BackConsumer durables: Consensus on hurdles, opportunities crucial
The way forward is a healthy relationship between govt and industry to put India in a strong, dominant position in the global electronics map
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On the sidelines of an extremely vibrant atmosphere created by various projects initiated by the government, the consumer electronics and appliances industry is growing at a healthy pace. Call it Make in India, Digital India or Swachh Bharat, the industry has started to align itself with the broad agenda of the government. Unfazed by the challenges, the industry continues to be optimistic.
The Indian market for consumer electronics and appliances is valued at $9.7 billion in 2015 and is expected to grow to $20.6 billion by 2020 to become the fifth-largest in the world by 2025.
Last year, a below-normal monsoon and a consequent dip in sentiment in rural markets hit sales of consumer durables during the festive season. Festive season is the time when consumers are the most excited as the purchasing is planned in advance and it comes once in a year. The industry saw a sales growth of 10% during the season.
Earlier last year, the budget announced many changes to put together a positive and progressive financial plan. While the Make in India initiative is leading to growth and investment opportunities leading to job creation, the steps outlined in the budget did definitely put India on the journey towards becoming a global manufacturing hub by 2022. Also, simplification in the tax regime helped in creating an investor-friendly environment. Implementation of the uniform goods and services tax (GST) from 1 April is an encouraging step and will create a conducive economic environment. It will also bring down the total incidence of taxes by eliminating cascading effect of taxes on goods and services. In line with the Make in India vision, the reduction of customs duty on certain inputs, raw materials, intermediates and components compliments the road map of realizing the need of improving the business environment leading to a transparent tax system. The exemption in special additional duty (SAD) to address the problem of cenvat (central value-added tax) credit accumulation will encourage multinationals to manufacture here. There’s a focus on facilitating the ease of doing business in India with reduction in corporate tax from 30% to 25% planned over the next four years starting next fiscal.
The recent extension of the modified special incentive package scheme (M-SIPS) by five years will act as a catalyst and its broadened scope which covers 15 new product categories will trigger significant growth of the sector for products such as washing machines, refrigerators and air-conditioners. It is a step further to make India more investor-friendly, helping in achieving Make in India agenda, and enabling gradual growth of the requisite ecosystem.
While I see the industry open to embark upon the opportunity, India remains a highly under-penetrated market. The need of the hour is to contemplate on the challenges hampering economic growth.
While in consumer electronics industry, the demand for home appliances is on the upswing on account of rising disposable income and urbanization, low component localization results in lower penetration vis-à-vis global levels. Urban penetration has been pretty high for the entire sector. Growth potential lies in rural and semi-urban areas, fueling industry growth through first-time sales. Currently, rural areas contribute 10% of sales. There is a strong need to create demand. Also, the industry needs to evolve efficient supply-chain mechanisms and distribution must be redefined as operational efficiencies will play a key role.
To convert Make in India from vision to reality, the centre and the industry need to agree on the following set of challenges and opportunities:
l There is a need to address inverted duty structure. Budget 2015 extended SAD exemption on import of certain products. Appliance and consumer electronics makers still face the same issue as the value addition, for several products, is quite low and results in an inverted duty structure. The GST rate should be reasonable and in line with rates prevalent in other Asian countries (varying from 6% in Malaysia to 17% in China).
l By providing a conducive environment for manufacturing of panels, import substitution can be achieved. This will encourage setting up component manufacturing units for LCD panels and development of the entire ecosystem.
l It is recommended that the major parts required for manufacture of air conditioners, refrigerators and washing machines, also be exempt from basic customs duty.
l An incentive scheme should be introduced to encourage manufacturers produce high energy efficiency rating (EER) products. This could involve providing benefits either on input or procurement side, or levying concessional rate of duty on manufactured products based on their EER.
l The industry was excited about the government’s efforts and intent for increasing manufacturing in India but the new foreign trade policy is a setback.
So the way forward for electronics industry is a healthy relationship between the government and industry to put India in a strong, dominant position in the global electronics map.
Manish Sharma is managing director, Panasonic India and South Asia, president of Consumer Electronics and Appliances Manufacturers Association.
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