Import curbs on consumer durables, luxury cars to hit festive sales

It is that time of the year when demand for luxury cars, consumer durables and readymade garments peaks, thanks to the strong festive season purchases. But companies which market imported products or use significant imported content are a worried lot. Reason: The government wants to discourage import of non-essential products to bridge the current account deficit and arrest the decline of the rupee.         

In fact, an expert panel under the Cabinet Secretary is looking to cut India’s dependence on imported televisions, refrigerators and washing machines by placing further import duties on the sector, a top Commerce Department official said. The import bill for these items was pegged at nearly $2 billion in 2017-18, he added.

In the current fiscal itself, the government has already imposed import restrictions more than five times. Basic customs duties were raised on 43 broad categories of goods, including electronics, in this year's Budget. In two separate measures, the Centre also raised import tariffs on more than 400 textile products, most of which act as manufacturing inputs. It had also brought out an order imposing higher safeguard duties on solar cells and modules imported from China and Malaysia. That was subsequently stayed by the Odisha High Court.

Luxury cars are yet another category that could be impacted due to the government’s move to restrict import of non-essential items. Of the 40,000 plus luxury cars sold in the country annually, about 10-15 per cent are estimated to be imported as completely built units or in completely knocked down form. Luxury car makers are obviously unhappy. “We have recently been getting encouraging signals from the government but this would be a dampener. This is not a long-term solution,’’ said Rahil Ansari, head at Audi India. While this may give a few short-term benefits to the government, there will be losses linked to customs duty receivables, according to Ansari. ‘’Such sudden policies create uncertainties in the market and are against the ease of doing business in India.’’

Another industry official said such a move will be unfair. “These vehicles have already turned expensive, thanks to the sharp depreciation of the rupee. If you add more in terms of taxes, it will only keep buyers away.” It’s another matter that the road ministry has recently indicated plans to liberalise imports of luxury vehicles with a certain cap.

When it comes to textiles, experts do not see any gains to the government from a duty hike. "The import duty hikes did not stop the flow of goods into India as the origin for most of these is Bangladesh or Sri Lanka which have free trade agreements with India,’’ according to Rahul Mehta, president of the Clothing Manufacturers Association of India. Some of these products are in the high value category, especially jackets, specialized performance garments like football jerseys and anti-perspirant clothing, things that India generally does not produce.           

In the white goods and electronic segments, there’s already some talk of protests if the government introduces import restriction. Manufacturers and marketers of television sets, air conditioners and smart phones, who already claim to be reeling under the mounting pressure of heightened customs duty and tax rates, are worried. It is learnt that industry representatives are proactively planning to meet finance ministry officials in the next few days to present their case. Import duty on finished TVs was raised to 15 per cent from nil in December last year, a senior company executive at a global electronics and appliances major said. On microwaves too, import duties rose to 20 per cent from 10 per cent earlier, he pointed out. ‘’Manufacturers are already under tremendous pressure to maintain their margins. Any further hike in duty will be detrimental for growth.”

Companies such as Apple may be at the receiving end too due to their high dependence on import of fully finished devices if  the government raises the customs duty further for high end phones. An industry insider said there were indications that the government may go for a steep duty regime on products like iPhones and Macbooks as they are considered premium.

While the fall of rupee and a surge in imports led to the latest thinking in the government, talks are possible with industry stake holders to identify key areas where imports can be slashed, a senior government official said.