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issue: May 2007 APPLIANCE Magazine

New Delhi Report
The New India Budget and its Impact on Appliances


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by Adite Chatterjee, India Correspondent

The government of India announced a new budget in February 2007. Here is an analysis of the impact of the budget on the consumer durables industry and growth trends, according to CRISIL Research analysts.

The consumer durables industry, which includes white goods, televisions, VCD and DVD players, and audio systems, is expected to grow by 12.3 percent in value terms to reach the Rs 170 billion (approx. U.S. $3.86 billion) mark in 2006-07.  An increase in purchasing power and declining prices of durables has led to a spurt in consumer durables sales. The growth of disposable income among urban families is a key driver of sales of appliances and other durables.

In value terms, the industry is likely to see a growth of 10-12 percent over the next 2 years. Most of the growth is expected from an upsurge in demand for color TVs and air-conditioners. Another factor for increase in value sales will be the marginal increase in prices of air-conditioners and refrigerators, due to rising raw material/input costs.

Air-conditioners. Changing lifestyles, rising incomes and increasing demand from the commercial segment led to air-conditioner sales growth of 21 percent during the 2006-07 period over the 2005-06 period. Rising disposable incomes among urban households and current low penetration are further expected to boost growth during the 2008-09 financial year over 2006-07 by a CAGR (compound annual growth rate) of 20-22 percent.

Refrigerators. The high penetration of refrigerators among households in metropolitan cities and low preference for the appliance in semi-urban and rural India saw refrigerators grow by just 6 percent in 2006-07 over the previous year. Further, a long replacement cycle inhibits the growth of this segment. The trend is expected to continue in 2008-09 with growth estimated at between 4-6 percent.

Color Televisions (CTVs). Sales of TVs are growing by an estimated 13-15 percent, fuelled by declining prices and rise in disposable incomes. Further, the Cricket World Cup, hosted in the West Indies, is also responsible for a surge in CTVs in 2006-07. The trend is expected to continue in 2008-09 with sales growing at 10-12 percent.

Washing Machines. Sales of washing machines continue to be sluggish due to erratic power supply and constraints of water supply in many cities in India. In 2006-07 expected sales growth is around 6 percent. In 2008-09, sales are expected to rise marginally to 7-9 percent as a result of growing urbanization and changing lifestyles, particularly as the number of women in the workforce increases across urban India.

Budget Implications on Consumer Durables

Peak customs duty has been reduced from 12.5 percent to 10 percent in the budget.  This is not expected to have much of an impact on the domestic consumer durables industry, which does not face significant competition from imports due to their unique product specifications for the Indian market.

The reduction in prices of LCDs, which would be imported at reduced peak duty rates, is also not expected to create any significant price pressure on CRT-based CTVs. The benefit of the expected decline in CPT prices due to reduction in import duties is marginal for CTV manufacturers.

Other budget impacts:

The excise duty on air-conditioners has been reduced from 24 percent to 16 percent.

Budgetary allocation for rural development has been increased, which is expected to positively impact sales of consumer durables in the long-term.

Higher education cess (tax) and dividend distribution tax is expected to impact net profits and retained earnings.

 

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