All wound up for a fight

Stung by counterfeits and smuggling, the watch industry has sought rationalisation of the duty structure, reports Gaurav Choudhury.

india Updated: Dec 10, 2006 21:56 IST

The industry is set to give an all-new meaning to the term clock-watcher.

Stung by counterfeits and smuggling, the watch industry has sought rationalisation of the duty structure — including reduction in excise duty, raising of the abatement rate and slashing of customs duty — to encourage official imports of luxury timepieces.

“Smuggling is the biggest challenge faced by the watch industry. It is prevalent in all range of watches. The industry estimates that more than 60 per cent of the watches sold in the country are smuggled or made out of smuggled parts”, said Harish Bhat, Chief Operating Officer (COO) Titan Industries and president of the All India Federation of Horological Industries (AIFHI).

Counting the seconds
3 cr:  Size of total watch market in India

1.4 cr:  Supplied by organised industry

58%:  Market share of 'unorganised' small players

7.7%:  Market share of smuggled foreign watches
Industry demand
>Raise abatement rate on excise duty from the present 35%

>Cut excise customs duties

>Treat watches costing over Rs 5,000 on par with jewellery

Out of the total demand of more than 3 crore units, the organised sector, comprising players such as Titan, Timex, Maxima and HMT, supplies just 1.4 crore units, valued at Rs 90.72 cr ($203 million).

Against this, AIFHI values the ‘unorganised” sector at Rs 103.68 cr ($232 million)!

“Despite government regulations and surveillance, fake “foreign” watch brands thrive in India. They have a market share of seven per cent. And the local brands, which operate through small units and avoid government regulations, have a whopping 58 per cent market share,” said V.D. Wadhwa, senior vice president of Timex Watches Ltd.

Bhat said the current abatement factor of 35 per cent does not take into account the significant increase in “non-manufacturing” costs.

Currently, the watch industry is allowed an abatement of 35 per cent on excise duty. Effectively this means that excise duty is calculated on 65 per cent on the maximum retail price (MRP).

“This means that even if the manufacturing cost is significantly less than 65 per cent, the industry has to pay excise duty on that amount. The higher excise duty incidence not only restricts the capacity of industry players to offer watches at better affordable prices, but also encourages the malpractices of a parallel trade through unofficial channels”, said Bhat.

Wadhwa makes an additional point: high-end watches with MRP over Rs 5,000, studded with diamonds, precious and semi-precious stones must be treated on par with jewellery.

India has a watch density of just 25 watches per 1000 people as compared to 250 per 1000 in developed markets. Even China clocks in at over 60 per 1000.

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First Published: Dec 10, 2006 18:33 IST