Consumer Durables: Budget Expectations

The Indian consumer durables’ market is broadly divided into three groups that include white goods (air-conditioners, refrigerators, washing machines, watches, etc), brown goods (microwave ovens, mixers, grinders, etc) and consumer electronics (TVs, audio and video systems, PCs, mobile phones, etc). The sector is highly correlated with the health of the economy i.e. if the economy is in good shape, the sector outshines and vice-versa.

If we look at the past one year, the economy was impacted by high inflation, which in turn prompted the RBI to hike the interest rates. The rising input prices coupled with the sharp rupee depreciation affected the margins of the companies. However, some of the industry’s players managed to pass on the cost burden to the consumers. But with the rising interest rate and the products’ prices moving northwards, a large number of consumers postponed their consumption which led to muted growth for this sector. The performance of the companies in this period has been a mixed bag with some of the scrips appreciating substantially while the others underperforming, as can be seen from the table below.

*Adjusted (bonus or spilt or both).

Budget 2011-12

The decisions made in the last budget for the consumer durables’ sector were:

• Surcharge on domestic companies reduced from 7.5 per cent to 5 per cent.
• Minimum Alternative Tax (MAT) increased from 18 to 18.5 per cent.
• Full exemption from excise duty for air-conditioning equipment and refrigeration panels for cold chain infrastructure.

Budget 2012-13

The sector’s expectations from the current budget are:

• Reduction in Central Sales Tax (CST) from 2 per cent to 1 per cent.
• Customs duty on set top boxes should be increased from 5 per cent to 10 per cent.
• Customs duty relaxation should be allowed for parts, components, spares, raw materials, supporting machines, tools and dies for manufacturers who adopt non-ODS technology in the manufacturing of ozone-friendly products.
• Abatement of 45 per cent on all the manufactured products which are removed from the factory on the basis of MRP-based excise duty.
• The customs duty for R&D items should be reduced to zero to promote R&D in India.
• Custom duty relaxation should be allowed to those units manufacturing energy-efficient products.
• Special Additional Duty (SAD) levy of 4 per cent for manufacturers on imports of goods should be abolished since it does not generate revenue for the government but adds to the cumbersome process of claiming the refund from the Department of Customs that takes 9-12 months.

Conclusion

We expect the customs duty on set top boxes to rise from the current 5 per cent as this will help boost local manufacturing and can further create employment opportunities. The customs duty on research and development should be reduced as it will create more R&D activity in the country, thus leading to innovative products benefitting the consumers as well as the country. Anirudh Dhoot, Director, Videocon recently said that he expects the government to take certain important decisions keeping in mind the middle-class’ growing aspirations. This will benefit the consumers by ushering in the ‘within reach’ factor.

With the Congress receiving a massive setback in the recently held assembly elections in the states of UP, Goa and Punjab, one may see the FM introduce a more populist approach while presenting the Union Budget 2012-13. This may be in the form of certain exemptions or liberal policies with respect to individuals and it may help increase their purchasing power, ultimately reaping good dividends for the companies.