A push to custom-make in India

Consumers looking to splurge on imported products across a wide range of segments could see a higher price tag.

In a bid to encourage Make In India, the Finance Minister announced hike in custom duty on a range of products such as footwear, personal care products, LED and OLED TV panels and components, besides accessories such as watches and sunglasses. Custom duty has also been hiked on food products such as fruit and vegetable juices and certain food preparations. In the mobile phones segment also consumers may have to pay more.

Dhanraj Bhagat, Partner, Grant Thornton India said, “Custom duty hike on a range of products is intended to provide a boost to local manufacturing and promote “Make in India” agenda of the government. This has been done in areas where manufacturing can be easily done in India and will also prevent the flood of imported goods especially in electronics segment.”

In the consumer durable segment, the government has hiked custom duty on LCD, LED and OLED TV panels and certain components used to make these TVs to 15 per cent from the existing range of 7.5-10 per cent. In addition certain specified parts used for manufacturing LCD, LED and OLED TVs panels will also now attract a custom duty of 10 per cent.

Consumer durable industry expert C.M Singh said, “Overall this could increase the production cost by 2 per cent on an average on LED TVs and LCD TVs for companies who import components and panels. For larger-size LED TVs and premium products such as OLED TVs, costs could increase by as much as 5 per cent. However, it remains to be seen whether companies will pass this increase in costs to consumers.”

Manish Sharma, President & CEO, Panasonic India and South Asia, said the company is reviewing the impact on pricing due to the custom duty hike. “However, in mid to long term, the ACE (appliances and consumer electronics) industry will certainly benefit from this initiative, as it will help boost the local manufacturing.”

The government has also increased custom duty on imported personal care and toileteries products such as perfumes, beauty or make-up preperations including sunscreen, shaving and after-shave products, deodorizers, personal deodorants, toilet waters among others to 20 per cent. Accessories such as imported watches and sunglasses will also now attract 20 per cent custom duty.

Govind Shrikhande, Managing Director and Customer Care Associate, Shoppers Stop Ltd said, “The increase in customs duty for perfumes, toiletries, sunglasses and footwear by almost 10 per cent will have a significant impact on prices, directly driving inflation and will impact consumption.”

Similarly, custom duty on imported footwear has been hiked to 20 per cent from the existing 10 per cent while parts used to make footwear have been hiked to 15 per cent from the existing 10 per cent. Analysts believe this could make some of the international footwear brands who do no or little manufacturing in India to look at ramping up local production.

Harkirat Singh, Managing Director, Aero Club that owns brand Woodland said, “Since we are known for our outdoor shoe range, our production is a lot more dependent on imported raw materials of global standards. The 5 per cent increase in duties on the footwear components will certainly impact our production cost. But we are still evaluating on whether we will hike prices or absorb the costs.” The company will also see a marginal increase in cost of production for its limited edition product line of specialised technical footwear that it imports.

Added Shriti Malhotra, Chief Operating Officer, The Body Shop India, “A hike in customs duty will definitely impact the sector negatively, however the exact implications will have to be evaluated.”

Meanwhile, the government has also hiked custom duty on orange fruit juice to 35 per cent and other fruit juices and vegetable juices including cranberry juice to 50 per cent. The leading international packaged juice companies in the country have been ramping up local sourcing of fruits and largely produce fruit juices locally. However some niche players import juices and concentrates of certain flavours such as cranberry.

A senior executive with a food company, who did not wish to be identified said, “Most of the companies make and package juices locally. However for certain flavours such as cranberry the juices and concentrates are imported. One will need to evaluate the impact for such companies.”

In the mobile phones segment also, consumers may have to pay more on their handsets, especially the high-end smartphones imported by Apple, Samsung, HTC and Xiaomi.

However, such a move has been welcomed by Indian smartphone manufacturers such as Intex and Micromax.

“Such move encourage Intex that has been working on enhancing domestic capacities and has recently began its own Open Cell Manufacturing or LED Panel manufacturing to improve quality control,” Rajeev Jain, Chief Financial Officer, Intex Technologies, said.

“The increase in customs duty on mobiles will encourage local manufacturing. As India is becoming the global hub for manufacturing, the measures taken by the government will surely grow confidence amongst the manufacturers,” Rajesh Aggarwal, Co-Founder Micromax, said.