The income-tax sops announced in the budget have confused consumers as those who opt for the new tax structure will have to forego all deductions and exemptions, while basic custom duty hikes in over 100 products will increase prices, impacting sales of products such as toys, stationary, refrigerator, shavers, hair dryers and mixers, top executives of multiple consumer product companies told ET.
“There are no stimuli for consumption in the short term which is the need of the hour,” said Kamal Nandi, business head at Godrej Appliances and president of consumer electronics industry association CEAMA.
“Prices will go up for a lot of categories which will not help when there is already a drop in consumption,” he said.
Prices will go up anywhere from 2% to 30%, depending on the import duty hike, executives said. Even rural areas are unlikely to recover immediately due to the budget, they said.
The industry is now betting on a bumper Rabi crop harvest to boost rural demand.
Consumer goods makers and retailers were pinning hopes on the budget to revive consumer spending and reverse the economic slowdown.
Instead, the budget increased import duties on butter, cheese, shoes, fans, food grinders, iron, room heaters, tea and coffee makers, kitchenware and hair dryers to 20% from 10%. Prices of these imported products will go up by 5-7%, executives said.
In the case of margarine, peanut butter, chewing gum and infant food, the percentage of price hike will be in double digits since duties have been hiked by 15% and more. Duties on imported toys have trebled to 60% from 20%.
Import duty on printed circuit board assemblies (PCBA) used in making mobile phones has been doubled to 20%, which will increase feature phone prices by Rs 30-60 since PCBA used for smartphones are produced locally. Prices of refrigerator and air-conditioners will go up by Rs 200-600 with the Budget increasing duty on their compressors to 12.5% from 10%, industry insiders said.
The government has argued that the hike in duties will push local manufacturing in line with ‘Make in India’ and curb non-essential imports.
While retail executives agree that the budget measures will help boost local manufacturing in the long run, most of them believe the priority should have gone to reviving consumption.
The duty hike was not required right now when consumption is already down, said Harkirat Singh, managing director at shoemaker and retailer Woodland.
He also said the duty hike alone may not boost investment in local manufacturing. “A lot of shoe factories have closed down and some financial incentives would have helped to promote local manufacturing,” Singh said. “Companies are unlikely to put up plants for local production due to this duty hike. Price hike is imminent, but we have to be cautious since it can further impact sentiments. Probably, we may have to absorb some of it (duty hike).”
J Suresh, CEO at Arvind Lifestyle Brands that operates brands like US Polo Assn, Calvin Klein, Arrow, Tommy Hilfiger and Sephora, said, “The investment on agriculture and infrastructure will definitely have a positive impact on the economy but over a period of time. Short-term boosters were required, which is missing.”
Nandi of Godrej Appliances said the budget will help boost local manufacturing. “Even for rural India, spending on infrastructure is good for the long run, but no measure to boost sentiments in short term,” he said.
Karbonn Mobile MD Pradeep Jain said there will be a marginal price hike for feature phones which may not impact consumption since companies are likely to absorb most of it.
Vikas Agarwal, country head of premium smartphone maker OnePlus, said a global recovery is required to lift sentiments since India is now well inter-connected. “We hope there will be no further downsize of the economy with government’s estimate of 10% nominal growth in GDP,” he said. “The intent looks goods in the budget and we expect this will have long term impact on economy.”
Consumer goods sales have been struggling for two-to-three years now. Even though companies said there is a marginal recovery in the quarter ended December, it is nowhere near the double-digit pace of growth earlier.
Even the mobile phone industry, which had weathered the slowdown, reported single digit growth rate at 7% for the first time in 2019 and companies have projected similar pace for 2020 as well.
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