Dragon breathes fire, consumer durable makers catch a cold

There seems to be just one growth yardstick for the Rs 20,000 crore consumer durable industry: China. Companies are stressing on the high growth rates achieved by the country merely by slashing taxes and making products affordable.
And for manufacturers this is perhaps the best time to talk about it. On a closer look there appears to be reasons to justify the Chinese comparison. Categories which have recorded commendable growth in India are the ones where the price cuts have been sharpest. Take colour televisions where a 15% drop in price level has seen a 35% plus growth in volumes in the recent past.
The Rs 2,200 crore refrigerator industry, which grew at roughly 10% had a better deal than the Rs 650 crore washing machines segment during the year ‘02. Aggressive competition in the industry saw an average of 8% drop in prices, which helped the market to grow. A lot of upgrades took place from direct cool segment which constitutes a significant part of the total market, thanks to the emergence of lower price points in the frost-free segment. Consumer finance too played a major role in the growth of CTVs and refrigerators this year.
Microwaves with a 35% growth rate and ACs with a similar growth rate too did quite well. Lower price points again played a crucial role in generating demand. Since demand for microwaves and ACs is still a largely urban phenomenon, the potential is tremendous, analysts point out.The rural market is expected to throw up 70% of the total colour television sales for ‘02-03. Significantly, they expect to net 40% of their total sales this year from the World Cup series. As much as 7% of the 10% growth expected in the business is expected to come in from the semi-urban and rural markets
In light of this, the Consumer Electronics and TV Manufacturers Association (Cetma) has demanded a reduction in customs duty on CPT to 10% from the current 30%. CPT prices account for over 50% of the total cost of a CTV. It has also demanded abolition of customs duty on capital equipment imports and reduction of customs on basic raw material to 10% on plastic , zinc, copper, aluminium, steel and lead from the current level of 15 to 30%. It has also urged the government to reduce customs duty on set top boxes for conditional access to 10%.
Manufacturers have also demanded an excise abatement on CTVs at 40% from the current 35%. As far as the black and white TV industry is concerned, they want excise exemption on black and white TVs and analogue audio equipment. According to R Zutshi, director, Samsung India, “In addition to the push being given by manufacturers to grow the CTV market, the industry is looking forward to some budgetary concessions like increase in abatement on MRP for excise on CTVs and the reduction in customs duty on CPTs that will help grow this industry.� Says Rajeev Karwal, president Cetma, “reduce duty on CPT to 10% and we would make India a 10m CTV market by the year ‘05. Consumer durables are the symbol of middle-class revival, he says, and adds that lower prices will drive volumes as in the past. The industry leaders in the CTV industry include LG, Samsung, Videocon, BPL and Onida.
The Rs 2,790 crore AC market, dominated by Hitachi, LG, Samsung and Carrier is an industry where taxes and duties account for 45% of MRP. The industry feels that with government support in duty and tax rationalisation for the industry, the AC market can grow to as much as Rs 14,000 crore by the year ‘07. Chinese ACs are sold at 50% of the Indian prices and hence the huge growth there, analysts pointed out.
According to Naishadh Parikh, former vice-president, Refrigeration and Air Conditioners Manufacturers Association (RAMA) and former managing director, Amtrex Hitachi, the government must now realise that an AC is a typical middle-class consumer product and thus cannot be subjected toa tax structure as high as this. “With such high incidence of taxation, when the industry grew by 25%, the reduction in the excise duty could be offset with the increase in overall revenue,� he says. According to a RAMA pre-budget memorandum, a reduction in excise duty from 32% to 16%, with a 40% abatement is must for the growth of the segment. It is also demanding a reduction of import duty to 25% for finished goods and 15% for components. It also wants the excise exemption in states like J&K and the north-east to be repealed as they destroy value for government, industry and consumers and confer none of the intended benefits to the systems.