Jayesh Parekh , Business Head – Consumer Durables , Intex Technologies
“With government impetus on Make in India, India is well-positioned to increase its manufacturing base in the consumer durables and TVs of new variants and sizes will form a huge chunk of this investment.”
In anticipation of GST before July this year, prices of consumer durables tumbled down significantly, companies started selling products at half the prices, bringing an unexpected gush of happiness to the consumers. Then GST came into being on July 1, 2017 with the main motive of bringing in the one nation one tax system. However, upon implementation, it has been seen that the impact of GST varied across sectors and affected industries the whole way across. The effect on certain industries was more severe.
In the organized sector, the impact of GST on consumer durable was seen in the form of increase in the prices. The consumer durables industry had a marginal price revision despite the category being placed under the highest tax slab of 28 percent under GST. Initially, the tax rate for the sector was around 25–27 percent, which got hiked after the new regime was brought into place.
In consumer durables, talking about LED TVs per se, as per a report by E&Y, the Indian TV and consumer durables market has been growing significantly, primarily driven by imports. In fact, with government impetus on Make in India, India is well-positioned to increase its manufacturing base in the consumer durables and TVs of new variants and sizes will form a huge chunk of this investment.
Post GST, after assessing the current situation, the effect on the market for LED televisions in the revised tax structure depicts a different picture. Higher input costs will likely negatively impact demand for the product. Prices of raw materials like steel, copper, plastic etc., have risen since February this year and have placed additional pressures on margins. Thus, companies have all looked to pass on the burden of GST to consumers by considering immediate price hikes. While manufacturers are focused on passing on the additional tax burden of the GST, many are planning a twofold increase that is price hikes of 2.5 percent now, but more will be in the offing.
This can have an adverse impact on the buying patterns of people, leading to a sharp, sudden short-term fall in demand of consumer durables, as evolving consumer lifestyles have made home appliances like TV, washing machines, refrigerators etc., a necessity. It is highly believed that at least some of these appliances should be put in the 18 percent tax slab in order to keep the consumer interest intact. The initial three months will provide the industry with a sense of GST implications and it will pan out smoothly. The festive season has already set in with Onam, Ganesh Chaturthi, Navratari, Durga Puja, and Diwali and companies can again hope to recover the lost revenue, as every year the festive season accounts for up to 35 percent of the consumer durables sales.
It can be safely presumed that so far GST has had a marginal impact on revenues earned in the short term. This is because further clarity is still being awaited on GST’s area-based exemptions, differential duty, and local manufacturing clauses. Therefore, any conclusions on GST’s long run impact on the market for LED televisions are premature. According to Ken Research, the LED and OLED market is expected to register a burgeoning growth in the future years but this growth is less likely to be sustained owing to the emergence of new upgraded technology over LED and OLED in the market.
It is projected that the market for LED televisions in India would reach the size of USD 9 billion, growing at an estimated CAGR of 40.6 percent by FY 2021. Additionally, the online LED and OLED market is expected to grow at a CAGR of 101.5 percent over this period too. It is anticipated that consumer durable companies have their cards close to their chest and will leverage the excess demand expected during the festive season before increasing prices further.