Consumer durables: Good times ahead

The growth prospects of the consumer durable industry continue to remain promising given the low penetration level and growing per-capita income.

But with competition increasing at a faster rate, will manufacturers be able to grow profitably?

Budget Measures

	Excise duty on clocks, watches of retail sales prices upto Rs 500 per piece is being raised from 8% and 16%. Parts of clocks, watches of retail price upto Rs 500 per piece will now be liable to tariff with an effective tax rate of 16%
	Excise duty on monochrome television has been raised from 8% to 16%. CTV will attract a uniform excise duty of 16%.
	Excise duty on imitation jewellery has been raised from 8% to 16%
	Increased spending on infrastructure and maintaining economic growth momentum from a long-term perspective.

Budget Impact

	The rise in excise duty on clocks and watches is likely to increase price of products. Given the competitive nature of the industry, whether manufacturers are in a position to pass on the rise in cost to consumers remains to be seen. Key players like Titan and Timex are likely to be affected.
	Since the excise duty on imitation jewellery has been raised, organised jewellery players would benefit marginally.
	On a broader basis, GDP growth target of 7% to 8% is a positive. Durable penetration in the country is among the lowest in the world and if per-capita income increases, durable demand could get a fillip. But it is more from a long-term perspective.

Sector Outlook

The penetration levels across the segment in the industry continue to remain sluggish. To put things in perspective, penetration levels of televisions in India is just 24% as compared with 98% in China, 11% in Brazil, 235% in France, 250% in Japan and 333% in US. Refrigerators also have good potential for growth in view of a meager 2% penetration levels. Infact, amongst all segment within the Indian consumer durable segment, penetration levels of TV is believed to the highest. This is applicable to other sectors as well. Though growth prospects are promising at the revenue level, whether this will percolate into higher profitability is a cause of concern. This is in light of high competition and price wars.

Industry Wish List

Increase in abatement on watches to 40% and reduction in customs duty on key raw materials. Exemption of excise duty on watches and clocks of retail price not exceeding Rs 500 per piece.

Excise duty on B&W TV set should be based on MRP with an abatement of 40%.

There should be customs duty differential between CTV, colour picture tube and colour glass parts to encourage value

addition.

Budget over the years

Budget 2001-02	Budget 2002-03	Budget 2003-04

No significant developments.	Thrust in rural electrification and road connectivity. Peak customs duty on raw materials lowered to 35% from 40%. Excise duty on watches below Rs 500 per piece increased. Excise duty on B&W TV increased to 8% from 4%. Administered interest rates lowered by 50 basis points.	Significant thrust on infrastructure development and continuation of rural electrification projects 04 Hike in standard deduction, removal of surcharge and hike in section 80L benefits Peak customs duty reduced to 25% from 30%. Excise duty on air conditioners reduced by 8% from 32% to 24%

Key Positives

	Penetration of durables continues to remain sluggish when compared to other developing economies.
	Rising income levels, consumption patterns and urbanization are some of the key factors that would result in higher growth in volumes in the long run.
	Easy availability of finance has stimulated consumers to buy durables.
	With the government focusing on rural electrification programme, the consumer electronic manufacturers stand to benefit over a period of time.

Key Negatives

	Higher import duty on key raw materials (ex: colour picture tubes) has been a cause of concern.
	Exchange schemes and pricing-play by some manufacturers have had a negative impact on top players. Prices of durables and electronics have been on the decline over the last three years
	Volatile performance of the agricultural sector has had a negative impact on demand. The sector's performance is highly dependent on monsoon and reforms, which has failed often.
	Threats of cheaper imports from China and other South East Asian countries, both for electronics and watches.

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