Customs duty cut in electronics likely to spur local production

The customs duty reduction for components such as magnetrons, used in microwave ovens, refrigerator compressor parts, backlights for LEDs and display panels for OLEDs, will reduce assembling costs marginally, appliance and electronics companies say. However, the move is significant because most see this as the first in a series of steps by the government to spur local production.

"The impact of the customs duty reduction on magnetrons up to one kilowatt is not more than Rs 50-60 per unit. This is because the customs duty on this component was five per cent, which has been brought down to zero. While the move is welcome, it is unlikely to compel manufacturers to assemble here. That will take time and after a series of measures which involves duty cuts on other components that go into a microwave," says Kamal Nandi, business head and executive vice-president, Godrej Appliances.

Around 70 per cent of microwave ovens sold in India are imported, mainly from Chinese manufacturers who make them cheap because they have the scale. Also, India's duty structure makes microwaves 15-20 per cent cheaper to import than manufacture here, appliance majors say.

Similarly, the customs duty on refrigerator compressor components has been reduced to 5 per cent from 7.5 per cent in the Budget. While companies such as Haier say they are yet to study the impact of this move, industry sources say it is unlikely to be significant. "We have already imported components for our production in March and April," says Eric Braganza, president, Haier India. "So in the immediate future, this move will not impact us. But on a longer term basis, we need to assess how effective this will be for us," he says.

Haier, like most other consumer durables makers in India, has assembly lines for products including refrigerators and washing machines. It is expected to commence an assembly line for LED TVs this year. Braganza says he is studying the fine print carefully as far as duty cuts for LED TVs go.

But TV manufacturers such as Videocon say the customs duty waiver of 10 per cent on OLED display panels is significant, even as some other companies argue these panels are a small percentage of the overall TV market ."It is not more than 1-2 per cent of the 7-8  million flat panel TV market in India. While it is good that the government anticipated it will pick up and thereby cut customs duty on it, price of these products are unlikely to be slashed soon," an executive with a top consumer electronics firm says.

OLED TVs typically cost Rs 1 lakh and above and are positioned as high-end products in a manufacturer's portfolio. Companies promoting OLED TVs include Samsung, LG and Videocon.

Anirudh Dhoot, director, Videocon, says a customs duty cut on OLED display panels could spur companies to push these aggressively, since consumers are quick to embrace newer and better technologies. "Premium products are typically imported as completely built units. Steps like these could encourage makers to consider assembling these products here, which means the price automatically falls," Dhoot says.