Budget 2021: Rationalization of Tax Rates will Spur Demand for AC, TV

The consumer durables and electronics industry has the potential to help our economy recover faster.
Budget 2021: Rationalization of Tax Rates will Spur Demand for AC, TV

India's lockdown in Q1 of FY21 did have a significant impact on the GDP which contracted an unprecedented 23.9 percent. However, over the last few months, macroeconomic indicators are showing signs of recovery. RBI also predicts that the economic shrinkage is over and GDP will grow in the next few quarters. The Government continues to show commitment towards introducing long-due reforms leading to ‘Ease of Doing Business,’ making India ‘AtmaNirbhar’ by promoting ‘Make in India’ initiatives aggressively.

With this backdrop, we strongly believe that the consumer durables and electronics industry has the potential to help our economy recover faster. 

Rationalization of Tax Rates

“During the upcoming budget session, I would urge the Government to consider rationalization of tax rates on certain consumer durable electronics such as Air Conditioners (ACs) and Television (TVs). These are no longer ‘luxury’ items and have become common and essential household products. The energy efficiency of air-conditioners has steadily increased and they now offer added features such as air-purification which is important in urban areas. Lowering the tax slab to 18 percent from 28 percent would help offset the price pressure and spur demand for both air conditioner (split and window) and television (above 68 cm), thereby improving affordability among customers, attracting investments in component manufacturing, and help in penetrating deeper into the market, especially for the AC category. 

For manufacturers, reforms like the reduction of corporate tax and introduction of the Production Linked Incentive (PLI) scheme were welcomed and it displays the government’s intent to promote healthy backward integration and provide impetus to domestic manufacturing while elevating India's position as a global manufacturing champion. To ease supply chain challenges, I would urge the Government to consider the ‘One Nation, One Permit, One Tax’ system for a seamless and efficient road transport experience,” says Manish Sharma, President and CEO, Panasonic India and South Asia.

The continuous tightening of the energy norms, upping the R&D and material cost, put upward pressure on prices for energy-efficient products, further dampening the consumer sentiments. 

“Lowering the GST tax slabs for eco-friendly and energy-efficient products like air conditioners, refrigerators, washing machines, etc. will drive demand and increase the adoption of sustainable appliances by consumers. The upcoming budget should additionally offer incentives for manufacturers to produce these energy-efficient products which will be in line with the government's sustainability agenda,” he further adds.

The aftershocks of this pandemic, seen in the form of rising commodity prices, a sudden surge in ocean freight costs, rising fuel costs, rising NPAs in the banking sector to name a few, pose a serious threat to our economic recovery. It is a fact that our country lags behind our peers in the penetration of Room Air Conditioning, which is currently at around 6 percent - this is clearly a huge opportunity for growth. 

“Putting Room ACs under 18 percent GST slab from the existing 28 percent would not only help the manufacturers in combating these cost increases but also support strong growth of the sector. As the Finance Ministry prepares to announce the budget in a few short weeks from now, we look forward to more such bold and decisive steps ‘unlike anything in the past 100 years’,” asserts Gurmeet Singh, Chairman and Managing Director, Johnson Controls-Hitachi Air Conditioning India Ltd.

Revival of Economy

The stakes, as well as the expectations, are high from the upcoming Union budget with all eyes on the Government’s plans to revive the economy and counter the detrimental impact of the pandemic. 

“The recent abnormal surge in the price of raw materials and freight costs cast a shadow on sales forecasts in the forthcoming summer months. We hope that the Government will prioritise the measures necessary to control the cost inflation with liberal budget allocation focusing on strengthening the domestic manufacturing and component ecosystem this year. As digital adoption and transformation accelerates, increased allocation to improve internet infrastructure and connectivity to bridge the rural-urban divide across geographies will also induce strong consumer demand and stabilize growth patterns in future. We are hopeful of these initiatives from the Government, which will help spur revival in demand and consumption, bringing cheer to both industry and consumers,” states Dinesh Chhabra, CEO, Usha International.

Custom Duty on Finished Products 

While industries across the board fell prey to the impact of COVID-19 and the ensuing lockdown and restrictions, the consumer durable industry did revive post the lockdown relaxation, catering to pent-up demand first which sustained till the year-end due to evolving consumer needs for convenience and hygiene.

"We hope this time the Government to come forward and levy 100 percent custom duty on finish products exported from other countries to support the local manufacturers. This will improve the production infrastructure and create employment opportunities. If the Government announces these measures, it will be a good start for the year and it will also boost the morale of companies like us to step up our game in achieving the dream of a self-reliant India. By increasing import duties, it will strengthen the position of domestic products in local markets,” Nevil Patel, Director-Orpat Group states.

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