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Interim Budget: Consumer Durables Sector Not Excited

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The move to reduce the excise duty from 12 per cent to 10 per cent to stimulate growth in the consumer durable sector doesn’t seem to have created a lot of excitement for the companies or the consumers.
 
Last two quarters have been difficult for the consumer durables sector which has struggled due to the overall slowdown in the economy and a reduced disposable income.
 
While companies like Panasonic, Whirlpool and LG are welcoming the government’s positive step towards improving the market conditions; skepticism about the “interim” nature of the decision continues to hamper the move.
 
“The benefit will only kick in when actual manufacturing activity takes place and this decision is only valid for a quarter,” says Shantanu Dasgupta, Vice President - Corporate Affairs & Strategy at Whirlpool of India Limited. According to Dasgupta, most companies already have inventory lined up for the summer season. 
 
However Dasgupta believes, “it is a welcome move as there is some acknowledgment from the government that the sector has struggled to perform in some time now.” But Dasgupta does not see the excise cut to impact consumer interest. “Consumers only buy when there is disposable income, just a reduction on excise will not change their buying decision,” he adds.
 
On the contrary, Soon Kwon Managing Director, LG India expects the excise cut to “generate a positive consumer sentiment and encourage new buyers in the consumer durable sector.” 
“It is a positive step to improve the market conditions and will boost the manufacturing sector as well.” However, the company is still reviewing the impact on pricing of goods.
 
Experts believe there will be marginal or no price benefit for the consumers.  
 
“This 2 percentage point cut in excise is a welcome change even though it is likely to have diminutive impact on prices,” says Manish Sharma – Managing Director, Panasonic India. 
 
While companies are unsure about how much of this benefit can be passed on to the consumer, they believe this will give them breathing room if there are further currency fluctuations. 
 
“This will reduce the pressure from companies to take up the prices any further,” says Dasgupta. 
 
 Sharma too agrees, “The depreciation of the rupee and the rise in price of raw material has put immense pressure on companies’ margins.” “This move will help stabilize and provide growth opportunities to the industry which has been witnessing a slump for some time now.”  
 
Restructuring Of Excise Duty On Mobile Handsets
Separately, the Finance Minister also announced the restructuring of excise duties on mobile handsets.
 
"To encourage domestic production of mobile handsets (which has declined) and reduce the dependence on imports (which have increased), I propose to restructure the excise duties for all categories of mobile handsets," Finance Minister P Chidambaram said while presenting the Interim Budget 2014-15.
 
While, this has given a positive signal in favour of the domestic manufacturing of mobile phones; it is not expected to impact the prices in anyway.
 
According to Indian Cellular Association National President Pankaj Mohindroo, “the clubbing of the two slabs, as existing earlier, i.e. under Rs  2, 000 MRP and above Rs  2, 000 MRP is a good rationalization because this will prevent under invoicing.”
 
He further added that there will be a marginal increase in price of phones under Rs 2,000 (MRP). For example a phone with MRP of Rs 1000 will see a price rise of around Rs 30.
 
Electronic component manufacturer association ELCINA said the announcement does not look promising for domestic firms.
 
"At first glance, I think it is not going to be a disincentive to trading. One per cent credit without CENVAT credit is too less," ELCINA Secretary General Rajoo Goel said.
 
As part of last year's budget, the government had raised the excise duty to six per cent on handsets priced above Rs 2,000.