Pre Budget Quote by Mr. Kamal Nandi, Business Head & Executive Vice President – Godrej Appliances and President – CEAMA

Jaipur, 25th 2019: India’s policy & economic environment is undergoing major changes. The Consumer Electronics and Appliance industry is also facing multi-pronged challenges. The penetration level for durables has traditionally been low in India. Currently, the penetration levels stand at 30% for refrigerators (92% in China), 23% for Smart Phones (70% in China), 13% for washing machines (88% in China), followed by AC at 8% (87% in China) and Microwave Ovens at 4% (54% in China), all of which are much lower compared to Television (65% in India , while 95% in China). While the low penetration is a growth opportunity, but the slow pace of penetration rise has a direct impact on demand levels for the category.

The industry has largely been stagnant this year and with increased customs duties, global economic changes and resulting fluctuations in currency and commodity, the demand levels for next year are difficult to predict.

India recently climbed another 23 points in the World Bank’s ease of doing business index to 77th place which is a good sign. This with an overall stable economy compared to other economies will continue to lead to the influx of new players in the market increasing competition. The online channel is also today an easy entry point for many brands.

There are also the regulatory changes. We welcome the GST, energy regime, the temperature setting guideline on ACs, QCO implementation, plastic ban and other environmental regulations as these will eventually benefit the country. However, regulations also have implications on the investments and operations and sometimes on prices. Initially, large appliances and electronics were in the highest GST tax slab. Post GST revision in the month of July last year, the tax rates were reduced for most, barring Air Conditioners and large screen Televisions, which continues to be in the highest tax slab of 28%. Lowering the tax slab to 18%, would help offset the price pressure and spur demand for both Air Conditioner (Split and Window) and Television (above 68 cm), thereby improving affordability among customers and attracting investments in component manufacturing. This will also help in penetrating the market, especially for AC category.

The continuous tightening of the energy norms, upping the R&D and material cost, put upward pressure on prices for energy efficient products, further dampening the consumer sentiments. Lowering the GST tax slabs for eco – friendly and energy efficient products like Air Conditioners (4*, 5* Window AC and Split AC inverter models) and Refrigerators (Direct Cool and Frost Free) to 12%, will drive demand and increase the adoption of sustainable appliances by Indian consumers. The upcoming budget should additionally offer incentives for manufacturers to produce these energy-efficient products which will be in line with the governments focus on sustainability.

A substantial part of India’s domestic demand is still met through import of Finished Goods. For the FY 2018, the critical components for ACE industry (Open Cells, Display Panels and Compressors) were imported largely from China alone, forming 59% of the total imports of components. Even though the consumer demand may have grown over the years, local manufacturing has not been able to keep upto pace with growing consumer demand and aspirations. When it comes to components, China enjoys the advantage of scale which has led to their exports as well much to the disadvantage of Indian manufacturers. Also, some components are still not manufactured in India, as its cheaper to import and high cost of investment, infrastructure and logistics acts as a deterrents for investors. Contrary to the ‘Net Zero Import in Electronics’ objective of the government, finished goods are often imported at a lower duty than parts in the country thanks to the various Free Trade Agreements. Ideally, to nurture domestic manufacturing, the government should restructure the import duty – making it higher for finished Goods (e.g., TV, AC, Refrigerators, WM), followed by intermediaries and lowest for components.

For example, in case of Security and Surveillance products, even with increasing demand in the market, are largely imported. We propose a hike in the Basic Customs Duty for CCTV CAMERA & CCTV RECORDERS from 15% to 20%, to promote local manufacturing and discourage imports, further supporting its indigenous production.

The government should also consider initiating some short-term measures to reduce the basic customs duty (BCD) on components like Open Cell, Display Panel and Compressors, to 5% from 10%. Besides that, subsidies on the locally manufactured products will act as a stimulus for the development of the components manufacturing base, thereby boosting ‘Make in India’. This would help local manufacturers produce goods at competitive prices and promote exports as well with tax benefits on exports of ACE goods.

We are highly optimistic about the upcoming budget and expect it to usher in a balanced combination of reforms and regulations, which will, in turn, boost the ACE industry, contributing positively to India’s growth story.

To summarize:

Particulars Current tax rate Proposed tax rate
Reduction of Basic Customs Duty Component – 7.5% average 0 – 5 %
Increase Basic Customs Duty – CCTV CAMERA & CCTV RECORDERS 15% 20%
Reduction of GST for Air Conditioners, TV (above 68 cm) 28% 18%
Reduction of GST for Energy Efficient Appliances For Air Conditioners (4*, 5* Window AC and Split AC inverter models) – 28%, Refrigerators (Direct Cool and Frost Free) – 18% 12%




About Manish Mathur