Not content with raising the import duty on key components of television (TV) sets last year, the government is now mulling another round of duty hike — this time on raw materials used in home appliances such as air conditioners (ACs), refrigerators, washing machines, and microwave ovens.
It is learnt that the Ministry of Commerce is considering a proposal to increase Customs duty on compressors for ACs and refrigerators and pre-coated steel sheets and copper tubes used in making condensers, among others. This, despite the fact that the duty on compressors was raised from 7.5 per cent to 10 per cent last year and that on fully finished ACs, refrigerators, and washing machines, among other items, doubled to 20 per cent.
Manufacturers are worried about the impact of the proposed move. While the last import duty hike had forced them to increase the prices of these items by 3-5 per cent, any further hike in import duty would adversely impact local manufacturing activities, they said. In fact, major players in the consumer durables space are demanding a complete abolition of duty on components for TVs and home appliances.
According to Vijay Babu, vice-president for home appliances and ACs, LG Electronics India, the Korean company has taken up the issue with the Centre.
Other major players like Lloyd, Panasonic, and Samsung, too, have approached the authorities individually or through the industry body, Consumer Electronics and Appliances Manufacturers Association (CEAMA).
Kamal Nandi, president of CEAMA and business head and executive vice-president at Godrej & Boyce, said, “Customs duty on components should not be increased any further as we don’t have the ecosystem for manufacturing these components in India. We fully support the government’s move to increase duty on finished goods, but we want Customs duty on components to go down.”
Manufacturers, already gasping under the cost burden, pointed out that since mid-2017, the prices of large appliances have had to be raised at least thrice – first, due to the higher tax rate under the goods and services tax; second, due to higher cost of raw materials like steel and plastics and the depreciation of the rupee; and third, due to duty hikes in September 2018.
Sources said that with the country’s current account deficit (CAD) continuing to rise, the government is looking closely at items that can be taxed further. In July-September 2018, India’s CAD rose to 2.9 per cent of gross domestic product, up from 2.4 per cent in the preceding quarter.
Shashi Arora, chief executive officer of Lloyd, is unfazed about a probable duty hike on components for ACs. However, he wants the import duty on TV parts like open cells and panels to go. Incidentally, the imposition of a 5 per cent duty on open cells and a 7.5 per cent duty on flat panels last year led Samsung to move its manufacturing base from Chennai to Vietnam.
While over 80 per cent of the compressors used in ACs and refrigerators continue to be imported, copper tubes for condensers and pre-coated steel sheets used in the outer cover of appliances like refrigerators are largely imported too. The components for microwave ovens and indoor units of ACs are imported from Europe and China. Hence, any further rise in the import duty of these components is bound to have a crippling effect on local manufacturing.
Nandi said, “We are making representations to the government to bring down the 10 per cent duty on compressors. Besides, since the duty on other components like open cells (for TVs) can hurt local manufacturing, we are demanding a cut there.”
LG’s Vijay Babu said, “We will wait and see what decision they take and determine our course of action accordingly.” He did not, however, specify what changes LG was planning if duties are hiked once again.
Higher import duty on key components for ACs, refrigerators, washing machines, and microwaves on the table
In September 2018, duty on ACs, refrigerators, and washing machines doubled to 20%; for compressors to 10%, from 7.5%
Manufacturers voice their concerns to the Centre; seek total duty abolition on all components
Another round of price hikes could follow after duty increase; prices have gone up by 8-12% since 2017
Centre wants to curb import of these items as CAD inches towards 3% of GDP in Q2FY19, from 2% in Q3FY18
With inputs from Subhayan Chakraborty