Ensure composite Vat

Updated: Jan 31 2005, 05:35am hrs
The Indian television industry has a size of around Rs 96 billion, comprising colour television (CTV) of Rs 91 bn and B&W TV market of Rs 5 bn In terms of volumes, the CTV market was estimated at 9.05 million units and the B&W TV market at 2 million units during calendar year 2004. After CTVs, refrigerators constitute the second largest product segment within the Indian consumer durables sector in India, with an estimated annual turnover of Rs 39 bn during FY2005 with an estimated sales of 4.1m units. The size of the room air-conditioners industry during calendar year 2004 is estimated at 1.1 m in volume terms, and Rs 24 bn in value terms. Washing machines sales in India aggregated an estimated 1.37m during FY2004 or around Rs 11 bn in value terms.

The industry consists of players of domestic origin (like BPL, Videocon) as well as multinationals (like Sony, LG, Samsung, Whirlpool, Electrolux, Philips, Matsushita). Of late, Korean majors such as LG and Samsung have gained a sizeable presence in the Indian market at the cost of domestic players. The Korean players have dislodged even entrenched domestic players from leadership positions. Even though sales volumes have shown long-term growth, there continues to be overcapacity in the industry.

As a result of the entry of multinationals since the 1990s, the Indian consumer durables industry has become highly competitive, which has led to significant price erosion over the past few years

Increased consumer choice has reduced brand loyalty. Durables manufacturers hence have little pricing poweras is evident from the fierce price war in these markets

Over the last few years, the financial performance of players in the industry has been characterised by declining price realisations, and shrinking operating & net margins

The Vat impact on post sale discount schemes should be refunded to the trade. To rev up manufacturing, central sales tax must be cut with immediate effect rather than deferring it by another year. Further, the proposal for introduction of Vat on imports should be dropped.
Rajeev Karwal
CEO & MD Electrolux India
The demand is both seasonal and cyclical.

In a year, peak demand is in the festival months of October-November. In addition, sporting events such as cricket and football World Cups, Olympic Games, etc also result in a significant increase in sales. Demand also displays cyclicality since new demand growth stagnates once the pent-up demand is satisfied.

Demand for consumer durables is likely to exhibit only moderate growth during 2005 because of the cyclic effectrobust demand growth since late-2002, and the absence of any major sporting events.

FE Perspective
CII suggestions
FICCI Wishlist
With an increase in the number of FTAs being entered into by India, it is important to ensure that a composite Vat, as in Thailand, exists here too.
Further, import duties on inputs must not be higher than on finished products. This will ensure a level playing field
Reduce customs duty on glass parts for colour picture tube from 20% to 10%
Reduce customs duty on major inputs for CTV to 5% before Implementation of second phase of early harvest scheme of India-Thailand free trade agreement in 2005

Rationalise central value added tax on all consumer electronic products to 8%from 16%
Do away with customs duties on basic raw materials like plastic, steel, lead, coper and zinc
Abolish CST since it results in negative protection to domestic manufacturers