The last quarter of 2011 has not been very fruitful for the consumer durables industry. First the summer played a spoilsport, and then frequent price rises fuelled by commodity inflation took a huge toll on sales of mass products. Finally, the depreciating rupee further increased prices, keeping consumers away.
The prices of durables were hiked almost 4-5 times last year because of increase in raw material prices and rise in the dollar against rupee, which made imports costlier.
There were a host of external factors that led to price hike including the new stringent government norms that have forced companies to use high quality material to make the products energy efficient leading to a steep price hike.
These multiple price increases last year impacted the buying behaviour of customers, who were already grappling with high interest costs.
Middle-class aspirations
Weakened consumer response impacted the growth figures for most consumer durable manufacturers. Further, RBI data show that consumers took fewer loans for durable products because of the high interest rates.
For the 2012-13 Budget, we expect the Government to take certain important decisions, keeping in mind middle-class aspirations, and which will benefit the consumers greatly by bringing goods ‘within reach'.
Some of the important decisions the Government would do well to look into are:
The CST rate should be reduced from 2 per cent to 1 per cent as it's not creditable; it's just a cost for manufacturers which is passed on to the consumers in terms of increase in prices of durables.
All manufactured products are removed from the factory on the basis of MRP based Excise Duty in terms of provisions laid under Section 4A of Central Excise Act, 1944.
We suggest that the level of abetment must be raised to 45 per cent to cover all the taxes and distribution margins involved in the long home appliances supply chain.
Customs duty for R&D items should be reduced to 0 per cent to promote R&D in India. This will invite more R&D set up in India in addition to technological advancement and more innovative Indian products. Customs duty relaxation should be allowed to units manufacturing energy efficient products. This will promote manufacturing of more energy-efficient products, which could lead to more exports and revenue.
Customs duty relaxation should also be allowed on components, raw materials, tools and dies for manufacturers who adopt non-ODS technology in manufacturing ozone-friendly products.
SAD levy of 4 per cent for manufacturers on imports of goods should be abolished as it does not generate revenue for the Government but adds to the cumbersome process of claiming refund from Customs, that takes 9-12 months.
Customs duty on set top boxes should be increased to 10 per cent from the present level of 5 per cent to encourage local manufacturing and create huge employment opportunities.
24-hour Customs clearance of import and exports, at all important ports in India.
Online Customs assistance to trade on imports, exports, duty rates, classification.