Budget 2011: Consumer durables may become costlier

MUMBAI, February 23 (Agencies): Consumers may have to shell out more on electronics , appliances and fast moving goods. Talks of a rollback of the stimulus and increase in excise duty are making consumer goods’ companies apprehensive. Already reeling under the surge in input costs over the year, companies will be forced to pass the excise duty burden, leading to higher retail prices for consumers. It looks almost certain that excise will be hiked in the auto sector, experts say. Durable and electronic companies like Samsung and LG India say the move will hit growth of the industry, while FMCG firms, including beverage companies feel that the move will squeeze their profitability and impact margins.
 “There is speculation that the duty benefit given earlier may be rolled back, which will lead to a 2% increase in the excise levy. We hope this does not happen. The move will be detrimental , and pull down growth ,” a top executive with a consumer durable company told TOI. Recently, speculation about the increase has been rife, with the PMEAC also making a strong case for the stimulus withdrawal in view of the robust growth in the economy. The stimulus and tax cuts given to the industry in 2009 had provided a fillip to the sagging economy, with the consumer durable industry growing at strong double digit in 2010. Flat panel TVs grew 80%, while refrigerators, air-conditioners and washing machines showed a 12.5%, 44% and 10% growth respectively, during January-December 2010. The industry has been suffering due to hike in metal prices with the increase in copper at 45%, steel 16%, resins 18% and aluminium 23% over August last year.
 “At a time when the industry is reeling under the impact of rising input costs, one is looking at support from the government by way of policies that will boost domestic manufacturing ,” R Zutshi, deputy MD, Samsung India . Consumer goods, including durable firms, have implemented price hikes across the board over the last few months up to 10-15 %. Says LG India COO YV Verma: “Such a move will adversely impact the industry, already suffering with high costs” . The upped tags will be bad news for consumers, who are already burdened by a surge in food inflation even as their overall expenses have shot up.  “If the budget announces an increase in duties it will affect the end consumer who is already stretched as far his budgets go. There has to be some caution exercised by the government to curb further price hikes,” said KK Modi, chairman, Godfrey Phillips India . The group, which has interests in diverse businesses such as confectionery, cosmetics and tea along with its mainstay tobacco, “hopes that there no excise duty increases for tobacco .” Cigarette prices have gone up by about 25% in the last one year.
The $2-billion soft-drinks market, largely comprising the two cola majors—PepsiCo and Coca-Cola—is also expected to be hit with the rise in excise duty. At present, the levy at about 8%, if rolled back, along with other increases in manufacturing costs, will hurt their bottom lines. Also, FMCG companies which have facilities located outside of excise duty-free zones, will be impacted . Says Siddhartha Sanyal, chief India economist, Barclays Capital: “... A small hike in excise duties cannot be ruled out as the government is trying to boost revenue collection and the current excise rates are still below the prestimulus levels for a number of industries.”