Impact of import duty hikes: Festive offers by companies to dry up

In a bid to curb import of household appliances and electronic products, primarily from China, the Central government has hiked the basic customs duty on these items from midnight. This is likely to force firms to raise the prices of consumer durables as imported components will get costlier.

The news is a dampener ahead of the festive season. Household products like refrigerators, ACs, washing machines with a capacity of less than 10 kg and audio speakers will be hit the most. “This is bad news,” said Eric Brigranza, president, Haier Appliances India. Kamal Nandi, business head and executive vice-president, Godrej Appliances, said it will impact all categories and ACs will take the biggest hit. “Indoor units of ACs are mostly imported. The GST rate for ACs is also highest. This is a double whammy,” he said.

B Thiagarajan, joint managing director, Blue Star, said, the firm was contemplating a round of price hikes in October due to surging cost of imports, thanks to the depreciating rupee. But now, it will have to look into its inventory level. “There could be a second round of price hikes in December-January,” he said.

“The price rise for compressors can come as a setback for the industry but, we are keeping a close track of the price impact,” said Manish Sharma, president and CEO, Panasonic India and president, Consumer Electronics and Appliances Manufacturers Association.

According to Vinit Agarwal, director of Aisen India that sells high-end speakers, it is not clear as to what extent these duty hikes will effect local manufacturing and speaker prices are set to go up soon as most of the high-end products come from China. Other products like compressors for ACs and refrigerators and top loading washing machines are mostly being imported from China, too.

The duty hikes on large appliances comes at a time when the industry is reeling under margin pressure. The government had increased duties on a fleet of products twice — in December and February — that has already pushed prices up. Moreover, falling rate of the rupee has pushed companies into the corner. Since September last year, the industry has observed at least three rounds of price hikes with the latest one being in July. Another round of price hikes will push up the increase to 15-20 per cent since last September. 

Air travellers’ plans will also be dampened. Five per cent duty on aviation turbine fuel will put additional burden on airlines, the country's largest domestic airline IndiGo said. Among the domestic airlines, IndiGo imports jet fuel, though its total import is estimated to be less than 5 per cent of its total fuel consumption.

Domestic ATF pricing in India is based on import parity pricing principles. There is no clarity yet whether domestic pricing will see a revision on account of the custom duty. “The silver lining is that with the peak season kicking in, we are likely to see an increase in prices and strong loads, providing relief to airlines,” said Sharat Dhall, COO (B2C), Yatra.com.