Survey predicts quantum jump for consumer durables sector

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There was good news in the consumer durable goods sector as a survey revealed that it was poised for a quantum leap due to technological improvements, falling prices due to competition, aggressive and innovative marketing, and declining import tariffs.

Many companies were reworking strategies and setting up new units to take advantage of the retail boom in the country, said the Federation of Indian Chambers of Commerce and Industry (FICCI) survey.

Big retail majors such as Croma from Tata’s Infiniti Retail, Vivek’s, Next and Reliance Digital are entering the consumer electronics and durable segments with large retail formats ensuring brand visibility, and changed strategies promoting growth.

The possibility of FDI to be allowed in retail has led existing retailers to enter this segment. To illustrate, Videocon has entered the consumer durable retailing business through its Next chain of stores. The Tata group is in the process of entering the consumer electronics and durables sector through its Infiniti Retail programme, by covering major brands like LG, Samsung, Videocon, Philips, Kenstar and Electrolux. The Tatas have already tied up with Australian major Woolworth for creating a national durables retailing chain under the Croma brand.

However, there is a need for removing some anomalies that are affecting growth of the industry. Consumer electronic manufacturers are of the opinion that in the era of digital convergence, differential taxation policies for IT and consumer electronics products create distortions and anomalous situations. The government charges a 16 per cent excise duty on televisions, whereas it is 12 per cent for personal computers (PC). Similarly, televisions attract a 12.5 per cent value added tax (VAT) rate, while it is 4 per cent for PCs, the survey said.

There is a need for reducing the excise duty on hardware to 8 per cent for helping the domestic industry. The government has to treat all electronic hardware as one. There is an urgent need for evolving a uniform tariff and tax structure for all electronic hardware.

Although the government has reduced peak customs duty from 12.5 per cent to 10 per cent, the net effect on imported products will remain the same due to the increase in education cess.

The industry foresees threat to domestic production of some sectors because of inclusion of some items in the Early Harvest Scheme under FTA with Thailand, the survey said.

At present, the customs duty on colour television, colour picture tubes, refrigerator and air conditioner on import from Thailand is 10 per cent. This has come down to 6.25 per cent from September 2006, and 0 per cent in year 2007. On the contrary, many inputs for production of these items attract the peak rate customs duty of 10 per cent. This anomalous situation would discourage entrepreneurs to manufacture and invest in India.

The industry is in favour of granting 40 per cent abatement on MRP-based excise duty on CTVs and air conditioners from 35 per cent and 30 per cent respectively.

The survey said fringe benefit tax (FBT) was an area of concern. The consumer durables industry relies heavily on promotional and advertising activities to drive sales, especially during festive seasons. But since 2005, FBT has had to be paid on freebies given to consumers during promotions. It is also charged on payment to celebrities used as brand ambassadors by corporate companies.

The survey found that the market for non-IT consumer durable goods – estimated at about Rs 35,000 crore in 2006-07, with 11.5 per cent growth, against 8.5 per cent growth last year –is expected to achieve about 12 per cent overall growth in 2007-08.

It said many of the high-end products such as TVs, LCD TVs, MP3s, DVDs, split air conditioners, high-end washing machines, fully automatic washing machines and microwave ovens, which do not find place in the list of items covered by the Central Statistical Organisation (CSO) for calculating official data, have excellent growth rates.

The survey noted that the shift in consumers’ preference for technologically superior, branded products was due to growing fundamentals in the economy, the rising rate of growth of GDP, and rising purchasing power. The urban consumer durable market for products including TV is growing annually by 7 to 10 per cent, whereas the rural market is growing faster at around 25 per cent annually. In fact, the industry expects more growth to take place in class B and C towns than in metros.

The schemes of financial institutions and commercial banks are increasingly becoming attractive for the consumer, coupled with the schemes being offered by companies through their extensive dealer network.

The other factor for surging demand for consumer goods is the phenomenal growth of media in India. The flurry of television channels and the rising penetration of cinemas will continue to spread awareness of products in the remotest of markets.

Even new media such as the Internet is now being explored by companies for expanding markets for consumer durable products, and this is expected to sustain the demand boom in this sector.

– Sri Krishna

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