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FM may cut duty to spur growth

Industry bodies have sought a reduction in excise duty from 16 per cent to 8 per cent, report Sanjeev Sinha and Ruchi Hajela.
By Sanjeev Sinha and Ruchi Hajela | Hindustan Times, New Delhi
UPDATED ON FEB 17, 2008 09:48 PM IST

If you are planning to buy a plasma display TV, an air conditioner or a frost-free refrigerator, you may just need to wait until the Budget. Chances are that Finance Minister P. Chidambaram would announce cut duties on some of these in a bid boost the consumer durables industry that has lately become a drag on the broader economy.

Industry bodies like the Consumer Electronics & Appliances Manufacturers Association have sought a cut in excise duty from 16 per cent to 8 per cent. The general consensus, however, is that a moderate duty cut to 12 per cent could be in the offing.

In fact, alarmed by the economic slowdown in the second half of the current fiscal, particularly a contraction of 1.3 per cent in the consumer durable industry during the April-December period, Chidambaram has already asked the public sector banks to make available more credit for housing and consumer durables.

“If we were to look at consumer durable manufacturing, there has been negative growth throughout the year, barring the months of April and October, with a small positive change in December,” said George Menezes, Chief Operating Officer, Godrej Appliances.

“To make matters worse, in cooling products which are the bulk of the white goods category, the extended cold wave has further dampened purchases, while the hardening of interest rates has adversely affected the buying sentiments,” he said. “This situation is further compounded with a dip in exports on account of depreciating dollar.”

Given this backdrop, the Rs 35,000-crore consumer durables industry is expecting tax rationalisation, among others, from the coming budget, which could translate into a reduction of between 5 per cent and 10 per cent in prices at retail outlets.

The industry is of the opinion that 10 per cent customs duty on critical inputs such as CPT, tuner and other parts is adversely affecting it, while a similar duty on LCD and plasma panels is equal to import duty on finished TV sets. “Manufacturing of LCD TVs will get a fillip if the customs duty on panels of LCD TVs is brought down to zero per cent,” said Ravinder Zutshi, Deputy Managing Director, Samsung India.

Vivek Mishra, a partner at Ernst & Young, expects a reduction in the customs duty rate for both consumer and non-consumer goods from the current 10 per cent to 7.5 per cent. Also, the central sales tax (CST) rate could be reduced from 3 per cent to 2 per cent, he said.

Manufacturers are seeking reduction of customs duty on basic raw materials such as plastic, aluminum, copper and steel from 0-10 per cent at present to zero per cent, and the peak import duty on raw materials from the current 7.5 per cent to 2 per cent.

In view of duty-free import of colour TV sets from Thailand, they want the customs duty on inputs to be placed at par with the customs duty on finished products.

“With the economy on a high and changing lifestyles, consumers are looking forward to better technology and as such there is great potential in India for telecom, digital displays and information technology. A budget supporting these industries will act as a catalyst in increasing production of such high tech products,” said V Ramachandran, director, sales and marketing, LG Electronics India.

Meanwhile, the fast-moving consumer goods (FMCG) industry is also looking for some tax reliefs from the budget. For instance, in view of promoting cleanliness and hygiene, the industry is hoping for the central value-added tax (CENVAT) on detergents is reduced to 8 per cent from 16 per cent at present.

Likewise, the food processing industry is hoping for exemption from the existing central sales tax of 3 per cent, while the bottled water industry is looking for a reduction in excise duty from 16 per cent to 4 per cent.

“This would help make clean and hygienic drinking water available to a large number of people who are now becoming health-conscious,” said Balajith Shetty, project head, Manikchand Oxyrich.

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