A Van Heusen shirt may now be dearer. Even the Tanishq gold earrings you had been eyeing are likely to cost more. In Budget 2011, finance minister Pranab Mukherjee has imposed excise duties both on branded apparel as well as branded silver and precious metal jewellery.
Ready-made garments are currently under an optional excise duty regime. A manufacturer is required to pay a duty only if he wishes to avail Central value-added tax (Cenvat) credit. The minister has converted the optional levy into a mandatory duty at a unified rate of 10% on branded garments.
Ajay Ramachandran, business head of brands at Madura Garments, which makes Van Heusen shirts, says he is still not clear about the exact impact of this duty on the consumer. Mehul Choksi, chairman of the Gitanjali group, which retails branded jewellery, says the air has to be cleared on the fresh 1% central excise levy.
There are other goods and services for which the salaried class will have to pay more, including personal computers, airline tickets and telephone services and other utilities. Even a meal at an air-conditioned restaurant that also serves liquor—now under the service tax net—will cost more. A 1% excise duty has been imposed on 130 consumer items such as sports goods and stationery products such as pens and pencils.
Marketing experts say that although the changes announced in the Budget may add to monthly bills, the impact will be incremental. Only 10-12% of the total apparel market is branded so the change will affect a small section of buyers. And marketeers of branded garments will find ways to sell fresh apparel lines to suit consumer pockets. Of course, their margins are pretty high, too.
Domestic airline tickets will be dearer by Rs50. But in a population of 1.2 billion, only 52 million passengers (journeys, not people) took domestic flights last year.
The situation is similar for restaurants. According to a white paper on the restaurant sector by Technopak and the National Restaurant Association of India Survey of 2010, there were only 3,000 air-conditioned restaurants in the organized sector. The survey pegged the total number of eateries at 1.5 million.
Samir Kuckreja, president of the restaurant association, finds the service tax levied in the Budget unfair. “The consumer will suffer as we are already reeling under food inflation,” he says.
It is difficult to imagine that air-conditioned restaurants will be empty because of the service tax, just as roads are no less congested because of increases in petrol prices. Petrol prices have soared in excess of 30% over the past six months but few car owners have switched to public transport to save money on fuel. On the contrary, car and two-wheeler sales are booming. In fact, fuel-guzzling luxury cars are the fastest growing category.
Why the consuming class remains relatively unflappable is easy to explain. The economy is growing at about 9% a year. Incomes are improving and jobs are available. Over all, the sentiment is positive. Companies aren’t worried about demand either. In the organized sector, 5-7 million people join the workforce every year creating a new set of consumers.
The good news is that prices of consumer durables such as televisions, refrigerators and washing machines will remain stable. As for durables, the Indian consumer is better off than his counterpart in the US, where Electrolux and Whirpool are contemplating increasing the price of their washing machines by 8-10%. Durables manufacturers are, in fact, eyeing rural markets, with wages of anganwadi (daycare centres) workers being doubled and promises of broadband connectivity to the 250,000 village panchayats. The rural consumer will be the new king.
Shuchi Bansal is marketing and media editor, Mint