about 20 per cent. This is in addition to the prospect of steady appreciation in the value of rupee.

Clearly, the ability of imports to compete is set to rise. However, the effective duty protection is still quite high at about 40 per cent. So, a flood of imports is unlikely.

According to Mr Raj Jain, Managing Director, Whirlpool of India, reduction in import duties may significantly lower prices of only products such as microwave ovens, whose market size is quite small in India. Otherwise, local manufacturing will continue to stay competitive, he added.

At the same time, there will be some positive benefits in the form of reduction in input costs.

For instance, in the case of Televisions, imports roughly account for about 75 per cent of the total cost. In particular, the price of imported picture tubes will decline, putting pressure on local manufacturers such as Samtel Color to reduce prices.

Washing machines and refrigerators will also benefit from lower input costs. However, the impact may be muted if international prices of metals such as steel or copper remain firm.

Mr Raj Jain does not expect prices of steel to come down despite the reduction in import duties.

On the whole, the trend of steady fall in domestic prices of consumer durables will only get accentuated.

The industry is only likely to view these measures positively. This is because it has been seen in the past that a reduction in price expands the size of the market.

This could be particularly helpful in the case of refrigerators and washing machines, whose growth has stagnated in the last couple of years vis-à-vis televisions and air-conditioners.

At the level of companies, what will be critical is the improvement in the size of the market.

For Indian companies such as BPL or Videocon, improvement in domestic demand will put more money in their hands and restore their competitiveness.

Changes in duty structure sans any expansion in the size of the market will however only strengthen the hands of global players such as LG, Samsung and Whilrpool of India.

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