Budget 2020: White goods makers seek GST cut, incentives for local manufacturing

    While GST rates are usually decided at the GST Council meeting chaired by Finance Minister Nirmala Sitharaman, companies are hoping that the FM makes related announcements during the budget

    The white goods sector have sought a reduction in the Goods & Services Tax (GST) as well as incentives for manufacturing products locally from the Budget 2020. Ahead of the budget on February 1, consumer durables firms have sought ‘Make in India’ incentives so that more companies are encouraged to manufacture locally.

    While GST rates are usually decided at the GST Council meeting chaired by Finance Minister Nirmala Sitharaman, companies are hoping that the FM makes related announcements during the budget.

    Why is GST a pain-point?

    GST has been set at 18 percent for a majority of consumer durables products. However, categories like air conditioners and televisions above 32 inches are taxed at 28 percent. This adds to the total cost of the product, both at manufacturing and sale stages.

    In 2019, the sale of TVs saw an almost 5 percent dip, which was an aberration since other product segments saw a healthy double-digit growth.

    Kamal Nandi, President-CEAMA and Business Head & Executive Vice President, Godrej Appliances, explained that the penetration level for durables has traditionally been low in India.

    He added that current penetration levels stand at 33 percent for refrigerators, 12 percent for washing machines, followed by ACs at 5 percent and 65 percent for TVs.

    “After the GST revision, tax rates were reduced for most, barring ACs and large screen TVs, which continues to be in the highest tax slab of 28 percent. Lowering the tax slab to 18 percent would help offset the price pressure and spur demand for both split and window ACs and TVs above 32 inches,” he added.

    In the past two years, there has been a reduction on GST from 28 percent to 18 percent for several appliance categories like small TVs, washing machines and refrigerators. A cut in taxes led to the prices of these products falling by 8-10 percent.

    Neeraj Bahl, MD and CEO, BSH Home Appliances India, said the government should consider reduction in GST rates for products like refrigerators and ACs, which are now evolving from being luxuries to necessities for our consumers.

    The industry feels a reduction in GST will make products more affordable. Further, Nandi said lowering the GST tax slabs for eco-friendly and energy-efficient products like ACs (four and five star window AC and split AC inverter models) and refrigerators (direct cool and frost free) to 12 percent will drive demand and increase the adoption of sustainable appliances by Indian consumers.

    Manufacturing fillip

    Apart from making products cheaper by tax cuts, the white goods industry is also seeking special Budget sops to enable firms to set up more factories in India.

    Nandi said Indian component suppliers are facing difficulties in competing with cheaper Chinese imports. “The government should consider initiating some measures to reduce the input cost to make these components by waiving duty on the inputs imported to make the components,” he said.

    Added to this is the demand for product-specific incentives for those like TVs, which are now a household item.

    In September 2019, the Ministry of Finance said open-cells for LCD/LED panels will not attract any customs duty. The ministry had said that it will be valid till September 30, post which local manufacturing of open cell could be incentivised.

    However, Nandi said basic custom duty on open cells (a key component to the TV) needs to be continued at nil after September as well because the open cells are not being manufactured in the country. He explained that levying duty on a commodity which is not manufactured in India will only put an additional stress for the TV manufactures.

    Promoting ‘Make in India’ is on the top of the wish-list of the appliance makers.

    Avneet Singh Marwah, Director and CEO of Super Plastronics (exclusive brand licensee of Thomson TVs and Kodak TVs in India), said in order to revive the GDP, India needs to have a lot of infrastructure.

    “First we need to complete the projects which are already in the process.  This will help manufacturers like us to invest and manufacture more and help ‘Make in India initiative’ to be a successful model for the economy,” he added.

    Once the manufacturing set-up in India gets more robust, it is likely that several global appliance makers would be interested to set up local units. Sources said a handful of Asian consumer durables firms have expressed interest to enter into partnerships in India.

    Companies said easing of the foreign direct investment (FDI) limits would be beneficial. At present, FDI at multi-brand retail stands at 49 percent. The same for single brand retail is 100 percent, with a mandatory 30 percent local sourcing. Ravi Saxena, MD, Wonderchef, said the government should allow the Indian-borne retail enterprises to raise up to 49 percent foreign capital under the automatic route without restriction irrespective of being a single brand or multi-brand.

    Source- Moneycontrol.

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