INDIA BUSINESS WORLD - FEBRUARY 2007
The Month that was ...

IMPORTED GOODS TO COST LESS, DURABLE COS SEE RED OVER CESS

For those who have been postponing the purchase of consumer durables, it's a mixed bag. While an 1% increase in education cess will make locally manufactured white goods costlier, a cut in peak customs duty will render certain imported items cheaper.

The Budget is expected to have a negative impact on the local durable industry. The increase in education levy, which is non-Cenvatable, will increase the cost of manufacturing and stop any downward movement in the prices of mass products.

The cut in peak customs duty from 12.5% to 10% will result in a fall in the prices of imported refrigerators, camcorders and LCD televisions. While a camcorder will be cheaper by a couple of hundred rupees, a 52-inch LCD TV with a price tag of around Rs 4 lakh will cost at least Rs 4,000 less.

However, multinational companies which sell imported items are not enthusiastic. Samsung India deputy managing director said, "The indirect impact of peak duty cut would be largely neutralised by the additional cess." Since some imported products like digital cameras and MP3 players do not attract peak duty, prices will go up due to higher cess. The hike in education levy is also expected to nullify the gains for domestic manufacturers of air-conditioners and TVs who would have otherwise benefited due to the cut in peak duty on their imports of components like compressors and picture tubes.

The industry which has been pitching for an excise duty cut from 16% to 8% on electronic items is disappointed by the budget proposals.

For watch makers, there is cut in import duty on dials and movements from 12.5% to 5%. Watch movements constitute about 10-15% of the cost of the finished product, but consumers should not expect any meaningful drop in prices.