Duty Cuts To Boost Consumer Durables Market

The consumer durables market is divided into consumer electronics (television sets, VCRs, VCD and DVD players, and audio systems), white goods (refrigerators, washing machines and microwave ovens) and air-conditioners.

In the consumer electronics segment, televisions are the most prominent product, accounting for 86 per cent of the total consumer electronics market in value terms. In the white goods segment, refrigerators are the most important product, accounting for almost 70 per cent of the white goods market in value terms.

Penetration for most consumer durables in India remains low, with affordability being the major cause. While this implies a major untapped market, the challenge is to make the goods more affordable.

The past decade has seen a manifold increase in competition, especially with the entry of multinationals. Their entry has also seen an introduction of advanced technologies and a wide range of products in the Indian market.Also, these companies are becoming increasingly competitive by indiginising their components.

Significant dynamics are in play in each of the key segments. Colour television price reduction has led to a shift in demand away from black and white sets. Black and white TV sales declined by 25.8 per cent in October-November 2001 in volume terms while those of colour TVs increased by almost 14 per cent in the same period.

Although the 165-litre model still dominates refrigerator sales, there is a gradual shift in demand towards larger models. A key factor driving refrigerator sales is replacement demand.

The washing machine market has been facing tough conditions, recording single-digit growth in the first 10 months of the current financial year.

The air-conditioner segment witnessed strong growth in 1999-2000 and 2001-02. A reduction in the excise duty has led to a reduction in the share of unorganised manufacturers.

The budget for 2001-2002 was largely neutral towards the consumer durable industry except for black and white TVs, where the government imposed 4 per cent excise duty against zero-duty the previous fiscal.

Key issues: Slowdown in market growth continues to be the biggest issue, although demand does seem to be picking up. Washing machine production in April-November 2001 declined by around 4 per cent over that recorded in the corresponding period the previous year. The audio market declined by over 10 per cent during January-November 2001. While affordability is a major constraint, infrastructure bottlenecks such as non-availability and irregularity of power supply in rural areas continue to hinder demand. However, in certain segments like colour TVs, the rural market is beginning to grow. In the April-December 2001, 47 per cent of colour TV sales were derived from small towns and villages.

Factors that can be addressed in the budget:

A reduction in direct taxes can have the dual effect of increasing disposable incomes and improving the general consumer sentiment, especially among urban households.

A reduction in indirect taxes can make products more affordable.

Some specific suggestions that have been made by various industry chambers include:

A hike in abatement rates, from 35 per cent on colour TVs to 40 per cent and from 40 per cent on refrigerators, washing machines and room air-conditioners to 45 per cent. According to the industry, the current abatement rates are inadequate to cover excise duty, sales tax and post-sale expenses.

A reduction in Customs duty on colour picture tubes from 35 per cent to 25 per cent.

A reduction in excise duty on air-conditioners from 32 per cent, including the 16 per cent special excise duty, to 16 per cent.